Capital gains computation allows loss on sale of right issue entitlements where the loss is real, not merely notional.

Loss from sale of right issue entitlements may be recognised in computing capital gains where the underlying investment is a capital asset and the claimed diminution reflects an actual capital loss rather than a merely notional loss. Applying settled judicial principles on capital gains computation, the appellate authority accepted that the assessee's claim could not be disallowed on the ground that it was notional. The loss on the sale of the right entitlements was therefore allowable in capital gains computation.

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Issues: Whether the assessee was entitled to claim the loss arising from sale of right issue entitlements as a deductible loss in computing capital gains.

Analysis: The investment was held as capital investment and the assessee sold part of the right entitlements while claiming loss on account of the diminution in value of the existing holding. The claim had been rejected on the footing that it represented a notional loss. The appellate authority, applying the governing judicial decisions on computation of capital gains in such circumstances, held that the assessee's claim was covered by the settled law and that the loss could not be disallowed as merely notional.

Conclusion: The loss claimed by the assessee was allowable.

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