Actual cost of subscription rights under capital gains law requires real expenditure, not notional value, for deduction.

For capital gains on sale of a right to subscribe to additional shares, the Bombay HC noted that "actual cost to the assessee" under section 12B(2)(ii) of the Income-tax Act, 1922 means only money actually spent or laid out to acquire the capital asset. Because the subscription right arose from shareholding and no separate amount was paid or incurred to obtain it, the earlier cost of the shares could not be treated as the cost of that right. Commercial or notional valuation principles were held inapplicable to the statutory computation, and no deduction was allowed against the sale proceeds of the right.

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Issues: Whether, for computing capital gains on sale of a right to subscribe to additional shares, the assessee was entitled to deduct any amount as the actual cost of acquiring that right under section 12B(2)(ii) of the Income-tax Act, 1922.

Analysis: The right to subscribe arose by reason of shareholding and the statutory/company-law mechanism for issue of further shares. Although commercial accounting principles may attribute a notional or theoretical value to such rights for valuation purposes, the expression "actual cost to the assessee" in section 12B(2)(ii) requires an amount actually expended or laid out by the assessee for acquiring the capital asset. On the facts, no money was spent or incurred by the assessee to obtain the subscription right. The earlier cost of the shares could not be treated as including a separate cost of the subsequently conferred right, and commercial apportionment principles were held inapplicable to the statutory computation of capital gains.

Conclusion: The assessee was not entitled to any deduction as the actual cost of the subscription right, and the entire sale proceeds of the right were assessable as capital gains.

Ratio Decidendi: For capital gains computation, "actual cost to the assessee" means the amount actually expended or laid out by the assessee to acquire the asset, and a notional or theoretical value cannot be deducted unless there was real cost of acquisition.

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