TaxTMI 
TaxTMI 
2010 (1) TMI 291
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....ured PCDs (partly convertible debentures) of Rs. 110 for cash at par to shareholders on rights basis and employees on equitable basis. The issue opened for subscription on February 14, 1992, and closed on March 12, 1992. As the assessee held 1500 equity shares of JISCO, the assessee received an offer to subscribe to 1875 PCDs of JISCO on rights basis. The assessee renounced his right to subscribe to the PCDs in favour of Colorado Trading Company on February 15, 1992, at the rate of Rs. 30 per right. The assessee received, accordingly, Rs. 56,250 for renunciation of the right to subscribe to the PCDs. Against the aforestated sale consideration, the assessee suffered a diminution in the value of the original 1500 equity shares in the following manner: the cumrights price per share on January 3, 1992, was Rs. 625, whereas ex rights price per share on January 6, 1992, was Rs. 425, resulting in a loss of Rs. 200 per share. Consequently, the capital loss suffered by the assessee was Rs. 3,00,000 (1,500 x 200) as against the receipt of Rs. 56,250 on renunciation of 1875 PCDs. 5. To complete the chronology of events, on August 7, 1991, the assessee sold 8460 equity shares of JSL at Rs. 24....
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....d wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: Provided that in the case of an assessee, who is a non-resident Indian, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so however, that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in, or debentures of, an Indian company. Explanation.-For the purposes of this clause,- (i) 'non-resident Indian' shall have the same meaning as in clause (e) of section 115C; (ii) ' foreign currency' and ' Indian currency'....
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....the following order, namely:- (1) the deduction shall first be allowed against long-term capital gain relating to the assets mentioned in sub-clause (i); (2) thereafter, the balance, if any, of the said fifteen thousand rupees shall be allowed as deduction against long-term capital gain relating to the assets mentioned in sub-clause (ii), and the provisions of sub-clause (ii) shall apply as if references to fifteen thousand rupees therein were references to the amount of deduction allowed in accordance with clauses (1) and (2) of this proviso: Provided further that, in relation to the amount referred to in clause (b) of sub-section (5) of section 45, the initial deduction of fifteen thousand rupees under clause (a) of this sub-section shall be reduced by the deduction already allowed under clause (a) of section 80T in the assessment for the assessment year commencing on the 1st day of April, 1987, or any earlier assessment year or, as the case may be, by the deduction allowed under clause (a) of this sub-section in relation to the amount of compensation or consideration referred to in clause (a) of sub-section (5) of section 45 and references to fifteen thousand rupees in clau....
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....e Act. It is for this reason that we have opined that the right to subscribe for additional offer of shares/debentures comes into existence only when the company decides to come out with the rights offer. It is only when that event takes place, that diminution in the value of the original shares held by the assessee takes place. One has to give weightage to the diminution in the value of the original shares which takes place when the company decides to come out with the rights offer. For determining whether the gain/loss of renunciation of the right to subscribe is a shortterm or long-term gain/loss, the crucial date is the date on which such right to subscribe for additional shares/debentures comes into existence and the date of renunciation (transfer) of such right. 10. Our view is based on the judgment of this court in the case of Miss Dhun Dadabhoy Kapadia v. CIT reported in [1967] 63 ITR 651, which has taken the view that, for computing the capital gains on renunciation of the right to subscribe for additional shares, diminution in the value of original shares would be regarded as the cost of acquisition for such right (see pages 654-655 of the said judgment). We quote herein....
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....e that right. Looked at in this manner also, it is clear that the net capital gain by her would be represented by the amount realised by her on transferring the right to receive new shares, after deducting therefrom the amount of depreciation in the value of her original shares, being the loss incurred by her in her capital asset in the transaction in which she acquired the right for which she realised the cash. This method of looking at the transaction also leads to the same conclusion which we have indicated in the preceding paragraph." (emphasis supplied) 11. Section 48 deals with the mode of computation of income chargeable under the head "Capital gains". Under that section, such income is required to be computed by deducting from the full value of the consideration received as a result of the transfer of the capital asset, the expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the asset. Under section 48(1)(b) of the Act, it is further stipulated that where the capital gain arises from the transfer of a long-term capital asset, then, in addition to the expenditure incurred in connection with the transfer and the cost of....
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.... Less: Long-term capital loss due to deprecia tion in the value of 1500 original share of JISCO as a result of rights issue of PCDs after adjusting the profit realized on a/c of discussed above Nil Nil 2,43,680 Less: Deduction under section 48(2): 20,87,450 On Rs. 15,000 at 100% (B) 15,000 15,000 On Rs. 23,03,200 at 60% 13,81,920 13,96,920 9,21,280 12,43,470 12,58,470 8,28,980 Net income under the head "Capital gains" (A) + (B) 6,77,530 8,28,980 13. On analysis of the said chart, one finds that, according to the assessee, the net income chargeable to tax under the head " Capital gains" is Rs.6,77,530, whereas, according to the Assessing Officer, the net income is Rs. 8,28,980. According to the assessee, the loss suffered by him, as indicated in the chart, is a short-term capital loss of Rs. 2,43,750, which occurred to the assessee on sale of the right to subscribe to the PCDs. The long-term gain, which accrued to the assessee on sale of shares of JSL and SPL, came to Rs. 23,18,200 to which section 48(2) ....