TaxTMI 
TaxTMI 
1998 (9) TMI 43
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 263 of the said Act, rejected the assessee's claim as regards the sale of shares in Rajesh Textile Mills Limited, that as the shares in Rajesh Textile Mills Limited were received as rights shares on the holding of shares in Sayaji Mills Limited, the cost of shares of Rajesh Textile Mills Limited was the cost of such shares plus depreciation in the value of the shares of Sayaji Mills Limited at the rate of Rs. 108.75 paise per share. The Commissioner of Income-tax drew a distinction between the cost of shares in Rajesh Textile Mills Limited to the assessee and the cost of similar such shares to his father, whose similar claim was earlier allowed, by saying that while the assessee's father had sold the shares immediately, the assessee had held on to the shares of Rajesh Textile Mills Limited for 12 years and, therefore, in his case the cost would be different. The Tribunal held that the cost of the shares of Rajesh Textile Mills Ltd., which the assessee acquired, got fixed at the point of acquisition and it was irrelevant when the shares were sold. The Tribunal relied upon the earlier decision dated January 6, 1982, of the Tribunal in the case of the assessee's father as well as....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on and the shareholders of Sayaji Mills Limited became entitled to get the shares of Rajesh Textile Mills Limited in the ratio of 1 : 1. One other admitted fact which emanates from the record is that Rajesh Textile Mills Limited issued letters on August 8 1961, to various shareholders of Sayaji Mills Limited in accordance with its resolution, which entitled them to get the shares of Rajesh Textile Mills Limited in proportion to their holding in Sayaji Mills Limited. The shares of Sayaji Mills Limited were quoted in the stock exchange and from the list maintained by the stock exchange, it was brought on record that the shares of Sayaji Mills Limited were quoted at Rs. 543.75 paise each as on August 18, 1961. This position continued up to August 22, 1961. However, on September 15, 1961, the value of shares of Sayaji Mills Limited came down to Rs. 410 (ex-right-cum-dividend), when the right to receive the shares of Rajesh Textile Mills Limited which is described in the record as "ex-rights", was realised. Though stricto sensu, the "rights issue" would relate to the issue by a company of such shares to its own shareholders, the expression has been used in the present case by the autho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction. The Tribunal held that the fall in the value of shares of Sayaji Mills Limited was a direct result of the issue of shares of Rajesh Textile Mills Limited. It was held that the sale of Sayaji Mills No. 2 being a unit of Sayaji Mills Limited to Rajesh Textile Mills Limited and the decision to issue shares in the new company to the shareholders of Sayaji Mills Limited and the consequent fall in the shares of Sayaji Mills Limited were all closely integrated and interconnected matters. It was noted that the Revenue did not appear to have disputed that fact before the authorities. The Tribunal applying the ratio of the decision in the case of Dhun Dadabhoy Kapadia [1967] 63 ITR 651 (SC), held that the net capital gain by the assessee in the transaction consisted of new shares, i.e., the shares in Rajesh Textile Mills Limited, minus the difference between the value of the shares of Sayaji Mills Limited before obtaining the new shares in Rajesh Textile Mills Limited and the value of shares of Sayaji Mills Limited after the issue of such new shares. It was held that in the alternative, the assessee was entitled to deduct the depreciation in the value of shares of Sayaji Mills Limited....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de between the two companies and the resolutions passed by them, which entitled the shareholders of Sayaji Mills Limited to a right to get the shares of Rajesh Textile Mills Limited. Even though the shares of Rajesh Textile Mills Limited could not be described as a "rights issue" properly so called, yet the fact remained that by virtue of the arrangements made between the two companies, the shareholders of Sayaji Mills Limited became entitled to get shares of Rajesh Textile Mills Limited in the proportion of 1 : 1 as resolved and offered by Rajesh Textile Mills Limited, in favour of the shareholders of Sayaji Mills Limited. Therefore, in the context of the right of getting the shares of Rajesh Textile Mills Limited, the shareholders of Sayaji Mills Limited stood on the same footing as they would stand in getting any rights issue of their own company which would have an effect on the value of their holding in Sayaji Mills Limited. In other words, the shares in Sayaji Mills Limited with a right to acquire the shares in Rajesh Textile Mills Limited would have a different market value than their market value at a point where the shares of Sayaji Mills Limited did not carry such right t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the new shares, the depreciation in the old shares and, consequently, to the extent of the depreciation in the value of her original shares, she must have been deemed to have invested money in acquisition of this new right. A concomitant of the acquisition of the new right was the depreciation in the value of the old shares, and the depreciation may, in a commercial sense, be deemed to be the value of the right which she subsequently transferred. The capital gain made by her would, therefore, be represented only by the difference between the money realised on transfer of the right, and the amount which she lost in the form of depreciation of her original shares in order to acquire that right. Thus, the net capital gain by the assessee would be represented by the amount realised 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. Learned counsel appearing for the Revenue, however, argued that the ratio of the decision of the Supreme Court in Dhun Dadabhoy Kapadia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....accepted. It was also contended that at the relevant time Sayaji Mills Limited had transferred one of its units to Rajesh Textile Mills Limited and that may have caused the fall in the value of shares of Sayaji Mills Limited. That is nobody's case so far and as can be seen from the order of the Tribunal in the case of the assessee's father on which reliance is placed by the Tribunal in its present order passed in the case of the assessee, there was absolutely no dispute over the fact that the fall in the value of shares of Sayaji Mills Limited was a direct result of the issue of shares of Rajesh Textile Mills Limited, as recorded in paragraph 3 of the order of the Tribunal which was made on January 6, 1973, in a similar case of the assessee's father and which reasoning has been adopted by the Tribunal in the assessee's case. Therefore, the contention now raised on behalf of the Revenue of this nature cannot be countenanced. Learned counsel appearing for the Revenue then finally argued that if the transaction of transferring the rights shares of Rajesh Textile Mills Limited had taken place around the time when they were issued, then alone the ratio of the decision of the Supreme C....