TaxTMI 
TaxTMI 
2006 (11) TMI 233
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....res as the appellant did not have to pay any amount in acquiring the said right shares, since such right was embedded. in the purchase of old shares. (b) Further the BSE was not operating on June 29, 1992, the day on which shares became ex-right, due to financial irregularity by some exchange members and hence, there was. no market quotation available of the said shares on the day, then became ex-right; (c) Further, the price prevailing on July 16, 1992 on which date, the market reopened cannot be considered as an ex-right price because market had reopened only after prolonged abnormal closure; (d) Consequently, any gain arising on renouncing of right shares cannot be charged to tax as it is a case to which computation provisions cannot apply at all, and such a case was not intended to fall within the changing section 45 of the Income-tax Act, 1961. 3. The appellant, therefore, prays that the addition of Rs. 94,52,025, as short-term capital gains be deleted. 4. Without prejudice to the above, in case the appellant's contention that no cost can be conceived for the acquisition of the right to subscribe/renounce the said shares is not accepted, then the maximum amount ....
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....in the market price of the said shares held by the assessee, referable to the right shares sold, has to be adopted as the cost of the right shares and income under the head "Capital gains", if any, can be computed accordingly. The assessee's contention that there was no cost of acquisition of the right shares was rejected by the Assessing Officer. However, the Assessing Officer examined the assessee's claim that the Hon'ble Supreme Court decision in the case of Miss Dhun Dadabhoy Kapadia was applicable in this case. He asked the assessee to furnish material and evidence in support of its claim of the ex-right price of the shares so that the fall in the value of shares can be worked out to enable the Assessing Officer to apply the decision of Hon'ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia. The assessee company claimed before the Assessing Officer that cum-right price of the shares was Rs. 250 per share and the ex-right price of the shares was Rs. 200. However, the assessee did not furnish any supporting evidence. The Assessing Officer addressed a letter dated 20-11-1995 to the BSE requesting the stock exchange to furnish the relevant details and the BSE replied vide....
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....Dhun Dadabhoy Kapadia. It was contended that the market rates indicated in the letter of the BSE are not much relevant as these rates are on 10-6-1992 and 16-7-1992, whereas for determining the diminution in the market rate of the shares, the relevant dates were 28-6-1992 and 29-6-1992. However, on these dates the quotations were not available as the stock exchange remained closed from 11-6-1992 to 15-7-1992. It was contended before the learned CIT(A) that if there is no cost of acquisition, as held by the Assessing Officer, no income can be brought to the charge of tax under the head "Capital gains", having regard to the Hon'ble Supreme Court judgment in the case of B.C. Srinivasa Shetty. Alternatively, it was contended by the assessee before the learned CIT(A) that in the absence of market quotations on the relevant dates, the working of "Capital gains/loss" should be done on the basis of the principles of accountancy and commercial practices. The assessee furnished a detailed working before the learned CIT(A). The learned CIT(A) decided the controversy in the following manner at paras 9 to 11 of his order:- "9. It was further contended that during the course of assessment pro....
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....of the above mentioned facts, the learned counsel appearing for the assessee Sri S.E. Dastoor submitted before us that rights shares are offered at a price which is much below the market price of the shares, as otherwise there will be no takers for the right shares. It is further submitted that after the issue of right shares, the market price of the shares of the company is bound to diminish and that there is no exception to this rule. After issue of right shares, the total number of shares representing the paid up capital go up, whereas the assets of the company remain the same. In support of this proposition, the learned counsel relied on the Hon'ble Bombay High Court decision in the case of H. Holck Larsen v. CIT [1972] 85 ITR 285 and invited our attention to the following observations of the Hon'ble Bombay High Court at page 292 of the report:- "For a proper understanding of the course of transactions in question, it is necessary to appreciate the implications of the issue of right shares. On the issue of such shares, the value of the old shares depreciates, because the assets of the company remain stationary, while the number of shares increases. It is elementary that a co....
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.... on the other days, during the month of July, 1992, the quotations were as under:- Date Rate 20-7-1992 225 21-7-1992 175 22-7-1992 175 23-7-1992 150 27-7-1992 160 28-7-1992 225 29-7-1992 200 30-7-1992 200 9. The learned counsel appearing for the assessee contended that if averaging is done, the ex-right rate should be even less than 200. It is, therefore, argued that assessee logically adopted the market rate of Rs. 200 for computing the income under the head "Capital gains". Sri Dastoor submitted that if the cost of the right to subscribe to right share is nil, as held by the department, then no "Capital gains" can be brought to the charge of tax in view of the Hon'ble Supreme Court decision in the case of Srinivasa Shetty. 10. The learned CIT/DR Shri S.C. Gupta forcefully supported the orders of the revenue authorities and contended that the authenticity of the certificate given by the BSE cannot be questioned. It is....
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....250 and on 22-6-1992 right shares were offered at Rs. 125 per share, which is 50 per cent of the market rate on the last quotation. Since the offer of the right shares is at much below the market rate, so long as the shares are cum-right, the market rate of such shares would be higher for the simple reason that a shareholder, holding three shares would be entitled to receive one share at half of the market rate. However, when the shares become ex-right, the market rate is bound to go down. 13. The Hon'ble Bombay High Court in the case of H. Holck Larsen, has expressed similar view. The difficulty in the present case in quantifying the difference between the cum-right and ex-right rate is that all transactions on the BSE were stopped during the period 11-6-1992 to 15-7-1992. Therefore, there is no way to find out the market rate of the shares on the two relevant dates i.e. cum-right date (on 28-6-1992) and the ex-right date (on 29-6-2002). At the same time, it would be unfair to the assessee to assume that there was no erosion in the market rate of the shares on account of the right issue. In the peculiar circumstances mentioned above, in our view, the diminution in the market ra....