2010 Supreme(SC) 44

2010 (1) Supreme 114
SUPREME COURT OF INDIA
S.H. Kapadia, H.L. Dattu and Deepak Verma, JJ.
Navin Jindal — Appellant
versus
Assistant Commissioner of Income Tax — Respondent
Civil Appeal No. 634 of 2006
Decided on : 11-01-2010

IMPORTANT POINT
The right to subscribe for additional offer of shares/debentures on Rights basis, on the strength of existing shareholding in the Company, comes into existence when the Company decides to come out with the Rights Offer. Prior to that, such right, though embedded in the original shareholding, remains inchoate.
2. For determining whether the gains/loss of renunciation of right to subscribe is a short-term or long-term gains/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.

Headnote:Income Tax Act,1961 – Sections 2(29A), 2(42A),48(1)- Nature of loss suffered by appellant [assessee(s)] – Whether Rs.2,43,750/- was a short-term capital loss, as contended on behalf of the assessee(s), or whether said loss was a long – term loss, as contended on behalf of Revenue – Contention of assessee, that net income chargeable to tax under the head “Capital gains” was Rs.6,77,530/-,whereas, according to Assessing Officer, net income was Rs.8,28,980/-. According to assessee, loss suffered by him, was a Short – term capital loss of Rs.2,43,750/-, which occurred to the assessee on sale of right to subscribe to 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) was applied by assessee – On application of Section 48(2), standard deduction comes to Rs.13,96,920/- Accordingly, the long-term gain, as computed under Section 48, accruing to the assessee on sale of shares of JSL and SPL came to Rs.9,21,280/- from which the assessee deducts loss of Rs.2,43,750/- resulting in the net income of Rs.6,77,530/-. On the other hand,according to Assessing Officer, there was no dispute regarding long – term gains accruing to the assessee on sale of shares of JSL and SPL amounting to Rs.23,31,200/-[difference in the figures is insignificant] – From the said figure of Rs.23,31,200/-, Assessing Officer deducted loss of Rs.2,43,680/- as a long-term loss and applied Section 48(2) deduction to the figure of Rs.20,87,450/- Consequently, the Assessing Officer worked out the net income at Rs.8,28,980/- as against the figure of Rs.6,77,530/- worked out by assessee – Said analysis showed that Assessee treated Rs.2,43,750/- as a short – term loss, and, therefore, he applied standard deduction under Section 48(2) to the long – term gain of Rs.23,18,200/- from sale of shares of JSL and SPL, whereas the Assessing Officer applied Section 48(2) deduction to figure of Rs.20,87,450/- which was arrived at on the basis that loss suffered by the assessee of Rs.2,43,680/- was a long – term loss- Hence held that loss suffered by assessee amounting to Rs.2,43,750/- was a short – term loss – Computation of income under the head “Capital gains”, as projected in the chart submitted by the assessee and as computed by assessee held correct and computation of income made by Department held erroneous – Appeals filed by assesses allowed. (Paras 12 to 15)

        Income Tax Act,1961– Section 48 – Scope and ambit – Section 48 deals with mode of computation of income chargeable under the head “Capital gains”- Under thatsection, 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 acquisition of the asset, a further deduction, as specified in Section 48(2) of the Act, which is similar to standard deduction, becomes necessary. (Para 11)

       Facts of the Case :

        Narrow issue which arose for determination in present appeals was the nature of the loss suffered by the appellant(s) [assessee(s)] . Whether Rs.2,43,750/- was a short-term capital loss, as contended on behalf of the assessee(s), or whether the said loss was a long-term loss, as contended on behalf of Revenue?

       Findings of the Court :

        Contention of assessee, that net income chargeable to tax under the head “Capital gains” was Rs.6,77,530/-,whereas, according to Assessing Officer, net income was Rs.8,28,980/-. According to assessee, loss suffered by him, was a short-term capital loss of Rs.2,43,750/-, which occurred to the assessee on sale of right to subscribe to 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) was applied by assessee. On application of Section 48(2), standard deduction comes to Rs.13,96,920/- Accordingly, the long-term gain, as computed under Section 48, accruing to the assessee on sale of shares of JSL and SPL came to Rs.9,21,280/- from which the assessee deducts loss of Rs.2,43,750/- resulting in the net income of Rs.6,77,530/-. On the other hand, according to Assessing Officer, there was no dispute regarding long-term gains accruing to the assessee on sale of shares of JSL and SPL amounting to Rs.23,31,200/-[difference in the figures is insignificant]- From the said figure of Rs.23,31,200/-, Assessing Officer deducted loss of Rs.2,43,680/- as a long-term loss and applied Section 48(2) deduction to the figure of Rs.20,87,450/- . Consequently, the Assessing Officer worked out the net income at Rs.8,28,980/- as against the figure of Rs.6,77,530/- worked out by assessee. Said analysis showed that Assessee treated Rs.2,43,750/- as a short-term loss, and, therefore, he applied standard deduction under Section 48(2) to the long-term gain of Rs.23,18,200/- from sale of shares of JSL and SPL, whereas the Assessing Officer applied Section 48(2) deduction to figure of Rs.20,87,450/- which was arrived at on the basis that loss suffered by the assessee of Rs.2,43,680/- was a long-term loss- Held that loss suffered by assessee amounting to Rs.2,43,750/- was a short-term loss. Computation of income under the head “Capital gains”, as projected in the chart submitted by the assessee and as computed by assessee held correct and computation of income made by Department was held erroneous. Appeals filed by assesses were allowed.

       Result : Appeals allowed.