1992 (1) TMI 27 - HC - Income Tax

Summary

Issues Involved:
1. Computation of the cost of acquisition of right shares.
2. Determination of short-term capital gain or loss.
3. Application of the Supreme Court's decision in Miss Dhun Dadabhoy Kapadia v. CIT.

Summary:

Issue 1: Computation of the cost of acquisition of right shares

The Tribunal was tasked with determining whether the cost of acquisition of right shares issued by Messrs. East India Hotels Limited should be computed at Rs. 6.25 per share as opposed to Rs. 1.79 per share as calculated by the Income-tax Officer (ITO). The Tribunal, following its decision in ITO v. Oberoi Properties (P.) Ltd., concluded that the cost of acquisition should indeed be Rs. 6.25 per share. This decision was based on the depreciation in the value of the original shares due to the issuance of right and bonus shares, which was calculated at Rs. 12.50 per share. The Tribunal attributed half of this depreciation to the right shares, resulting in a cost of Rs. 6.25 per share.

Issue 2: Determination of short-term capital gain or loss

The assessee claimed a short-term capital loss of Rs. 9 per share, arguing that the value of the shares depreciated significantly due to the issuance of right and bonus shares. The ITO, however, calculated a profit of Rs. 1.71 per share by attributing only one-third of the depreciation value to the right shares, thus computing the cost of acquisition at Rs. 1.79 per share. The Tribunal disagreed with the ITO and upheld the assessee's method of calculation, which was more aligned with the principles laid down in the Supreme Court's decision in Miss Dhun Dadabhoy Kapadia v. CIT.

Issue 3: Application of the Supreme Court's decision in Miss Dhun Dadabhoy Kapadia v. CIT

The Tribunal's decision was heavily influenced by the Supreme Court's ruling in Miss Dhun Dadabhoy Kapadia v. CIT, which established that the capital gain should be computed by considering the depreciation in the value of the original shares due to the issuance of right shares. The Supreme Court had ruled that the capital gain is the difference between the money realized from the sale of the right shares and the depreciation in the value of the original shares. The Tribunal applied this principle, leading to the conclusion that the cost of acquisition of the right shares should be Rs. 6.25 per share.

Conclusion:

The High Court affirmed the Tribunal's decision, agreeing that the cost of acquisition of the right shares should be Rs. 6.25 per share. The Court found the Tribunal's reasoning consistent with the Supreme Court's decision in Miss Dhun Dadabhoy Kapadia v. CIT. Consequently, the question was answered in the affirmative and in favor of the assessee, with no order as to costs.