TMI Blog2005 (7) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... old these partly paid debentures in the assessment year 1993-94, i.e., in the earlier assessment year and incurred a loss of Rs. 3.00 lakhs, which was offered in the relevant assessment year. The assessee retained the DWs and sold, then in the financial year relevant to current assessment year for a sum of Rs. 5,75,100. The receipt of this money was claimed as exempt from capital gains. According to assessee, DWs had no cost. The main ground for claiming the receipt of Rs. 5,75,100 as exempt from tax was as under : "The fact that neither Mukund has charged nor the appellant has paid any amount for the warrant would be evident from the following facts and submissions : ( i )In the Letter of Offer : (1)The face value of the NCD is stated to be Rs. 325 and the issue is made at par i.e. at Rs. 325 per NCD. (2)Under the heading Financial Plan included in Para IV, which indicates the means of financing, the total issue amount for NCDs is stated to be Rs. 126 crores. (3)Rs. 126 crores has been shown as receivable towards the issue of debentures and nothing towards the issue of warrants. In other words, according to Mukund, the warrants were issued free of cost or witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer referring to the writings of certain experts, that it may be possible to attribute certain cost to DWs. But then, subsequent statutory amendments will demand the inference that the appellant s view should prevail. It is to be noted that Finance Act, 1994 has inserted clauses ( a ) and ( aa ) w.e.f. 1-4-1995 and Finance Act, 1995 has inserted sub-clause ( iiia ) in clause ( aa ) of sub-section (2) of section 55 w.e.f. 1-4-1996. If the Assessing Officer s view is accepted, this will be tantamount to applying these amendments with retrospective effect from 1-4-1994, which is not permissible. After all, if the Assessing Officer s views were correct, there was no necessity for the statutory insertions. In any case, the insertions have been made effective only from 1-4-1995 to 1-4-1996 and in view of this, it cannot be held that the same are clarificatory in nature. In view of this position, I hold that the Assessing Officer was not correct in taxing an amount of Rs. 5,14,715 as short term capital gains. The same may be deleted and the appellant succeeds in respect of first three grounds. This will also dispose of ground No. 6 since there is also no justification to tax t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. S.A.L. Narayan Row, CIT [1966] 61 ITR 428 (SC). Further, according to learned authorised representative of assessee profit and loss account on transfer of a capital asset can be computed in the manner laid down in section 48 and for this purpose, it is necessary to know the cost of acquisition and cost of improvement of the capital asset and expenses incurred in connection with transfer of DWs. The liability to capital gains would not arise in respect of those assets in the acquisition of which the element of cost is altogether inconceivable. For this proposition, he relied on the decision in the case of CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC), CIT v. Merchandisers (P.) Ltd. [1990] 182 ITR 107 (Ker.), CIT v. Mangtu Ram Jaipuria [1991] 192 ITR 533 (Cal.), CIT v. H.H. Maharaja Sahib Shri Likendra Singhji [1986] 162 ITR 93 (MP), Sri Krishna Dairy Agrl. Farm v. CIT [1988] 169 ITR 291 (AP). Thus, according to learned authorised representative of assessee, if the warrant does not have cost of acquisition, then assessee would not be liable to any capital gains on sale of DWs. Relying on the submissions made before the Assessing Officer about the tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 325 each for cash at par aggregating Rs. 120 crores with Detachable Equity Warrants to the Shareholders of the company on a rights basis, entitling the warrant holders to apply for equity shares. ( ii ) 1,84,737 16% secured redeemable non-convertible debentures of the face value of Rs. 325 each for cash at par aggregating Rs. 6 crores with Detachable Equity Warrants to the permanent employees (including Indian working directors)/workers of the company on an equitable basis entitling the warrant holders to apply for equity shares. Principal terms of equity shares and debentures: The equity shares and debentures being offered and the equity shares to be issued on the exercise of the rights attached to the detachable equity warrants are subject to terms of this letter of offer, the composite application form, the Memorandum and Articles of Association of the company and the Companies Act, 1956 (hereinafter referred to as the Act ). Debentures shall also be subject to such other terms and conditions as may be contained in the debenture trust deed, Debenture certificate and other relevant documents. Subject to the aforesaid, principal terms are as under : ( i )Issue p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from open market at a price. NCD had their own market value. A sum of Rs. 160 was paid to ML for NCD but they were marketable at a lesser price. The loss on sale of NCDs cannot be said to be the price paid to improve the title over DWs. The assessee had a right to continue to own both NCDs and DWs. He chose to dispose of NCDs. The loss suffered in the process cannot be attributed to or cannot be said to be cost of improvement or part of cost of acquisition of DWs. DWs were already acquired. Their acquisition or title over them would not depend on disposal of NCDs and hence loss suffered on disposal of NCDs cannot become the cost of acquisition or cost of improvement of DWs. Thus, we hold that the Assessing Officer was right in fixing this price paid to acquire DWs as cost of acquisition of DWs. In fact, part of the price paid at Rs. 60,385 can be attributed to NCDs and in the process cost of DWs would go down, but as the Assessing Officer has not considered this aspect, we too ignore it and confirm the action of Assessing Officer in adopting the sum of Rs. 60,385 as cost of acquisition of DWs. 9. Now, let us come to the reasonings adopted by the CIT(A) for deleting the addit ..... 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