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2015 (3) TMI 852 - DELHI HIGH COURT

2015 (3) TMI 852 - DELHI HIGH COURT - [2015] 376 ITR 153 (Del) - Deduction of the losses - Tribunal directing AO to allow deduction of the losses at ₹ 111/- per NCD as a business loss - JISCO made certain arrangements with UTI in July 1994 according to which the allottees of NCDs could surrender all the NCDs to UTI after the application was made and UTI agreed to pay the balance allotment money (Rs.389/- per NCD) to JISCO and secure the NCD registered in its name - Held that:- The findings .....

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plication money on each debentures they were entitled to one dividend warrant which enabled them to an equity share of ₹ 200/- (in the case of JISCO NCDs) and based on a pre-determined formula in the second instance (Medicare) though the market price of the shares on those dates was higher. A chart indicating the gains by the assessees too was furnished by the learned counsel.

When JISCO came out with the NCDs right issue several other companies i.e., Apolo Tyres, Usha Ispat Ltd .....

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a Central Government undertaking.

Having once accepted the decision of the ITAT, in the same fact situation, - in fact in the same common order, the revenue cannot legitimately agitate a position contrary to the one it accepted in Nalwa - especially because Nalwa Investments is one of the share-holder companies of JISCO, which had sought and was allotted NCDs at ₹ 111/- per NCD and later transferred the allotments to UTI, which paid the balance amount. Its initial claim for ca .....

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and other shares as distinct from assets, but rather as part of the share inventory, it could not be said that the NCDs and the resultant DWs were to be treated otherwise. Here, the court is conscious that the assessees did claim initially to have incurred capital loss; however, they later corrected their stand and claimed business loss. We are of the opinion that the earlier stand of the assessees could not have shackled them to that position, preventing them from asserting the true character .....

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udhuri and Sh. Ruchir Bhatia, Advocates, for the Revenue. Sh. Ajay Vohra, Sr. Advocate with For the Petitioner : Ms. Kavita Jha, Adv. ORDER S. Ravindra Bhat, J. (Open Court) 1. These three appeals involve common questions of law directed against a common order of the Income Tax Appellate Tribunal (ITAT) dated 05.06.2000. Initially, a Division Bench had decided the case on, 08.10.2001, reported in (2002) 254 ITR 0538 (Commissioner of Income Tax v. Abhinandan Investments); it had ruled in favour o .....

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ssee in ITA 25/2001 (hereafter Abhinandan ) and assessee in ITA 26/2001 (hereafter JELCS ) claimed a loss of ₹ 111 per debenture on the sale of debentures of Jindal Iron and Steel Co ( JISCO ) to UTI. These assessees were shareholders of JISCO, which declared a right issue of secured redeemable non-convertible debentures (NCD) of ₹ 500/- each. The size of the issue was about ₹ 500 crores. The issue opened on 21.11.94 and closed on 19.12.94. Interest @10.5% was payable by JISCO .....

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e on allotment. c) For non-residence/FI s NR renounces will contribute a sum of ₹ 500/- each debenture on application. d) If the company did not receive the minimum subscription of about 90% of the issue of NCD within sixty days from the closure of the issue the company had to refund the entire subscription amount received. e) NCD with DW was offered to existing shareholders of the company whose names appeared in the register of a company on 31.10.94. f) 23 debentures for every 100 equity .....

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arrangements with UTI in July 1994 according to which the allottees of NCDs could surrender all the NCDs to UTI after the application was made and UTI agreed to pay the balance allotment money (Rs.389/- per NCD) to JISCO and secure the NCD registered in its name. The assessees and other promoter companies applied for NCDs as per their shareholding and made the payment of ₹ 111/- each NCD on application. However, all the said promoter companies (including the assessees) opted for the arran .....

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old their NDCs to UTI as a result of which it incurred a loss of ₹ 111 each NCD and, was deductible. 5. The AO considered the assessees claim and observed that JISCO had given loans to some Mumbai based group companies and in turn these group companies invested in the placement of preference shares of all the said assesses/appellant companies. The AO therefore felt that it was JISCO s own fund which was used in subscribing to its NCD issue in the name of assessees. The AO also held that al .....

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promoter company only. He observed that there was no reference to this arrangement in the letter of offer though the arrangement with UTI was already reached before the offer dated 12.11.94. The AO also noted that the five assessee companies endorsed the allotment letters issued to them, in favour of UTI, which paid the allotment money and that there was no agreement between the UTI and the assessees for making the payment of allotment money on their behalf. Rather, the arrangement was between J .....

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r (of the AO), Abhinandan and JELCS appealed to the CIT (A). In appeal it was highlighted that the assesses were investment companies like other shareholders and that during the year all the said five companies came up with a private placement of Jindal s preference shares and also subscribed to the right issue of NCD of JISCO. The assessees also subscribed to the equity issue of Jindal Vijaynagar Steel Ltd. (JVSL), a new company of the group floated during February 1995. It was highlighted that .....

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he application money for this rights issue was ₹ 111/- per NCD and the allotment money was ₹ 389/- per NCD. The rights issue opened on 11.11.94. An arrangement with UTI, by JISCO was made in July, 1994 which was accepted by the former in September, 1994. In terms of the arrangement, NCD allottees could surrender the NCD to UTI which would pay the allotment money of ₹ 389/- per debenture to JISCO on behalf of subscribers. UTI accordingly paid the sum @ ₹ 389/- per NCD to J .....

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plication money of ₹ 111/- per NCD. Between January 20, 1995 and January 25, 1995, the assessees and others transferred the NCDs to UTI without consideration. It was also held that the assessees never became owners of the fully paid NCDs and that they had paid ₹ 111/- as application money to acquire NCD; the DWs were received gratis. The claim of loss of ₹ 111/- per debenture on its sale was made for the first time in appeal and not in assessment proceedings. It was noted that .....

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UTI. Such transfer was an act of forfeiture of application money at ₹ 111/- per NCDs. The beneficiary of the transfer was not UTI but JISCO. Thus, the loss was deliberately incurred for the benefit of JISCO. It was held that as such, no loss arose to the assessees on transfer of the NCDs and, therefore, the question of allowing loss did not arise. The CIT (A) consequently dismissed the assessee s appeal. 8. The assessees and other companies appealed to the ITAT and argued that together, th .....

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and other companies had no option but to subscribe to the issue of NCDs. Had they not so subscribed - to the public issue of NCDs, JISCO s entire issue would have failed. As a promoter company this could have brought bad repute to the assessees. It was further urged that the most important aspect was that there was no underwriter to the issue. Thus, the assessees were compelled to subscribe to the issue of NCDs. Since 90% of the issue had to be subscribed by the existing shareholders, this was .....

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by UTI, assessees submitted that UTI s certificate that it made paid at ₹ 389/- per NCD to JISCO on behalf of the assessees, was not considered. In a sense, their stand was that only when the entire consideration for the NCDs was received by JISCO further course of action was followed. The materials were placed to show that DWs were given to the assessees when NCDs were fully paid up. As to the conclusion of the CIT (A) that the assessees never became the owner of NCD/DWs, it was submitte .....

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lso received interest from JISCO at full value of ₹ 500/- each debenture. Moreover UTI was entitled to the full redemption money at ₹ 500/- per debenture on redemption though actually they had paid at ₹ 389/-. UTI earned a substantial annual gain of 256% on this transaction. It was urged that the assessees too benefited due to the arrangement because after losing ₹ 111/- on each debenture it became entitled to one dividend warrant which enabled it (the assessee) to own an .....

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the financial institutions and the public. During the assessment year in question, JISCO came up with the rights issue worth ₹ 500 crores. According to the terms of the issue - as approved by the SEBI - if 90% of the issue was not subscribed then it would fail and JISCO then was to refund the entire money collected by it. The assessees were therefore, compelled to subscribe to the rights issue. The failure of such issue would have been detrimental to the assessees and other companies, as .....

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share. The market value of one share of JISCO was ₹ 320/-. As these conditions attached to the issue had SEBI approval, all the assessees applied for the rights issue and paid a sum of ₹ 111/- per NCD on application. JISCO was also interested that the rights issue should meet with success. They therefore negotiated with UTI and UTI was agreeable to making payment of allotment money on behalf of any subscriber on the sale of NCDs to UTI. But the price quoted by UTI after negotiation .....

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originally claimed the loss incurred as deduction. However, during the course of assessment proceedings the assessees claimed that as they sold NCDs worth ₹ 500/- per NCD at ₹ 389/- per NCD, they had suffered a loss @ ₹ 111/- per NCD which should be allowed as deduction. The claim was, inter alia, rejected on the preliminary ground that such a ground was not before the AO. The ITAT noted that in a large number of decisions it was held that any view the assessees propound may b .....

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if the return filed by the assessee did not set out the proper position that cannot be a reason for not allowing the claim. 11. The ITAT considered the reasoning of the AO and CIT (A) and held, firstly that when the assessees applied for NCDs and paid the requisite sum of ₹ 111/- per NCD, the offer of allotment was issued to them in terms of which all applicant companies had to make a further payment at ₹ 389/- per NCD. As the arrangement was in place with the UTI (which had to purc .....

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der to apply for one equity share of JISCO. In its letter, JISCO had clearly confirmed that the DWs were given to the assessees only when it had received the full amount of NCDs either from the assessees, or from UTI - on its behalf. Thirdly, dealing with the reasoning that the entire transaction was aimed at giving an undue advantage to JISCO, reference was made to a chart filed by the assessees, which indicated the extent to which the UTI had benefited from the transaction. Fourthly, with resp .....

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, since the NCDs were made over to UTI for ₹ 389/- when their face value was ₹ 500/-, the ITAT held the ground to of no substance. Here, it was noted that as per the scheme approved by the SEBI, the assessees had no option but to subscribe to the rights issue - a factor applicable to all the shareholders. The general public accounted for about 40% of the shareholding of JISCO. In case the assessees did not opt to subscribe to the issue, it would have failed, (as provided in the terms .....

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of NCDs, many other companies like Apollo Tyres, Usha Ispat Ltd., Dhunseri Tea Industries Ltd., and Sri Ram Industrial Enterprises, etc., had come out with similar rights issues with almost identical terms and conditions. In the case of Apollo Tyres, the buy-back was done by JM Financial and Investment Consultancy Services Ltd. whereas in the case of Usha Ispat, Dhunseri Tea and Sri Ram Industrial Enterprises, the buy-back was by UTI, DSP Financial Consultancies Ltd. and Sri Ram Financial Servic .....

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any also participated as a shareholder. The facts relating to the said issue of Max India Ltd. were that 8,23,720, Zero coupon Fully Convertible Debentures (FCDs) of ₹ 500/- each were offered, for cash at par aggregating to ₹ 41,18,60,000/- on rights basis in the ratio of 1 FCD for every 10 Equity Shares held, to the existing Equity Shareholders. 12.5%, Secured, Non-convertible debentures (NCDs) aggregating 16,47,440, were issued, at ₹ 250/- each, for cash at par aggregating to .....

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er debenture. The issue price (at par) of ₹ 250/- was allocated as under: i) Non-Convertible Debenture ₹ 250/- ii) Warrant NIL 13. On the above basis, loss on sale of debentures was computed at Rs.l,57,95,000/- (i.e. ₹ 250/- minus ₹ 169/-) x 1,95,000, and warrants were shown in the Balance sheet at NIL cost. The A.O. examined this issue and concluded that by opting for scheme B there was no acquisition of NCD by the assessee at all. The A.O. also observed that:- Whatever .....

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and the claim of loss is untenable. He has highlighted that there is no transaction which resulted in a loss of ₹ 81/- per warrant for the cost of the warrant has to be taken at ₹ 81/-For these reasons, the assessee s contentions were rejected. 14. The assessee appealed to the CIT (A) where it was contended that in terms of Max India Ltd s letter of offer dated December 8, 1995, each NCD carried a face value of ₹ 250 and was attached with one detachable warrant. Each warrant en .....

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ly lapsed. It was also clarified that the warrant holders exercising their option for allotment of equity shares were not entitled to seek any appropriation of the amount paid on the NCDs against the amount payable for the equity shares which was to be paid in full separately. It was contended that the said warrants thus were completely detachable from the NCDs and their holders were entitled to sell the NCDs separately after detaching the warrants. It was also contended that since the purchase .....

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s from no infirmity on this count. The Assessing Officer has correctly observed that the entire arrangement was pre-conceived. I find that the Assessing Officer has discussed this issue in a comprehensive manner and has correctly arrived at the finding that the cost of the warrant is to be taken at ₹ 81 only and not nil. I am in agreement with the arguments given by the Assessing Officer in the assessment order. Accordingly, this ground is decided against the appellant-company. The disallo .....

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r in respect of the disallowance of ₹ 1,57,95,000 on account of loss on sale of debentures." The ITAT preferred to follow the decision in Abhinandan s case and allowed the assessee s claim. Contentions of the revenue 15. It is argued by revenue that there was no sale of NCDs by the assessee to UTI as there was no agreement of sale between them. The arrangement was between JISCO and UTI. There was no stipulation in the scheme for buy back of khokha (NCDs) as was made by the other compa .....

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take place because as per the scheme only a paid up debenture entitled the holder/allottees to receive the DW. If the sale had taken place, only UTI would have been entitled for the DW. Here the DWs were issued to the assessee whereas the UTI had paid the allotment money. The assessee had shown the amount of application money as the cost of DWs which was evident from the fact that the assessee claimed the loss to the extent of DWs sold. It was in fact a financial arrangement between JISCO and t .....

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-term capital loss while filing its return. The assesse is an investment company of the Jindal group. 16. It was argued that no definition of investment company existed in the statute. However, several definitions were enacted. Financial investment company was inserted by the Finance (No. 2) Act, 1991. By Section 2(9)(d) it is defined as a company whose gross total income consists mainly of income which is chargeable under the heads Income from house property‟, Capital gains‟ and Inc .....

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. The UTI did not restrict it only for the promoters and to the exclusion of others. JISCO intended to avail of the whole of this benefit for itself and that is why it did not mention with reference to khokha sale in the scheme itself as was done by other companies. 17. Senior counsel for the assessee in all the cases argued that there is no infirmity in the approach and conclusions of the ITAT. It was submitted that the revenue s arguments about the assessee not being allottee of the NCDs is ba .....

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e true nature of the transaction, which is what the ITAT looked at. Counsel urged that the assessee is an investment company and treated as a promoter of JISCO, whose shares to a substantial extent were acquired from time to time. Abhinandan s ordinary line of business is investment in shares. Reliance is placed on three years income for previous years in support of this argument. Urging that it would be anomalous to uphold the revenue s stand that on the one hand, it urges that JISCO s shares w .....

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the shares of JISCO are to be held as stock in trade but the NCD s which were acquired by virtue of the shareholding in JISCO and which were held for 10 days are to be treated as an investment and held on capital account. Analysis & Findings 19. Before we proceed to analyse the contentions of the parties, it would be useful to set out, in a tabular form, the salient facts relating to the two sets of appeals:- Sl. No. Abhinandan Investment & JELCS Medicare Investment Ltd 1 Right issue of .....

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Rs.111 per NCD application money for the rights issue and allotment money ₹ 389/- per NCD Rs.81/- per NCD application money for the rights issue and allotment money ₹ 169/- per NCD 5 JISCO made arrangements with UTI Max India made arrangements with Infrastructure Leasing & Financial Services Ltd (IL & FS) 6 Allottee could surrender NCDs to UTI which would pay balance ₹ 389/- (to JISCO) and at the same time allottee would retain DW Allottee could surrender NCDs to IL &a .....

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377; 111 as cost of debentures and claimed capital loss as short-term capital loss on NCD sale to UTI. Assessee company claimed ₹ 81 as cost of NCD and capital loss as short term capital loss, on sale of NCDs to IL & FS. 20. The revenue's rationale for disallowing the loss claimed by the assessee is to be seen from the perspective that it was never its position that the cost of acquisition of NCD in the hands of the assessee was only ₹ 389 and the remaining amount of ₹ .....

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e assessee never stated that the sum of ₹ 111/- paid by it, was to be treated as the price paid by it to acquire DWs: in fact, the assessee had contended as much when claiming loss on sale of DW @ ₹ 20/- each. The plea was rejected. 21. There is no doubt that the assessee claimed before ITAT that it incurred a loss of ₹ 111/- per debenture. Having spelt out its position that the entire amount of ₹ 500 paid by the assessee was on account of cost of acquisition of NCDS, the .....

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s without any consideration. The ITAT considered the different bases on which the assessee's claim regarding loss of ₹ 111/- on sale of debenture was disallowed by the AO as well as by the learned CIT (A). Thereafter, the ITAT considered the terms of the right issue and held that the true legal effect of the relevant transaction has to be seen for the purpose of income-tax assessment and not the entries made in the books of account or claim made in the return of income. ITAT therefore, .....

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ich duly considered it. 22. This Court notices that the salient facts are that the assessees (Abhinandan and JELCS) were promoters of JISCO. Together with other three assessee companies, these assessees held over 30.93% shares in JISCO. When the NCD offer was made, a necessary condition (stipulated by SEBI) was its mandatory subscription to the extent of 90%. Being a NCD rights offer, no doubt, existing share-holders had the option of choosing not to invest in the issue. However, there was an in .....

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111/- was payable as application money. Thereafter- on allotment, the balance ₹ 389/- per NCD was payable. In this case, as a result of the terms agreed with UTI, the transfer of the NCD allotment to it meant that the balance ₹ 389 was payable. Concurrently, the rights to DW remained with the assessee companies. This court notices that fundamentally, the AO fell into error in overlooking that in fact, the NCDs were allotted on January 14, 1995 on payment of application money of S .....

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ts to establish that the entire scheme was a ruse to defraud the revenue. What was not considered was that the UTI scheme was apparently wide in nature; it sought to fund NCD applicants - the assessee shareholders and other companies being some of them, to the extent of 30.93 %, as much as 40% shares being held by the general public and the rest being institutional shareholders. Significantly, UTI limited the funding under the scheme to ₹ 350 crores. Equally, what was lost sight of was tha .....

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-. The assessees held quoted shares as on 31.03.1995 to the extent of ₹ 165,526,458/50 of which the value of JISCO s shares was ₹ 43,143,836/00. They held shares in 12 other listed companies besides shares in unlisted companies, debentures and other securities. Their dividend income was in excess of ₹ 75 lakhs. Other income, by way of interest, on loans, securities, etc was in excess of ₹ 1.05 crores. 24. Now, it is essential to deal with the findings of the AO that the l .....

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ial shareholding and securities (more than ₹ 2.49 crores out of a total inventory of ₹ 5.50 crores) which had no connection with JISCO. It reported a total income of ₹ 2.23 crores, of which ₹ 81 lakhs was by dividends and ₹ 97.23 lakhs was from sale of investments. These figures establish that JELCS, like Abhinandan, had independent substantial sources of income and was not a conduit or alter ego of JISCO. 25. Here allotment of the NCDs with detachable warrants was .....

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e was only for acquisition of the NCDs whose terms of issue included a return of 10.5 % annually. The purpose of issue was commercial and they were not issued by the JISCO only to attract subscriptions to the DWs attached thereto. Depending on share market volatility, the apparent sweetener (to the issue), i.e., the free DWs could become worthless; after all, the DWs entitled the holders to equity shares in the event of an issue, at a pre-determined price of ₹ 200/-. 26. A distinction made .....

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subscriber going for option (a) thereby agreeing to sell the NCDs, which is called Khoka sale, amount payable on application was only ₹ 81/- per NCD whereas the subscriber not exercising the option of Khoka sale as given in option (b), the entire face value of ₹ 250/- was payable on application. The contention was that the subscriber opting for option (a) thus, was paying ₹ 81/- per NCD on application as a consideration for detachable warrant and this was explicitly the true ef .....

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ed. We find that in all the cases i.e. that of the assessee as well as that of Abhinandan Investments Ltd. and Ors. (supra), options were given to the allottees/subscribers to surrender or sell the NCDs at a discounted price to the finance company as per the arrangement made by the issuing company and the difference was only in the stage at which such option was to be exercised. For example, in the case of Abhinandan Investments Ltd. and Ors. (supra), such option was to be exercised only after a .....

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hat the subscriber opting for option (a) would be entitled to receive that much amount from the finance company. In the case of subscriber going for option (b), there was however, no such amount and since the entire amount was to be paid along with the application as per the terms of payment given in the offer document, he was required to pay a sum of ₹ 250 per NCD on application itself. In the cases of Abhinandan Investments Ltd. and Ors. (supra), the terms of payment given in the offer d .....

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y in one case, the entire amount payable against NCDs was to be paid along with the application itself, whereas in the other cases, the amount payable against NCDs was to be paid in two instalments, one at application stage and the remaining on allotment. 32. There were thus two distinctive features in the scheme of allotment as per the offer made in the case of the present assessee and in the case of Abhinandan Investments Ltd. and Ors. (supra). Firstly, there was a difference in the stage at w .....

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ble on account of sale of NCDs to the financial institution was adjusted/paid against the remaining amount payable towards NCDs. In our opinion, the effect of these transactions thus ultimately was the one and the same and the distinctive features of allotment of NCDs in these cases as pointed out on behalf of the Revenue would not change the very nature of the transaction which, in our opinion, was exactly similar. This court holds that the above reasoning is sound and logical. The revenue coul .....

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00. That order was apparently accepted and acted upon, because the consequential appeal effect given by the AO became the subject matter of further appeal which was eventually decided by this court. That is now a reported decision - Commissioner of Income Tax v Nalwa Investments 322 ITR 233- by a Division Bench of this Court. The court first narrated the facts as follows:- 5. In 1994, JISCO which was desirous of making a rights issue of secured redeemable non-convertible debentures (hereinafter .....

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crucial condition appended to the rights issue, JISCO embarked upon the said course and made an issue of ₹ 500 crores of SRNCDs of a face value of ₹ 500 each. The essential features of the rights issue of SRNCDs as approved by the SEBI and as indicated in the order of the authorities below were as follows : (a) each debenture will be of the face value of ₹ 500 each ; (b) every residential shareholder will pay a sum of ₹ 111 per debenture on making an application and the b .....

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(e) 23 debentures for every 100 equity shares held as on October 31, 1994, were required to be issued. 6. It is important to note that at the relevant point in time, in JISCO the public held nearly 40.43 per cent. of the shares, while the financial institutions, mutual funds and banks together held nearly 18.80 per cent. This was excluding the shares held by foreign institutional investors and nonresidents of the Indian origin. 7. Continuing with the aforesaid narration, the rights issue of SRNC .....

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einafter referred to as "UTI") whereby the UTI agreed to pay the balance sum of ₹ 389 per SRNCD on behalf of the allottees to JISCO. The assessee being an existing stakeholder applied for the rights issue made by JISCO. In accordance with the conditions of the issue, the assessee paid an application money of ₹ 111 per debenture. As arranged the UTI paid the balance sum of ₹ 389 to JISCO whereupon JISCO issued a DW in favour of the assessee as well as the other investo .....

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r debenture. 9. It is in this background that the assessee had filed a return for the assessment year 1995-96. The said return was filed on November 29, 1995. In the said return the assessee had initially claimed a short-term capital loss of ₹ 91 per DW on the ground that it had sold each DW at the rate of ₹ 20. This return was admittedly filed within time as prescribed under section 139 of the Act and in accordance with sub-section (3) of section 139. In the return a loss had been c .....

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D transferred to UTI. The said loss was claimed as a business loss. The Assessing Officer disallowed the loss on the ground that it was not genuine. The Assessing Officer was of the view that the appellant as well as the other investment companies were merely money-lenders and the arrangement so configured to give benefit to JISCO and UTI. Thereafter the court noticed the order of the ITAT (which is the subject matter of these appeals, i.e., ITA Nos.25-26/2001) and the background in which the AO .....

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is important to note that the order passed by the Assessing Officer dated October 27, 2000, is captioned as one having been passed under section 254 of the Act. 15. Aggrieved by the observation of the Assessing Officer that the said assessed loss could not be carried forward and set off against its future income the assessee preferred an appeal to the Commissioner of Income- tax (Appeals). The Commissioner of Income-tax (Appeals) by an order dated February 22, 2002, rejected the appeal both on .....

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me-tax (Appeals) was of the view that the direction contained in paragraph 32 of the order dated June 5, 2000, passed by the Tribunal merely required the Assessing Officer to allow deduction of loss as a business loss at the rate of ₹ 111 per SRNCD and since the Tribunal had not directed that loss which had been determined was required to be carried forward, the Assessing Officer had not exceeded his jurisdiction in not permitting the carry forward of the loss as the same could have been c .....

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tax (Appeals) approved of the reasoning set out in the order of the Assessing Officer in disallowing the carry forward and set off of loss against the future income of the assessee. The Court thereafter held that the AO s approach was untenable: 17. Having heard the learned counsel for the Revenue as well as the assessee we are of the view that the answers to the questions framed have to be found in favour of the assessee and against the Revenue for the reasons given hereinafter. It is clear upo .....

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issue DW which would enable the holder to acquire one equity share in JISCO, was clearly part and parcel of the terms and conditions of the issue. The arrangement between a public financial institution-UTI and JISCO for part financing the investment had been examined by the Tribunal in the first round. The Tribunal after noting the benefit which had accrued both to the assessee and UTI, that is, while the assessee had acquired an equity share on the other hand UTI had acquired not only a SRNCD .....

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e Assessing Officer (Joint Commissioner of Income-tax) while giving effect to the order of the Tribunal dated June 5, 2000, verified the loss of SRNCD. Upon verification of the loss the Assessing Officer adjusted the loss on the sale of 11,98,000 SRNCD at the rate of ₹ 111 per SRNCD amounting to ₹ 13,29,78,000 against an income of ₹ 7,01,96,195 and arrived at a loss of ₹ 6,27,81,805 under section 143(3) of the Act. The Assessing Officer, however, observed that the assesse .....

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iew was sustained by the Commissioner of Income-tax (Appeals). We are of the view that the Tribunal correctly appreciated the provisions of section 80 of the Act read with section 139(3) of the Act and allowed the carry forward of loss for the purposes of set off against the income of the subsequent year(s). A plain reading of the provision of section 80 of the Act permits an assessee to carry forward a loss and seek its set off under section 72(1) or 73(2) or sub-section (1) of section 74 or 74 .....

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ection (1) or sub-section (3) of section 74 or sub-section (3) of section 74A." 19. In the instant case, there is no doubt that the assessee had filed a return under section 139 of the Act within the prescribed time. It is also not disputed that a loss had been claimed even though the same had been claimed to the extent of ₹ 90 and that too as a capital loss with respect to DWs issued to the assessee, on the assessee investing in the rights issue of JISCO. The assessee carried out a c .....

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e return of income or the treatment that is meted out in the books of account or the method of accounting that an assessee uses are not relevant in considering the effect to be given to the transactions which are governed by the provisions of the Act. The Tribunal went on to observe while allowing the claim of loss by the assessee that the fact that in the return filed by the assessee wherein the assessee does not take a proper position, cannot be a ground to take advantage of the ignorance of t .....

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s determining the income/loss in pursuance of an original return filed by the assessee under section 139 of the Act. In the return the assessee had claimed erroneously a loss to a lesser extent, that is, at ₹ 91 against DWs as against SRNCDs which was corrected pursuant to a stand taken before conclusion of proceedings by the Assessing Officer in the first round and a stand which was sustained by the Tribunal by its order dated June 5, 2000. In view of the said circumstances obtaining in t .....

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t would in one sense turn the law on its head if after the Tribunal, vide its order dated June 5, 2000, had allowed the assessee's claim of loss on sale of SRNCDs at the rate of ₹ 111 per SRNCD as a business loss based on the reasoning that the assessments had to be carried out keeping in mind the real effect of a legal transaction notwithstanding the treatment meted out by the assessee, it would then appear anomalous and incongruous if the Assessing Officer while giving effect to the .....

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on contrary to the one it accepted in Nalwa - especially because Nalwa Investments is one of the share-holder companies of JISCO, which had sought and was allotted NCDs at ₹ 111/- per NCD and later transferred the allotments to UTI, which paid the balance amount. Its initial claim for capital loss was changed to business loss, and finally accepted by the ITAT. 29. Another good reason for this Court to reject the revenue s contention is that in all the cases (Abhinandan, JELCS and Medicare) .....

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that the assessees did claim initially to have incurred capital loss; however, they later corrected their stand and claimed business loss. We are of the opinion that the earlier stand of the assessees could not have shackled them to that position, preventing them from asserting the true character of the amount. Nor is the revenue bound to treat the position of the assessee as the gospel truth, or pin it to one or the other stand. The revenue is obliged to independently assess the amounts having .....

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approach with respect to the opinion regarding sale of NCDs with free tradable detachable warrants that entitle holders to shares. These Bench decisions are: (i) Lazer Syntex Ltd. vs. Dy. CIT (ITA No. 781/Ahd/1996, dt. 18th Sept., 1997 Mumbai 'B' Bench); (ii) Karamchand Thaper & Bros. vs. Dy. CIT (ITA No. 2649/Cal/1996, of Calcutta 'E' Bench, dt. 12th June, 1997); (iii) Dy. CIT vs. Jogiya Traders Ltd. (ITA No. 2992/Mum/1998, Mumbai 'B' Bench, dt. 30th May, 2003); (iv) .....

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issues had a monetary value, was dealt with in the following manner: The Tribunal failed to appreciate that at no stage was the issue of quantification ever in dispute between the parties. The Assessing Officer had categorically recorded that for the reasons stated in his order the claim of loss "is not acceptable and the same is ignored in the computation of income". If the Assessing Officer had not undertaken quantification of the loss, the Commissioner (Appeals) had not undertaken s .....

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een the parties. The Tribunal failed to appreciate that in absence of any exercise of quantification by the Assessing Officer there was no occasion for the assessee to carry the matter any further and therefore the said issue could not arise out of the order of Commissioner (Appeals). Once that was the position the Tribunal could not have taken it upon itself to raise the issue and decide the same which did not properly arise out of the Order of Commissioner (Appeals) as no ground could be taken .....

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