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COMMISSIONER OF INCOME TAX DELHI-III Versus M/s SUN INVESTMENTS LTD.

2015 (11) TMI 1284 - DELHI HIGH COURT

Sale consideration received by the assessee by transfer of shares and sale of rights entitlement of Partly Convertible Debentures (PCDs) - income from capital gains OR income from business? - Held that:- As relying on Commissioner of Income Tax Delhi-I v. M/s Abhinandan Investment Ltd. [ 2015 (11) TMI 1219 - DELHI HIGH COURT] the Assessee appears to have claimed a change in the nature of his holdings depending on the tax incidence in the year in question; in AY 1988-89 the Assessee reflected to .....

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T failed to appreciate that the Assessee had consciously held itself out as a company engaged in sale and purchase of shares; it was also assessed on the income earned from business and also claimed deduction on account of business expenses incurred by the Assessee. The shares in question were, concededly, held as stock-in-trade. All that happened in the year in question is that the Assessee sold substantial shares and renounced rights to subscribe to PCDs contrary to its stated intention of hol .....

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JUSTICE S. MURALIDHAR AND MR. VIBHU BAKHRU, JJ. For the Appellant : Mr. N.P. Sahni, Senior Standing counsel with Mr. Nitin Gulati. For the Respondent : Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha. JUDGMENT VIBHU BAKHRU, J 1. The Revenue has filed this appeal under Section 260A of the Income Tax Act, 1961 (hereafter the Act ) impugning a common order dated 20th December, 2001 passed by the Income Tax Appellate Tribunal (hereafter ITAT ) in ITA No. 243/Del/2001 and ITA No. 314/Del/2001. IT .....

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s not a subject matter of the present appeal. 2. This Appeal was admitted on 12th October, 2004 and the following questions of law were framed:- 1. Whether the Income Tax Appellate Tribunal was right in holding that the sale consideration received by the assessee by transfer of shares and sale of rights entitlement of Partly Convertible Debentures (PCDs) is income from capital gains and not income from business? 2. Whether the Income Tax Appellate Tribunal was right in holding that the assessee .....

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ludes investment companies - such as the Assessee - which, inter alia, hold and transact in shares of the operational companies of the Group. 3.2 The Assessee filed its return of income for the AY 1992-93 returning an income of ₹ 26,14,312/- (twenty six lacs fourteen thousand three hundred twelve) and also claiming a carry forward of short term capital loss of ₹ 48,84,176/- (forty eight lacs eighty four thousand one hundred seventy six). The return was picked up for scrutiny and a no .....

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Assessee was one of the shareholders of Jindal Strips Limited (hereafter JSL ). The Assessee reflected the shares held in JSL as stock-in-trade and had valued the same at cost or market price whichever was less. According to the Assessee, its board of directors decided to retain the shares on a long term basis and consequently passed a resolution on 4th April, 1991 that all shares held by it should be treated as investment/capital asset. 3.4 During the financial year relevant to AY 1992-93, JSL .....

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of M/s Saw Pipes Ltd. for a consideration of ₹ 1,33,90,720/- (One crore thirty three lacs ninety thousand seven hundred twenty). According to the Assessee, the cost of acquisition of those shares was ₹ 3,13,500/- (three lacs thirteen thousand five hundred). Accordingly, the Assessee reflected a capital gain of ₹ 1,30,77,220/- (one crore thirty lacs seventy seven thousand two hundred twenty) and after making adjustments under Section 48(2) of the Act, the Assessee declared a ca .....

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ousand). These rights were sold to M/s Gagan Trading Co., another company belonging to the Jindal Group. Admittedly, the cost of acquisition of shares of JSL on the basis of which the Assessee was entitled to subscribe to PCDs were acquired at the price much below ₹ 98/-. Nonetheless, the Assessee claimed a loss of ₹ 42/- per PCD on the transaction. This was computed by taking the cost of acquisition of the rights to subscribe to PCDs as a diminution in the quoted value of JSL shares .....

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rs to be erroneous. 3.7 Thus, the Assessee claimed that it suffered a diminution of ₹ 140/- in the value of shares of JSL. It appears that the rights to subscribe to 2,12,000 PCDs arose in respect of 3,02,857 shares of JSL held by the Assessee. Accordingly, the Assessee calculated the cost of acquisition of the rights at ₹ 4,23,99,980/- (four crores twenty three lacs ninety nine thousand nine hundred eighty) (i.e. 3,02,857 x ₹ 140/-). Since the said rights were sold at an aggre .....

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