TMI Blog1966 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... er to find out the net capital gain or loss arising out of a transaction of the nature with which we are concerned. The application of those principles indicates that the claim of the appellant that the net capital gain by her is not re resented by the whole amount of ₹ 45,262.50P. realised by her on renouncement of her right to receive the new shares was correct and that the net capital gain can only be properly computed after deducting the sum of ₹ 37,630 which approxim ately represents the loss incurred simultaneously by the appellant in her original asset of 710 old shares as a result of the depreciation in their value. The question referred to the High Court must, therefore, be answered in favour of the appellant. The appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w ordinary shares issued in the ratio of one new ordinary share for one existing ordinary share as held on 26th April, 1956. In pursuance of this resolution, an offer was made to the appellant by the company by its circular letter dated 15th May, 1956, that she was, in terms of the resolution, entitled to apply for 710 new ordinary shares to be paid for at the rate of Rs. 105 per new ordinary share. This payment was to represent Rs. 75 as the face value of the share and Rs. 30 as premium. She was also given the option of either taking the shares wholly or partly, or renouncing them either wholly or partly, in favour of any other person or persons. The appellant chose to renounce her right to all the 710 ordinary shares instead of taking the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, as a result of this depreciation in the price of her old ordinary shares, she suffered a capital loss in those shares to the extent of Rs. 37,630, and she was entitled to set off this loss against the capital gain of Rs. 45,262.50P. which she realised on selling her right to take the new ordinary shares. In the alternative, the case was put forward on the basis that the right to receive these new ordinary shares was a right which was embedded in her old ordinary shares, and, consequently, when she realised the sum of Rs. 45,262.50P. by selling her right, the capital gain should be computed after deducting from this amount realised the value of the embedded right which became liquidated. The value of that right, according to the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the extent that she became entitled to receive 710 new shares. This right could be exercised by her by actually purchasing those shares at the prescribed rate, or by renouncing those shares in favour of another person and obtaining monetary gain in that transaction. At the time, therefore, when the appellant renounced her right to take these new shares, the capital asset which she actually possessed consisted of her old 710 shares plus this right to take 710 new shares. At the time of her transaction, her old shares were valued at Rs. 253 per share, so that the capital asset in her possession can be treated to be the cash value of 710 multiplied by Rs. 253 of the old shares plus this right to obtain new shares. After she had transferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the right to receive new shares and make some money thereby, could only be properly computed in the manner indicated by us above. In the alternative, the case can be examined in another aspect. At the time of the issue of new shares, the appellant possessed 710 old shares and she also got the right to obtain 710 new shares. When she sold this right to obtain 710 new shares and realised the sum of Rs. 45,262.50P., she capitalised that right and converted it into money. The value of the right may be measured by setting off against the appreciation in the face value of the new shares the depreciation in the old shares and, consequently, to the extent of the depreciation in the value of her original shares, she must be deemed to have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when computation has to be made for purposes of taxation; but we are unable to accept this proposition. In working out capital gain or loss, the principles that have to be applied are those which are a part of the commercial practice or which an ordinary man of business will resort to when making computation for his business purposes. The principles of accounting indicated by us above are clearly the principle that must be applied in order to find out the net capital gain or loss arising out of a transaction of the nature with which we are concerned. The application of those principles indicates that the claim of the appellant that the net capital gain by her is not re resented by the whole amount of Rs. 45,262.50P. realised by her on reno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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