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TMI Blog1966 (10) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... itled to claim a deduction from the full value of the consideration of Rs. 45,262-50P. received for the capital asset, the sum of Rs. 37,630 or any similar sum ?" The case arose out of proceedings for assessment of the appellant for the assessment year 1957-58, the corresponding previous year being the financial year 1956-57. The appellant was holding 710 ordinary shares of the Tata Iron and Steel Company Ltd. (hereinafter referred to as " the company "), which she had inherited some time prior to 1st January, 1954, as an investment. It was admitted that she was not a dealer in shares. Under a special resolution passed at an extraordinary general meeting of the company on 12th March, 1956, the appellant, as holder of 710 ordinary shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to purchase these new ordinary shares, or to renounce them in favour of some other person and make up the loss which she would suffer on her original shares. The board of directors of the Native Stock a nd Shares Association Ltd. had passed a resolution that the transactions in these shares were to be cum-right up to and including 1st June, 1956, and were to be ex-rights from 4th June, 1956, onwards. The intervening days, 2nd and 3rd June, being official holidays, there were to be no transactions on those days. The market quotation of the old Tata ordinary shares was Rs. 253 per share on 1st June, 1956, and fell to Rs. 198.75nP. on 4th June, 1956. There was, thus, a fall in the market quotation of old shares of Rs. 54.26P. per share. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the High Court, it appears to us that the nature of the transaction, which resulted in this receipt of Rs. 45,262.50P. by the appellant, must be analysed and properly understood. The amount, it is the agreed case of the parties, was a capital gain. The capital asset which the appellant originally possessed consisted of 710 ordinary shares of the company. There was already a provision that, if the company issued any new shares, every holder of old shares would be entitled to such number of ordinary shares as the board may, by resolution, decide. This right was possessed by the appellant because of her ownership of the old 710 ordinary shares, and when the board of directors of the company passed a resolution for issue of new shares, this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be 710 multiplied by Rs. 198.75P. plus the sum of Rs. 45,262.50P., while the value of the asset, immediately before the renouncement, would be 710 multiplied by Rs. 253, there being no cash value at that time of the right to be taken into account. Thus, the capital gain or loss would be worked out at Rs. 45,262.50P. after deducting from it the sum worked out at 710 multiplied by the difference between Rs. 253 and Rs. 198.75P. This last amount comes to a little more than the sum of Rs. 37,630 which the appellant claimed should be deducted from Rs. 45,262.0P. in computing her capital gain. The claim made by the appellant was thus clearly justified because the net capital gain by her in the transaction, which consisted of issue of new shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefrom the amount of depreciation in the value of her original shares, being the loss incurred by her in her capital asset in the transaction in which she acquired the right for which she realised the cash. This method of looking at the transaction also leads to the same conclusion which we have indicated in the preceding paragraph. The view that we have taken finds support from the principle laid down by this court for valuation of bonus shares issued by a company to holders of original shares in the case of Commissioner of Income-tax v. Dalmia Investment Co. Ltd. The High Court, in dealing with this question, had expressed the view that principles of accountancy applicable to valuation of such right to receive new shares issued by a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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