question raised in this appeal is whether shares received by assessee by surrendering convertible bonds issued by company would give rise to capital gains. facts are that assessee is individual. She had 35 bonds of face value of Rs. 500 issued by Standard Mills Co. Ltd. bonds were issued some time in 1971. They were subject to annual interest of 8 per cent. bonds were redeemable at end of 10 years from date of allotment. However, cl. 4 of conditions for issue of bonds given bond- holder alternative of converting bonds into equity shares of company. This option could be exercised only after 1st July, 1976 and before 31st Dec. 1976. According to this clause, bond-holder exercising option will be given I equity share of face value of Rs. 100 and cash. payment of cash depended upon whether company had declared bonus shares earlier. If they had, then on surrender of one bond bond-holder would be paid sum of Rs. 200 in cash and I equity share of face value of Rs. 100. assessee before us exercised option and received during accounting year Rs. 7,000 in cash and 35 equity shares. equity shares had market value of Rs. 463.50 each on that date. ITO was of opinion that conversion of bonds into equity shares rise to capital gains. He brought to tax Rs. 5,727 on this account. There is not dispute before us regarding amount chargeable as capital gains, only dispute being whether capital gains at all is to be levied. Shri Trivedi for assessee submitted that there is not transfer at all on conversion of equity shares. There is no sale or exchange. There is not exchange because asset has ceased to exist. There is not question of relinquishment either because after relinquishment asset must continue to exist. He then submitted that exercise of option does not involve any transfer. If right shares are issued, option to subscribe could not be considered as giving rise to capital gains. He submitted that decision to this effect has been given by Tribunal as early as 1970. He then submitted that right to acquire equity shares was inherent in contract itself. Therefore, when shares were issued, assessee was only realising right given in contract. At worst, it could be said that when shares were sold it might give rise to capital gains. In any case, at this stage, according to him, there is not capital gain. We are of opinion that levy of capital gains is justified. There is no difficulty in holding that bonds issued to assessee by Standard Mills Co. Ltd. are capital assets. question is whether there is nay transfer within meaning of s. 2(47) when bond-holder exercises option given in converting bonds into equity shares. it will be noticed that bond-holder has only option. It was open to bond-holder to keep goods with him till maturity date. But, if he chooses to exercise option, he does something voluntarily. No. doubt, cl. 4 of scheme gives option but that does not mean that right exists in scheme itself. right becomes exercisable only when option is exercised. right is not conferred by mere efflux of time. It is available only when bond-holder voluntarily exercise right and requires company to allocate equity shares. transaction involved in conversion of bonds into equity shares arises from exercise of right and therefore, it cannot be split up into two transaction, one giving rise to surrender of bonds and another transaction in respect of he consideration payable on first transaction. Clause 4 gives how and at what rate bonds would be converted into equity shares. bonds being loans taken by company there is not question of company paying them for equity shares. company cannot deal in its own equity shares. It cannot sell them. It can only allocate them to shareholders subject to provisions of Company Law. Therefore, when in pursuance of cl. 4 of scheme equity share are given to bond-holders, it is not separate transaction of transfer of equity shares by company. it is only part of one transaction where surrender of bonds is to be satisfied by issue of equity shares. In this background, it would be easy to see that conditions required in respect of definition of 'transfer' are satisfied. Under s. 2(47), transfer in relation to capital asset includes sale, exchange, relinquishment or extinguishment of any rights therein. In our opinion, there is clear extinguishment of assessee's rights in bonds this is sufficient to satisfy conditions of s. 2(47). Shri Trivedi submitted that in order to hold that there is extinguishment of any right, asset itself should survive transfer. We are unable to agree. Gujarat High Court had pointed out in their decision in he case of CIT vs. R. M. Amin (1971) 82 ITR 194 (Guj) that it was not necessary that after extinguishment of any of right of assessee therein, asset should also continue to exist. We may, however, mention that in respect of expression "relinquishment" there is decision of Bombay High Court according to which asset should continue to exist after relinquishment of assessee's rights therein. But, in respect of expression 'extinguishment', there is not decision other than decision of Gujarat High Court (supra) which is against assessee. In this connection, we will refer to decision of Gujarat High Court in case of CIT vs. Minor Bagabhai (1981) 128 ITR 1 (Guj). That was also case of exchange of promissory notes held by assessee in respect of limited company. limited company was in financial difficulties and company was to be would up. scheme was sanctioned by court under which creditors had to be satisfied with 45 per cent of amount due to them. assessee had advanced Rs. 25,000 and he was entitled to Rs. 13,323. difference between these two figures was claimed as capital loss. Gujarat High Court accepted that there was transfer in so far as assessee's rights on promissory notes were extinguished and in satisfaction assessee received lesser amount giving rise to capital gains. facts are almost identical here. Instead of promissory notes, assessee before us had been issued bonds. In substance, both are same. Before expert of term of bonds and promissory notes, in case before Gujarat High Court, High Court scheme gave rise to assessee surrendering promissory notes to company. In case before us. surrender occurred because of right given in scheme itself. As in Gujarat High Court case, on surrender of bonds, assessee received equity shares and cash. only difference between two cases is that whereas in Gujarat case transfer led to loss, in present case transfer led to profit. However, principle applicable is same and therefore department's contention must be accepted. We have to distinguish case from cases of issues of right shares to which reference had been made by Shri Trivedi or issue of shares on amalgamation of two companies. In such cases, facts and provisions of law amalgamation of two companies. In such cases, facts and provisions of law applicable are different. We must also point out that case before us is different from case of shareholder of company in liquidation receiving amounts due to him from liquidator. In such case, as Gujarat High Court has pointed out at p. 10 of 128 ITR, shareholder does not receive anything pursuant to creation of new rights. He had received money in satisfaction of his pre-existing rights by virtue of his holding shares and he was entitled to receive that amount in liquidation. At p. 11 of said decision, it is pointed out that no subsequent event had taken place which had resulted in creation of new rights and/or obligations. In case before us, right to exercise he option is certainly pre-existing. But, on exercising option, new rights and obviations are created. This is distinguishing feature between this case and Amin's case. No other point is pressed. assessee's appeal stands dismissed. *** MRS. P. T. SANGHAVI v. EIGHTH INCOME TAX OFFICER