INCOME TAX OFFICER v. OBEROI PROPERTIES (P) LTD
[Citation -1985-LL-1213-5]

Citation 1985-LL-1213-5
Appellant Name INCOME TAX OFFICER
Respondent Name OBEROI PROPERTIES (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 13/12/1985
Assessment Year 1980-81
Judgment View Judgment
Keyword Tags annual general meeting • stock exchange • rights shares • equity share • capital gain • public issue • market value • bonus issue • right share
Bot Summary: New Equity Shares of Rs. 10 each for cash and out of the said shares 16,05,500 would be offered as Right Shares to the existing members in the preparation of one New Equity Share for every existing five Equity Shares and another Resolution in the same meeting w a s passed by which Bonus shares were issued to the shareholders in the proportion of one Equity Share for every five Equity Shares held by the members of the company. The assessee-company sold 4,000 Right for Right shares whereas the Right for 12,106 shares lapsed. The ITO, in short, noted that the assessee received Right Shares Bonus shares and there was a public offer by the company. The dispute is regarding the value of the Right for Right Shares which has been enunciated by the assessee for the Shares issued by the East India Hotels Ltd. The East India Hotels Ltd. by its letter dt. 9th Nov., 1979 indicated to the shareholders that the company has issued Right as well as Bonus Shares in the same meeting held on 29th Aug., 1979 in the ratio of one Right or Bonus for every five Shares held by the shareholders. The assessee sold 40000 Right for the Right Shares whereas the Right for 12,106. After the issuance of the Right and Bonus Shares, the total holding of the shareholder would become 140 shares.


Y. UPADHYAY, VICE PRESIDENT: appeal of Department and appeal of assessee are taken together and disposed of by common order. assessee is limited company. assessee was shareholder in M/s East India Hotels Ltd. assessee was holding 67,110 equity shares of Rs. 10/ each of said company as on 1st April, 1979. East India Hotels Ltd. by its letter dt. 9th Jan.,1976 informed shareholders that by virtue of Special Resolution passed by company at its Annual General meeting on 29th Aug., 1979, they are going to offer 28,55,500. New Equity Shares of Rs. 10 each for cash and out of said shares 16,05,500 would be offered as Right Shares to existing members in preparation of one New Equity Share for every existing five Equity Shares and another Resolution in same meeting w s passed by which Bonus shares were issued to shareholders in proportion of one Equity Share for every five Equity Shares held by members of company. record date was fixed for issue of Right and Bonus Issues on 27th Oct., 1979. assessee-company was offered 16,106 Right Shares. assessee-company sold 4,000 Right for Right shares whereas Right for 12,106 shares lapsed. assessee Sold Right for 4,000 shares @ Rs. 3.50 per share and total consideration of Rs. 14,000 was treated as short-term capital gains. ITO was not satisfied with value attributed to Right which was sold by assessee. ITO, in short, noted that assessee received (1) Right Shares (2) Bonus shares and (3) there was public offer by company. ITO took market value of old shares as quoted at Rs. 42.75. He calculated Ex-Bonus price by dividing market value of old Shares by number of Shares held by assessee including Bonus shares. cost of shares including Bonus thus was determined at Rs. 35.62. He found Ex-Right Bonus value as quoted on Stock Exchange at Rs. 30.25. difference between Rs. 35.62 and Rs. 30.25 was determined by him at Rs. 5.37 per share. He found that Right Issue was 1/3rd of total holding. He, accordingly, took cost of Right Shares at Rs. 1.79. Under circumstances, he took Short term capital gain at Rs. 6,840 (Rs. 14,000 minus Rs. 7,160). On appeal, CIT (A) found that value of Right calculated by ITO at Rs. 5.37 was correct. However, he found that then ITO was not correct in including Public Issue for Ex-Right purposes. He, therefore, divided Rs. 5.37 equally for Right and Bonus and directed that cost of Right sold by assessee should be taken equally. However, he found that number of Right Share Issue was more than Public Issue. He, therefore, took cost of Right at. Rs. 3.50 and accordingly urged that there was no capital gain. Department as well as assessee are in appeal against order of CIT (A). Shri Bhattacharjee, counsel of assessee, stated facts and urged that CIT (A) was not justified in attributing cost of Right at Rs. 3.50. Shri Bhattacharjee stated facts in detail and urged that after record date Shares were quoted as Ex-Bonus and Right. Before Issue of Righ and Bonus, Shares were quoted at Rs. 42.75. After issuance of R i g h and Bonus, Shares of company were quoted at Rs. 30.25. Therefore, value for Right and Bonus was attributed by public on floor of Stock Exchange at Rs. 12.50 per share. This was attributable for value of Bonus as well as Right. Under said circumstances, value taken by CIT (A) at Rs. 3.50 per share was not correct. Shri S. K. Jha, Sr. Departmental Representative, on other hand, very kly supported order of ITO and stated that CIT (A) was not justified in ignoring Public Issue and, moreover, he was not justified in taking value of Right at Rs. 3.50. Under said circumstances, Shri Jha urged that order of ITO on this issue may be maintained. dispute is regarding value of Right for Right Shares which has been enunciated by assessee for Shares issued by East India Hotels Ltd. East India Hotels Ltd. by its letter dt. 9th Nov., 1979 indicated to shareholders that company has issued Right as well as Bonus Shares in same meeting held on 29th Aug., 1979 in ratio of one Right or Bonus for every five Shares held by shareholders. record date was fixed as on 27th Oct., 1979. assessee was entitled for 16,106 Right Shares. assessee sold 40000 Right for Right Shares whereas Right for 12,106. Right Shares lapsed. assessee sold Right @ Rs. 3.50 per share of Rs. 14,000 and treated same as short-term capital gain. ITO treated cost of Right Shares at Rs. 7.160. cost per share was determined by ITO @ Rs. 1.79 per share. ITO first calculated Cum-Right Value and thereafter deducted Ex-Right Bonus value and divided same by three on ground that East India Hotels Ltd. issued Right, Bonus and Public Issue. calculation of ITO was modified by CIT (A) who excluded Public Issue and came to conclusion that by Public Issue right of shareholder is not affected. Further, he after considering fact that Right Issue was more than Public Issue, took higher value of cost at Rs. 3.50 per share. calculation of value of Rights which has been enunciated by assessee-company for 4000 Right Shares is very simple. Right and Bonus Issue were made in same General Meeting held on 29th Aug., 1979. record date for Right and Bonus was same as 27th Oct., 1979. Therefore, it is clear that Right and Bonus both were allotted to shareholders in ratio, of one for every five shares held on original share. This could be explained by way of example. shareholder of Est India Hotels Ltd. was holding 100 shares on 27th Oct., 1979. Therefore, by virtue of Resolution dt. 29th Aug., 1979, said shareholder was entitled for 20 Rights and 20 Bonus Shares. After issuance of Right and Bonus Shares, total holding of shareholder would become 140 shares. Cum-Right and Bonus price in Stock Exchange was 42.75 on 25th Oct., 1979 whereas Ex-Right price in Stock Exchange on 29th Oct., 1979 was quoted at Rs. 30.25 per share. Therefore, difference of two i.e. Rs. 12.50 was attributable for Right as well as Bonus shares. Right and Bonus were issued in same proportion. By example it has been indicated that shareholder holding 100 shares of company got 20 shares each by way of Right and Bonus. Under said circumstances, value which public at large dealing in Stock Exchange determined for Right and Bonus at Rs. 12.50 per share was attributable for Right as well as Bonus equally. Under said circumstances, Rs. 6.25 can be attributed for value of Right and same amount can be attributed for value of Bonus. assessee has sold Right for 4000 Rights Shares and therefore, assessee has sold Right for 4000 Rights Shares and therefore, value regarding cost of those Shares can be calculated @ 6.25 per share. This conclusion is well supported by decision of Supreme Court in Miss Dhun Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651(SC). In result, assessee s appeal is allowed partly and Departmental appeal is dismissed. *** INCOME TAX OFFICER v. OBEROI PROPERTIES (P) LTD.
Report Error