Commissioner of Income Tax Delhi-i v. M/s Stainless Investment Ltd
[Citation -2015-LL-1119-2]

Citation 2015-LL-1119-2
Appellant Name Commissioner of Income Tax Delhi-i
Respondent Name M/s Stainless Investment Ltd.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 19/11/2015
Assessment Year 1990-91
Judgment View Judgment
Keyword Tags closing stock • cost of acquisition • equity share • investment company • market value • sale consideration • value of stock
Bot Summary: The said appeal was filed by the Revenue against an order dated 15th March, 1995 passed by the Commissioner of Income Tax hereafter 'CIT(A)' in Appeal No.284/93-94 whereby the CIT(A) allowed the Assessee s appeal directed against the assessment order dated 28th July, 1993 passed by the Assessing ITA 305/2002 Page 1 of 5 Officer in respect of Assessment Year 1990-91. 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 is income from capital gains and not income from business 2. Whether the Income Tax Appellate Tribunal was right in holding that the assessee had incurred loss on sale of its entitlement to acquire partly convertible debentures and the assessee is entitled to set off the alleged loss from the capital gains/income earned by the assessee 3. ITA 305/2002 Page 2 of 5 4.2 The Assessee filed its return of income on 28 th December, 1990 declaring an income of Rs.75,510/-. Thereafter, a notice under Section 143(2) of the Act was issued to the Assessee and a fresh assessment order dated 28th July, 1993 was passed by the AO. 4.3 As on 1st April, 1989, the Assessee held 1,94,000 equity shares of Jindal Strips Limited. The Assessee held that any diminution in the value of stock of JSL the basis on which the cost of acquisition of rights was claimed would be reflected in the valuation of the closing stock of JSL. He also observed that the closing stock was valued at price of Rs.10.38/- per share against the market value of Rs.118/- per share and, thus, any loss claimed by the Assessee was only notional. 4.6 The Assessee appealed to the CIT(A) against the said assessment order.


HIGH COURT OF DELHI AT NEW DELHI % Judgment delivered on: 19.11.2015 + ITA 305/2002 COMMISSIONER OF INCOME TAX DELHI-I ..... Appellant versus M/S STAINLESS INVESTMENT LTD. ..... Respondent Advocates who appeared in this case: For Appellant : Mr Kamal Sawhney, Senior Standing Counsel with Mr Raghvendra Singh and Mr Shikhar Garg. For Respondent : Mr. Ajay Vohra, Senior Advocate with Ms. Kavita Jha. CORAM: DR. JUSTICE S. MURALIDHAR MR. JUSTICE VIBHU BAKHRU JUDGMENT VIBHU BAKHRU, J 1. Revenue has filed this appeal under Section 260A of Income Tax Act, 1961 (hereafter Act ) impugning order dated 14th March, 2002 passed by Income Tax Appellate Tribunal (hereafter ITAT ) in ITA No. 5306/Del/95. said appeal (being ITA No. 5306/Del/95) was filed by Revenue against order dated 15th March, 1995 passed by Commissioner of Income Tax (Appeals) [hereafter 'CIT(A)'] in Appeal No.284/93-94 whereby CIT(A) allowed Assessee s appeal directed against assessment order dated 28th July, 1993 passed by Assessing ITA 305/2002 Page 1 of 5 Officer in respect of Assessment Year (AY) 1990-91. 2. Appeal was admitted on 12th October, 2004 and following questions of law were framed:- 1. Whether Income Tax Appellate Tribunal was right in holding that sale consideration received by 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 Income Tax Appellate Tribunal was right in holding that assessee had incurred loss on sale of its entitlement to acquire partly convertible debentures and assessee is entitled to set off alleged loss from capital gains/income earned by assessee? 3. However in facts of present case, first question does not arise. Further reference to partly convertible debentures in second question may be read as fully convertible debentures. 4. Briefly stated relevant facts necessary to address aforesaid question are as under:- 4.1 Assessee company is investment company belonging to Jindal Group of companies. Jindal Group is mainly engaged in manufacturing and production of ferrous metals and alloys. Jindal Group includes investment companies such as Assessee which, inter alia, hold and transact in shares of operational companies of Group. ITA 305/2002 Page 2 of 5 4.2 Assessee filed its return of income on 28 th December, 1990 declaring income of Rs.75,510/-. In computation of income, Assessee had claimed loss of Rs.40,22,350/-. return was picked up for scrutiny and AO passed assessment order under Section 143(3) of Act on 10th June, 1992. said assessment was set aside by CIT(A) by order dated 2nd February, 1993. Thereafter, notice under Section 143(2) of Act was issued to Assessee and fresh assessment order dated 28th July, 1993 was passed by AO. 4.3 As on 1st April, 1989, Assessee held 1,94,000 equity shares of Jindal Strips Limited (hereafter JSL ). JSL floated rights issue of fully convertible debentures (FCDs) of Rs.140/- each. In terms of said issue, every shareholder would be entitled to subscribe to FCDs in ratio of 2:1, that is, 1 FCD for every 2 equity shares held by shareholders. Accordingly, Assessee was offered 97,000 FCDs. Out of aforesaid entitlement, Assessee renounced rights to subscribe to 35,000 FCDs in favour of M/s Saw Pipes Ltd. (another company of Jindal Group) at Rs.12/- per FCD, that is, at aggregate consideration of Rs.4,20,000/-. 4.4 Assessee claimed that cum-right price of equity share of JSL was Rs.270/- as on 27th October, 1989 and said share was quoted ITA 305/2002 Page 3 of 5 ex-rights at Rs.208/-. Assessee claimed that cost of rights to subscribe to 35,000 FCDs was Rs.43,40,000/- (i.e. Rs.62 per share x 70,000 shares). Accordingly, Assessee claimed that it had incurred loss of Rs.39,20,000/- (Rs.43,40,000/- Rs.4,20,000/-). 4.5 AO noticed that shares of JSL were held as closing stock and, accordingly, disallowed notional cost of acquisition claimed by Assessee. Assessee held that any diminution in value of stock of JSL basis on which cost of acquisition of rights was claimed would be reflected in valuation of closing stock of JSL. He also observed that closing stock was valued at price of Rs.10.38/- per share against market value of Rs.118/- per share and, thus, any loss claimed by Assessee was only notional. 4.6 Assessee appealed to CIT(A) against said assessment order (being Appeal No. 294/93-94). CIT(A) allowed aforesaid appeal and held that loss claimed by Assessee was allowable in terms of decision of Bombay High Court in CIT v. K.A. Patch: (1971) 81 ITR 413 (Bom). 5. Revenue preferred appeal before ITAT, which was rejected. Aggrieved by same, Revenue has filed present appeal. ITA 305/2002 Page 4 of 5 6. present appeal was heard alongwith Commissioner of Income Tax Delhi-I v. M/s Abhinandan Investment Ltd.: ITA No.130/2001 and questions of law framed in present appeal and in ITA 130/2001 are also common. Further, learned counsel for parties contended that material facts and issues in present appeal were similar to issues involved in ITA 130/2001 and decision in ITA 130/2001 would also be determinative of question in present appeal. 7. Thus, in view of our decision in Commissioner of Income Tax Delhi-I v. M/s Abhinandan Investment Ltd.: ITA 130/2001 delivered today, question of law is answered in favour of Revenue and against Assessee. 8. appeal is allowed. parties are left to bear their own costs. VIBHU BAKHRU, J S. MURALIDHAR, J NOVEMBER 19, 2015 RK ITA 305/2002 Page 5 of 5 Commissioner of Income Tax Delhi-i v. M/s Stainless Investment Ltd
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