LexMISS DHUN DADABHOY KAPADIA versus COMMISSIONER OF INCOME-TAX, BOMBAY
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A B c D E F G H MISS DHUN DADABHOY KAPADIA v. COMMISSIONER OF INCOME-TAX, BOMBAY October 31, 1966 [J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.] Income-tax Act (11 of 1922), s. 128(2)-Renouncerient of right . shares for money value-Depreciation in value of origrnal shares-- Capital gain how calculated. The asaessee was holdin~ as an investment 710 sharos Lo a company. She became entitled to receive 710 new shares issued by the company, with an option to renounce them. She renounced her right to receive the new shares by sale in the open market and realised a sum of Rs. 45,262.50. The Income-tax Officer sought to tax the entire amount at a capital gain• Immediately before the renouncement, the old shares were valued at Rs. 253.00 per share. After renouncement the price of the old shares fell to Rs. 198.75 as a result of which, the assessee suffered a capital loss of about Rs. 38,000. The assessee claimed a set off of this loss against the capital gain of Rs. 45,262.50. The plea was rejected by the Income-tax Authorities, the Appellate Tribunal and the High Court. In appeal to this Court, HELD : The claim of the assessee that her net capital gain was not ·represented by Rs. 45,262.50 was correct. The net capital gain could only be properly computed after deducting the sum which approximately represented the loss incurred simultaneously, by the assessee, in. her origi- nal asset of 710 old shares as a result of the depreciation in their valui:. [4 E, HJ In working out capital gain or loss, the principles that have to be applied are those which an ordinary man of business will resort to when making computation for his business purposes, or which are a part of the commercial practice. (5 GJ Immediately before the assessee renounced her right to take rhe n.;,v shares, the capital asset she possessed consisted of her old 710 shares valued at Rs. 253.00 per share plus the right to take the new 710 shares. After renouncement her capital assets were 710 old shares valued at Rs. 198,75 per share together with the sum of Rs. 45,262.50. Therefore., the value of the capital asset after renouncement would be Rs. 710 x 198.75 plus Rs. 45,262.50 while the. value of the asset, immediately be- fore renouncement, would be Rs. 710 x 253.00, there being no cash value, at the iime Of the right to receive, the. new shares, to be taken. into 'ai.Xouot; and, the net capital gain of the assessee· would be the difference between the two. [4 C-GJ Alternatively, at the time of the issue of new shares the assessee pos- sessed 710 shares and the right to obtain the new shares allotted. When she sold that right and realised Rs. 45,262:50, she capitalized that right and converted it into money. A concomitant of the acquisition of the right was the depreciation in the value of the old shares, and the deprecia- tion, is, in a commercial sense, the value of the right \vhich she subsc· quently transferred. The net capital gain by her would, therefore, be represented, only by the difference between the money realised on trans- fer of the right, and the amount which she lost in the form of <leprecia· lion of her original shares in order to acquire that right. [5 A-El 2 SUPRBMB COURT RBPOllTS (1967] 2 S.C.R. CJ.T., Bihar v. Dalmia lm·estm•nt Co. Ltd. [1964) 7 S.C.R. 210 followed. C!vIL APPELLATE JURISDICTION : Civil Appeal No. 757 of 1965. Appeal from the judgment and order dated August 24/25, 1962 of the Bombay High Court in Income-tax Reference No. 12 of 1961. R. J. Ko/ah and 0. C. Mathur, for the appellant. S. K. Aiyar and R. N. Saclttltey, for the respondent. S. T. Desai, 0. C. Mathur, for interveners. The Judgment of the Court was delivered by Bbargava, J. This appeal by certificate granted by the High Court of Bombay under section 66A(2) of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act") is directed against the answer returned by the High Court to the following question referred to it by the Income-tax Appellate Tribunal under s. 66(1) of the Act:-·- "Whether having regard lo the provisions of section I 2B(ii). the assessee is entitled to claim a deduction from the full value of the consideration of Rs. 45.262.50 nP. re- ceived for the capital asset, the sum of Rs. 37,630 or any similar sum?" The case arose out of proceedings for assessment of the ap- pellant for the assessment year 1957-58, the corresponding previoas year being the financial
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