NAVIN JINDAL versus ASSTT. COMMISSIONER OF INCOME TAX

Citation: [2010] 1 S.C.R. 255 · Decided: 11-01-2010 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2010] 1 S.C.R. 255 
NAVIN JINDAL 
v. 
ASSTT. COMMISSIONER OF INCOME TAX 
(Civil Appeal No.634 of 2006) 
JANUARY 11, 2010 
[S.H. KAPADIA, H.L. DATIU AND DEEPAK 
VERMA, JJ.] 
Income Tax Act, 1961: 
A 
B 
c 
s. 48 -
'Capital gains' - Offer made to assessee-
shareholder to subscribe to Partly Convertible Debentures 
(PCDs) at par on Rights Basis - Assessee renouncing the 
right - Loss due to diminution in value of original equity 
shares on renunciation of right to subscribe to additional 0 
shares/debentures - HELD: Rightly shown by assessee as 
'short-term loss' - Revenue erred in treating the same as 
'long-term loss'. 
The assessee in Civil Appeal No.634 of 2006 held 
1500 equity shares of a Company. The Company, in 
E 
January 1992 announced issue of 12.5% equity share 
secured PC Os (Partly Convertible Debentures) of Rs.110/ 
- for cash at par to shareholders on Rights Basis. The 
assessee received an offer to subscribe to 1875 PCDs on 
Rights Basis. He renounced his right to subscribe to 
F 
PCDs in favour of another Company on 15th February, 
1992 at the rate of Rs.30/- per Right. Accordingly, 
assessee received Rs.56,250/- for renunciation of right to 
subscribe to PCDs. Against this s~!e consideration, 
assessee suffered diminution in the value of the original 
G 
1500 equity shares at the rate of Rs.200/- per share, 
totalling to Rs.3,00,000/-. Consequently, the capital loss 
suffered by the assessee was Rs.2,43, 750/-. The assessee 
showed the loss of Rs. 2,43,750/- as short term capital 
255 
H 
256 
SUPREME COURT REPORTS 
[2010] 1 S.C.R. 
A loss whereas the Revenue treated it as long term capital 
loss and computed assessee's income accordingly. The 
other appeals were filed in similar circumstances. 
The question for consideration before the Court 
8 was: whether the amount of Rs.2,43,750/- was a 'short 
term capital loss' as claimed by the· assessee, or a 'long-
term loss' as assessed by the Revenue? 
Allowing the appeals, the Court 
c 
HELD: 1.1. The loss suffered by the assessee 
amounting to Rs.2,43,750/- was a short-term loss. The 
computation of income under the head 'capital gains' as 
submitted by the assesee is correct and the computation 
of income made by the Department is erroneous. [Para 
D 14) [270-C-D) 
1.2. The right to subscribe for additional offer of 
shares/debentures on Rights basis, on the strength of 
existing shareholding in the Company, comes into 
existence when the Company decides to come out with 
E the Rights Offer. Prior to that, such right, though 
embedded in the original shareholding, remains inchoate. 
The same crystallizes only when the Rights Offer is 
announced by the Company. Therefore, in order to 
determine the nature of the gains/loss on renunciation of 
F right to subscribe for additional shares/debentures, the 
crucial date is the date on which such right to subscribe 
for additional shares/debentures comes into existence 
and the date of transfer (renunciation) of such right. The 
said right to subscribe for additional shares/debentures 
G is a distinct, independent and separate right, capable of 
being transferred independently of the existing 
shareholding, on the strength of which such Rights are 
offered. [Para 8) [264-A-D] 
I~ 
1.3. For the purposes of s.48 of the Act, one must 
NAVIN JINDAL v. ASSTI. COMMISSIONER OF 
257 
INCOME TAX 
keep in mind the important principle that chargeability A 
and computation has to go hand in hand. Computation 
is an integral part of chargeability under the Act. It is for 
this reason that the right to subscribe for additional offer 
of shares/debentures comes into existence only when 
the Company decides to come out with the Rights Offer. 
B 
It is only when that event takes place, that diminution in 
the value of th~ original shares held by the assessee 
takes place. One has to give weightage to the diminution 
in the value of the original shares which takes place when 
the Company decides to come out with the Rights Offer. c 
[Para 9) [264-E•G]. 
. 
· 
Miss Dhun Dadabhoy Kapadia vs. Commissioner of 
Income-Tax, Bombay (1967) 63 ITR 651, relied on. 
·Case Law Reference: 
(1967) 63 iTR 651 
relied' on 
Para 10 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 634 
of 2006. 
D 
E 
From the Judgment & Order dated 11.8.2005 of the High 
Court of Punjab & Haryana at Chandigarh in Income Tax Appeal 
No. 55 of 2002. 
WITH 
C.A. Nos. 635; 636, 637 and 639 of 2006. 
Ajay Vohra, Kavita Jha, Sandeep S. Karhail, Manoj Swarup 
for the 

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