Ranjit Narang. Vs. Income Tax Appellate Tribunal. - Court Judgment

Excerpt:
[markandey katju; gyan sudha misra, jj.] - mr. qadri, learned counsel for the appellant submitted that the copy of the report of the union public service commission was supplied to the respondent-employee along with the dismissal order. it may be noted that the decision in s.n.narula's case (supra) was prior to the decision in t.v.patel's case(supra). 1. heard learned counsel for the appellant and sri d.d. chopra, learned counsel for the respondent.2. the present appeal was admitted on the following substantial questions of law:-"(a) whether explanation 1(i)(e) of section 2(42a) of the income tax act, which has been inserted by the finance act, 1994 and has been brought into effect from 01.04.1995, can be applied to the facts and circumstances of the present case retrospectively since the assessment order under challenge is for the financial year 1991-92 for which the relevant assessment year is 1992-93.(b) whether the gain from renouncement of rights option is taxable under the income tax act in light of the fact that no method for computation of "cost of acquisition" of a rights option was prescribed in the income tax act prior to.....

Judgment:
1. Heard learned counsel for the appellant and Sri D.D. Chopra, learned counsel for the respondent.

2. The present appeal was admitted on the following substantial questions of law:-

"(A) Whether Explanation 1(i)(e) of Section 2(42A) of the Income Tax ACt, which has been inserted by the Finance Act, 1994 and has been brought into effect from 01.04.1995, can be applied to the facts and circumstances of the present case retrospectively since the assessment order under challenge is for the financial year 1991-92 for which the relevant assessment year is 1992-93.

(B) Whether the gain from renouncement of rights option is taxable under the Income Tax Act in light of the fact that no method for computation of "cost of acquisition" of a rights option was prescribed in the Income Tax Act prior to the insertion of Section 55(2)(aa)(ii) of the Income Tax Act by the Finance Act, 1994 brought into effect from 01.04.1995.

(C) Whether the period of holding of a rights option can be reckoned from the date of offer of such right and not from the date of allotment of original shares in light of the fact that the Appellate was entitled to the rights option by operation of law under Section 81 of the Companies Act, 1956 by virtue of being a holder of equity shares of Ballarpur Industries Ltd."

3. The assessee having share of Ballarpur Industries Ltd. received 1867 right shares which were partly convertible debentures of Ballarpur Industries Ltd. This was in the nature of right to subscribe new shares. Assessee sold its rights within a month of its purchase/allotment for Rs. 41,074/-. The assessee contended that the original shares were more than three years old and the right shares were allotted in relation to these old shares. Therefore, the right shares should also be considered as long term capital asset of the assessee, as the assessee derived period of holding from the old shares. Hence, the assessee claimed long term capital gain and accordingly shown the same in his return filed for assessment year 1992-93. The Assessing Officer has rejected his claim on the ground that selling of share within a month, amount to short term capital gain.

4. The order of Assessing Officer was affirmed before the Tribunal. It was not disputed that right shares were acquired by the assessee on the payment as was fixed. It has also not been disputed that the assessee sold the said right shares within one month from the date of appropriation/affiliation. Accordingly, the learned Tribunal held that it was case of short term capital gain.

5. Under definition of Section 2(42B) "short term capital gain has been defined as capital gain arising from the term capital asset.

6. Under definition clause Section 2(42A) of the Income Tax Act, the short term asset has been further defined as the capital asset hold by an assessee for not more than 36 months immediately preceding the date of its transfer. The proviso to section 2(42A) further provides that in case of a share held in a company, the word "36 months" shall be substituted by word "12 months". Since the assessee sold the share within one month it shall be short term capital asset as held by the Tribunal.

7. Reference to it, it shall not be long term capital gain in lieu of definition given in Section 29(A) and 29(B). In the present case, it is admitted that the share was purchased and sold within a month. Therefore, it shall be short term capital gain. The finding recorded by the Tribunal does not seem to suffer from any impropriety or illegality and it seems to be correct.

Accordingly, question is answered in favour of the revenue and against the assessee.