JUDGMENT
1. This application under [SECTION] of the [ACT], has been taken out on the ground whether the amount of Rs. 2,48,348 is a capital receipt or a revenue receipt.
2. In the decision, based on the appreciation of the evidence and whether it should be taxed or not, the Tribunal has followed the decision of the apex court in [PRECEDENT] and the decision of this court in [PRECEDENT],
3. We issued rule and heard learned counsel on rule.
4. The assessee is an investment company. It was holding 33,000 equity shares of Indian Rayon and Industries Ltd. The said company issued 13.5 per cent. secured fully convertible debentures on rights basis to its existing shareholders in the ratio of one debenture for one equity share held. The assessee subscribed to 6,000 debentures and transferred the right to subscribe to 27,000 debentures, for which it received Rs. 2,48,348.
5. Before the Assessing Officer, the assessee has claimed that the right to subscribe to the debentures was a capital asset and that as there was no cost of acquisition, the sale proceeds were not exigible to tax as capital gains in view of the decision in [PRECEDENT], .
6. The Assessing Officer has accepted the cost of debentures at "nil", but he taxed the entire amount of Rs. 2,48,348 as capital gain.
7. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has treated the same as a revenue receipt and taxed as such. In appeal before the Tribunal, the Tribunal has treated this receipt against the capital assets and following the decision of the Supreme Court in [PRECEDENT], and the decision of this court in [PRECEDENT] held that the loss in the value of shares is more than the amount of Rs. 2,48,348 received by the assessee, therefore, this amount cannot be subjected to capital gain tax.
8. Learned counsel for the Revenue has not brought to our notice any material except the order of the Commissioner of Income-tax (Appeals) where the Commissioner of Income-tax (Appeals) has treated this receipt as a revenue receipt. He also failed to point out any finding by any tax authorities to show that the assessee is a dealer in shares. Even the Assessing Officer himself has accepted that the assessee is an investment company and these debentures are received against capital assets. When the fact is not in dispute, that the debentures are received against capital assets, receipt of the amount of Rs. 2,48,348 can be treated at the most as capital gains, but in view of the decision relied upon by the Tribunal that in a case where there is a fall in the capital value of the assets, in the form of shares, if any amount is received and including that amount, the total value of the shares is less than the cost invested by the assessee, then that amount received cannot be taxed as capital gain.
9. Learned counsel for the Revenue only pointed out that the abovenoted decisions are on rights shares and not on the debentures.
10. We are of the considered view that when rights shares or debentures are issued, there can be a fall in the value of original shares and that cannot be ignored while computing the capital gain on sale of such rights shares or debentures. If their value is included and that is not more than the cost invested in the share capital, the sale amount of rights shares or debentures cannot be taxed as capital gain. Thus, in view of the fact that those original shares were treated as capital assets and when there is no finding that the assessee is a dealer in shares and considering the decisions of their Lordships, relied upon by the Tribunal, if after including that gain, the value of the shares on that date falls short of the cost invested in the shares, no capital gain remains for tax.
11. The rule is accordingly discharged.