JCT LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS appeal was admitted on the following substantial question of law in respect of assessment year 1993 -93 :

(2.) THE appellant assessee filed its return of income for the assessment year 1993 -94 on 21.12.1993. Thereafter, it filed a revised return on 23.12.1994. The revised return was rectified under Section 154 of the Income Tax Act, 1961. In the said revised return the assessee in computation of capital gain claimed a short term capital loss of Rs. 28,57,947/ - as shown below : <FRM>JUDGEMENT_776_TLCAL0_2012.htm</FRM> After completing the assessment under Section 143 (3) of the Income Tax Act, the Assessing Officer disallowed the aforesaid short term capital loss of Rs. 28,17,945/ -. In appeal, CIT (Appeals) by order dated 19.04.1996 set aside the disallowance made by the Assessing Officer, inter alia, relying on the decision of the learned Tribunal, Calcutta in ITA No. 2649 (Cal) of 1996 wherein in respect of the self -same rights issue the learned tribunal had arrived at the conclusion that the disallowance as claimed by the assessee as short term capital loss was permissible.

(3.) MR . Khaitan, learned counsel appearing for the appellant assessee states that the appellant assessee applied in the rights issue of 15 percent secured redeemable partly convertible debentures (PCD in short) of Rs. 400/ - each of M/s. Ballarpur Industries Ltd. (BILT in short) in which the appellant assessee had held shares. Each PCD consisted of two parts. Part A was the convertible portion having face value of Rs. 100/ -. The convertible portion at the end of six months from the date of allotment was to stand converted into one equity share of BILT. Part B was the non -convertible portion having face value of Rs. 300/ -. The aggregate sum of Rs. 400/ - for the two parts was payable as follows : <FRM>JUDGEMENT_776_TLCAL0_20121.htm</FRM> It was also submitted that the pricing of the PCD and their two parts was approved by the Controller of Capital Issue. The letter of offer of the said rights issue itself provided for arrangement of sale of non -convertible portion (Part B) debentures, whereby BILT had made arrangements with Citi Bank to purchase Part B portion of the PCD having face value of Rs. 300/ - at Rs. 235 per debenture from willing allotees thereby requiring the said allotees not to make any further payment on allotment and to surrender Part B portion of their PCDs in favour of Citi Bank along with a signed blank transfer deed in favour of the Citi Bank at the time of allotment by BILT. Citi Bank on its turn instead of making the payment of the consideration sum of Rs. 235/ - to the applicant i.e. the appellant assessee in the instant case paid the same to BILT on behalf of the appellant assessee in fulfillment of their letters of obligation in respect of the allotment. In such manner, the appellant assessee retained the convertible Part A of the PCD valued at Rs. 100/ - each. In terms of its agreement with the Citi Bank, non -convertible Part B of the PCD having face value of Rs. 300/ - each was sold to a bank at a price of Rs. 225/ - each resulting in loss of Rs. 65 per non -convertible Part B aggregate to Rs. 28,17,945/ -.