A GHOSH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This case arises out of an order passed by the Income-tax Appellate Tribunal in I.T.A. No. 5105 (Cal) of 1972-73 preferred by Mrs. Anna Ghosh. The relevant assessment year being the assessment year 1965-66.

(2.) Mrs. Anna Ghosh had acquired 433 debenture bonds of the value of Rs. 4 3,300 of M/s. Standard Pharmaceutical Ltd. on 20th December, 1962. Similarly, Dr. H. Ghosh had acquired 365 debenture bonds of the value of Rs. 36,500 of M/s. Standard Pharmaceutical Ltd. on 20th December, 1962. Under the second mortgage debenture trust deed dated 21st September, 1963, the debenture holders had the option to exchange the debentures into fully paid up equity shares. Mrs. Ghosh had exercised her option on 1st October, 1963, and exchanged 433 debenture bonds for 4,330 equity shares of Rs. 10 each. She sold 4,000 shares to M/s. Synbiotics Ltd. of Ahmedabad for Rs. 1,24,000 on March 30, 1964, earning a surplus of Rs. 84,000. Similarly, Dr. Ghosh had exercised the option on 1st October, 1963, and exchanged 365 debenture bonds for 3,650 equity shares of Rs. 10 each. Later on, he sold 3,500 shares to M/s. Synbiotics Ltd. of Ahmedabad for Rs. 1,08,500 on 30th March, 1964, earning a surplus of Rs. 73,500. The ITO treated the surplus of the above amounts as business income. On appeal, the AAC held that the surplus was in the nature of capital gain but not business income which was upheld by the Tribunal by its order dated 21st December, 1971, in I.T.A. Nos. 1798 and 2797 (Cal) of 1971-72. In pursuance of the order of the AAC, which was upheld by the Tribunal, the ITO modified the assessment order so as to treat the surplus as capital gain. While doing so the ITO treated the surplus as short-term capital gain.

(3.) Appeals were again preferred to the AAC. The AAC in his order dated 21st November, 1973, held that the conversion of the debenture bonds into equity shares was not self-generated or automatic. As holder of debenture bonds the assessee was only a creditor of the company. She ceased to be such a creditor on 1st October, 1963, when she exchanged the debenture bonds for fully paid up equity shares and the debenture bonds ceased to exist. The asset which was acquired on 1st October, 1963, i.e., the equity shires, was entirely different from the asset which she possessed before that date. Thus, he held that the asset which was sold on 30th March, 1964, was acquired only on 1st October, 1963, and, consequently, the period during which the assessee held the asset was less than 12 months and as such the surplus earned on the sale of the asset must be treated as short-term capital gain.