Commissioner Of Income Tax ... vs M/S Mansarover Investments Ltd.
2015 Latest Caselaw 8625 Del

           THE HIGH COURT OF DELHI AT NEW DELHI
%                                     Judgment delivered on: 19.11.2015
+       ITA 246/2003
COMMISSIONER OF INCOME TAX DELHI-II                      ..... Appellant
                         versus
M/S MANSAROVER INVESTMENTS LTD.                          ..... Respondent
Advocates who appeared in this case:
For the Appellant    : Mr. N.P. Sahni, Senior Standing counsel.
For the Respondent   : Ms Kavita Jha and Ms Mehak Gupta.

CORAM:
DR. JUSTICE S. MURALIDHAR
MR. JUSTICE VIBHU BAKHRU
                              JUDGMENT

VIBHU BAKHRU, J

1. The Revenue has preferred this appeal under Section 260A of the

Income Tax Act, 1961 (hereafter the 'Act') impugning an order dated 13th

January, 2003 passed by the Income Tax Appellate Tribunal (hereafter

'ITAT') in ITA No. 1177/Del/2001. The said appeal (being ITA No.

1177/Del/2001) was preferred by the Assessee against an order dated 31st

January, 2001 passed by the Commissioner of Income Tax (Appeals)

[hereafter 'CIT(A)], inter alia, rejecting the Assessee's appeal against the

assessment order dated 31st March, 1992 relating to the assessment year

(hereafter 'AY') 1992-93.

2. This Appeal was admitted on 10th May, 2006 and the following

questions of law were framed:-

"1. Whether the I.T.A.T. was right in holding that the sale consideration received by the assessee by transfer of shares and sale of rights entitlement of partly convertible Debentures (PCD's) is income from capital gains and not income from business?

2. Whether the I.T.A.T. was right in holding that the assessee had incurred loss on sale of its entitlement to acquire partly convertible debentures & the assessee is entitled to set off the alleged loss from the capital gains/income earned by the assessee?"

3. The Assessee had sold 60,000 equity shares of Jindal Strips Limited

(hereafter 'JSL') and declared a short term capital gain of Rs.1,30,60,000/-.

In addition, the Assessee had also sold 2,600 shares of M/s Jindal Ferro

Alloys Ltd. and had declared a long term capital gain of Rs.2,49,760/- after

claiming deduction under Section 48(2) of the Act. The Assessee also held

shares of Jindal Iron and Steel Company Ltd. (hereafter 'JISCO') on the

basis of which the Assessee was entitled to subscribe to partly convertible

debentures (PCDs) of JISCO pursuant to rights issue floated by JISCO

during the year. The Assessee renounced these rights in favour of JSL for a

consideration of Rs.30/- per PCD, that is, for an aggregate consideration of

Rs.32,28,750/-.

4. At the material time, the Assessee had reflected the shares held by it

in various companies as stock-in-trade and valued the same at cost or

market price. According to the Assessee, its board of directors had decided

to retain the shares on long term basis and consequently passed a resolution

on 4th April, 1991 resolving that all shares held by the Assessee be

transferred from stock-in-trade to investment in the balance sheet as on 31st

March, 1992.

5. The Assessee claimed that it had suffered a loss on account of

renunciation of rights to subscribe to PCDs of JISCO. According to the

Assessee, the cost of acquisition of the said rights was Rs.200/- per PCD

which was renounced at Rs.30/- per PCD. The Assessee sought to set off

the loss against the capital gains declared by it.

6. The AO as well as the CIT(A) held that the transaction of

renunciation of PCDs was a sham transaction and executed only for the

purpose of purchasing the notional loss. It was also noted that the funds

realized by the Assessee from the sale of shares was also transferred to

related companies.

7. At the outset, the learned counsel for the parties stated that the

material facts and issues were similar to that in Commissioner of Income

Tax Delhi-I v. M/s Abhinandan Investment Ltd.: ITA No.130/2001 and

the decision in that case would also be determinative of the questions in the

present appeal.

8. Thus, in view of our decision in Commissioner of Income Tax

Delhi-I v. M/s Abhinandan Investment Ltd.: ITA 130/2001 delivered

today, the questions of law are answered in favour of the Revenue and

against the Assessee.

9. The appeal is allowed. The parties are left to bear their own costs.

VIBHU BAKHRU, J

S. MURALIDHAR, J NOVEMBER 19, 2015 RK