Gujarat High Court

M/S Deepak Nitrite Ltd vs Dy.Commissioner Of Income ... on 12 January, 2023

Bench: Ashutosh Shastri

 C/TAXAP/1653/2007                                         CAV JUDGMENT DATED: 12/01/2023




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
                     R/TAX APPEAL NO. 1653 of 2007
================================================================

M/S DEEPAK NITRITE LTD.

Versus DY.COMMISSIONER OF INCOME TAX,(ASSTT.) SPECIAL RANGE-2 ================================================================ Appearance:

MR MANISH J SHAH(1320) for the Appellant(s) No. 1 MRS KALPANAK RAVAL(1046) for the Opponent(s) No. 1 ================================================================ CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR and HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI

Date : 12/01/2023

CAV JUDGMENT

(PER : HONOURABLE MR. JUSTICE ASHUTOSH SHASTRI)

1. The present appeal is filed under Section 260A of

the Income Tax Act, 1961, challenging the decision

delivered by the Income Tax Appellate Tribunal in ITA

No. 154/Ahd/2002 in respect of assessment year 1993-94.

1.1. The brief background of the facts leading to the

rise of present appeal : appellant, Deepak Nitrite Limited

was holding the shares of M/s Deepak Fertilisers and

Petrochemicals Ltd. (hereafter referred to as "Deepak

Fertilisers" in short). Initially the Deepak Fertilisers

issued partly convertible debentures of Rs.100/- on right

basis to its share holders. Each debenture of Rs.100/-

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

was consisting of 3 parts, part A, B and C with a

detachable warrant in the following manner :-

"(a) Part A of Rs.20/- which will be compulsorily st and automatically converted on 1 January, 1990

into one equity share of Rs.10/- at a premium of

Rs.

(b) Part B of Rs.30/- which will be compulsorily st and automatically converted on 1 January, 1991

into one equity share of Rs.10/- at a premium of

Rs.20/-.

(c) Part C of Rs.50/- and a detachable warrant

with rights to apply for and be allotted one equity

share as under :"

2. It is the case of the appellant that holder of the

warrant shall have the right to apply for and be allotted

one equity share of Rs.10 at a price not exceeding

Rs.50/- as may be decided by the Controller of Capital

Issue (CCI) and these rights shall be exercised during a

period of 3 months or such longer period as may be

determined by Board of Directors of DEPCL between the

expiry of 4 years and the expiry of 6 years from the

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date of allotment. According to appellant, it was clear

from part C, which relates to non-convertible part of

debenture carried a warrant along with it, which entitled

the holder to apply for one share at a price to be fixed

by CCI not exceeding Rs.50/- and as such, the holder of

this part i.e. part 'C' can sell the debenture on face

value of Rs.50/- and / or, the warrant separately or he

could wait until the specified time and get allotment of

one share.

3. The assessment year concerned here is the year

1993-94, the appellant i.e. Deepak Nitrite limited sold

these warrants on 09.09.1992 at Rs.8.98/- and secured

Rs.1,03,27,000/- as sale price. The Assessing Officer held that entire sale price is liable to be taxed as a long

term capital gain without appellant being entitled to any

deduction by way of cost or expense therefrom and the

stand of the appellant came to be rejected relying upon

the decision of Tribunal in ITA No.458/Ahd/1993, which

is pending in reference before the High Court being

I.T.R. No.66 of 1998 and as such, held that valuation of

cost of this detachable warrant must be Rs.2.175/-.

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

4. Feeling aggrieved by and dissatisfied with the

aforesaid view, the appellant approached the Tribunal

against the decision of C.I.T. (Appeals) and the learned

Tribunal vide its order dated 09.04.2007 was pleased to

partly allow the appeal but the view of the C.I.T.

(Appeals) was affirmed and it is against this order of

the Tribunal, dated 09.04.2007, which was received by

the appellant on 22.08.2007, the appellant has preferred

present Tax Appeal under Section 260A of IT Act by

raising brief contentions.

5. The appeal was entertained by the previous

Co-ordinate Bench on 18.01.2008 and appeal was admitted on following question :-

                "Whether       on          the      facts        and           in       the
                circumstances         of     the         case      the detachable

warrants attached with Part 'C' of debentures of Deepak Fertilizers and Petrochemicals Ltd. had no conceivable cost of acquisition, and therefore, there was no taxable capital gain on sale of detachable warrants?"

6. The present appeal then came up for consideration

before this Court for final hearing in which, the learned

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advocate Mr.Manish J. Shah has represented appellant

whereas, Mr. Hirak Shah appeared for Mrs. Kalpanak

Raval for the opponent.

7. Learned advocate Mr. Manish Shah has submitted

that appellate Tribunal i.e. ITAT has erroneously held

that detachable warrants has any cost or any conceivable

cost. Tribunal has failed to appreciate the issue whether

detachable warrant has any cost or not, is pending

before the Hon'ble High court in ITA No.66 of 1998 and

as such, it was desirable to send the matter back to the

Assessing Officer to abide by the decision in the said

reference.

7.1. Learned advocate Mr. Shah has submitted that this

appeal relates to the assessment year 1993-94 and the

learned Tribunal, instead of examining the issue at

length, has not properly considered the stand of the

appellant. In fact, according to Mr. Shah, the detachable

warrants have no cost of acquisition but then despite the

said fact by a brief order, Tribunal has affirmed the

view of C.I.T. (Appeals). This being a clear error, said

order deserves to be interfered with.

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

7.2. Learned advocate Mr. Manish Shah has submitted

that in the background of this, the question of law,

formulated be answered in favour of the appellant-

assessee and appeal be allowed.

7.3. With a view to substantiate his contention, the

learned advocate Mr. Manish Shah has referred to

following decisions :

(i) [2008] 307 ITR 289 (Guj)

(ii) [2012] 346 ITR 1 (Bom)

(iii) The decision in ITA No. 518/Ahd/1993 decided by

the Appellate Tribunal Bench, Ahmedabad on 07.08.2009.

8. Learned advocate Mr. Hirak Shah appearing on

behalf of the Revenue has vehemently contended that

Tribunal has not committed any error and as such, the

appeal may not be entertained. According to Mr. Shah,

Tribunal while passing an order has thoroughly gone

through the decisions, which have been cited before it

and has considered, even the sale of detachable warrant

to be a capital receipt in the hands of assessee. While

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

passing the order, Tribunal has examined the said issue

by taking note of the judgement in the case of CIT vs.

B.C.Srinivasa Shetty [128 ITR 294] and appellant's own

case of the recent past and after examining the same

has held that part of the cost is attributable to the

detachable warrant, which was ascertained at Rs.2.175/-

and as such, the Assessing Officer was rightly directed

to recalculate the capital gain after considering the said

figure and said view of C.I.T. (Appeals) having been

rightly examined by the learned Tribunal, there appears

to be no error. In fact, the background of facts would

indicate that question, which has been formulated by the

Co-ordinate Bench at the time of admission, deserves to

be answered in favour of revenue.

9. To support his submission, learned advocate Mr.

Hirak Shah has relied upon the decision delivered by the

Calcutta High Court reported in [2014] 52 taxmann.com

110 (Calcutta) and has submitted that stand of the

appellant does not deserve to be entertained. Hence, he

has requested the Court to dismiss the appeal.

10. Having heard the learned advocates appearing for

the respective sides and having gone through the

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

material on record and having examined the order

passed by the learned Tribunal, as also of C.I.T.

(Appeals) the question before us is whether detachable

warrants attached with part C of debentures of Deepak

Fertilizers have any conceivable cost of acquisition or not

and if not? whether to be treated as taxable capital gain

on sale thereof or not?

11. Tribunal has examined the stand of C.I.T.

(Appeals) and also of Assessing Officer, which in turn

scrutinized the stand of the assessee's claim that warrant

has no cost of acquisition, but then assessee had placed

reliance upon one decision in B.C.Srinivasa Shetty case

(supra), to contend that the same is not liable to be taxed. However, said decision was relating to a goodwill,

which was undisputedly as self generating asset while

presently, the issue is of detachable warrant, which is

having a separate existence and as such a part of cost

of debenture attributable to the warrant, which are inter-

linked. The C.I.T. (Appeals) has referred to the earlier

decision of learned Tribunal in case of this very assessee

i.e. present appellant for the assessment year 1989-90

and after examining has held that part of the cost is

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

attributable to detachable warrant and as per the said

decision, it was to be taken at Rs.2.175/- and as such,

has directed the Assessing Officer to accept the valuation

and calculate the capital gain accordingly, since the

detachable warrant has an existence on its own along

with the debenture purchased by the assessee for a sum

of Rs.50/-. The realisation thereof would be a sale

consideration arising out of transfer of capital asset and

as such, liable to capital gain and further the assessee

has already accepted the cost of Rs.2.175/-. Hence, in

this peculiar background since C.I.T. (Appeals) has

directed the Assessing Officer to recompute the deduction

after taking the said figure into consideration, Tribunal

did not interfere with said finding. Hence, a satisfaction and the conclusion, which has been arrived at, is based

on aforesaid consideration of facts, which appears to be a

reasonable and possible view taken by the Tribunal.

12. At this stage, the decision which has been cited by

the learned advocate Mr. Shah for the appellant of

Deepak Nitrite Limited itself reported in [2008] 307 ITR

289 (Guj) when perused would indicate the background of

facts, if taken note of, said decision may not be of any

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

assistance to the appellant. Firstly, the transaction of the

assessee, in that case, was genuine or not was center of

controversy and secondly, contention was raised whether

detachable warrant had any cost or not, but that

appears to be not the controversy between the parties

and as such, the High Court felt that it was not

sufficient for the Tribunal to embark upon such an

exercise in the absence of any controversy being raised.

Hence, the said judgment when taken in its entirety,

especially paragraphs 7 and 8 and the observations

contained therein would indicate that decision would not

be of any assistance to the appellant and principles

enunciated therein cannot be applied as a straight-jacket

formula by divorcing the facts.

13. In addition to this, yet another decision, which has

been relied upon of Bombay High Court reported in

[2012] 346 ITR 1 (Bom), on close perusal would indicate

that issue was about sale of tradable warrants whether

taxable or not and the asset transfer had no cost of

acquisition. However, perusal of paragraph 4 would

clearly indicate that said judgment is also of no

assistance since the assessment year here involved in the

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

instant case is 1993-94 and as such, we are of the

opinion that decision cited was relating to effect of

amendment and it is of no assistance to the appellant in

the instant case.

14. In the case on hand, it was observed clearly by

C.I.T. (Appeals) and the view of it was affirmed by

learned Tribunal is on the basis that the appellant itself

has clearly stated that it was agreeable to accept the

valuation of Assessing Officer at Rs.2.175/- only and it is

under such circumstances the Assessing Officer was

directed to accept the said valuation and calculate the

capital gain accordingly. Paragraph 18 of the order of

CIT (Appeals) is indicating the said fact, which we deem it proper to quote hereunder :

"18. The appellant now states that as per assessment order giving effect to I.T.A.T.'s order for A.Y. 1989-90, they are agreeable to accepting the valuation of the assessing officer which came to 2.175 only. For the present year also therefore the assessing officer is directed to accept this valuation and calculate capital gains accordingly."

As such, when the assessee itself has accepted the

cost as indicated above, we are of the view that both

the authorities have rightly come to the conclusion since

C/TAXAP/1653/2007 CAV JUDGMENT DATED: 12/01/2023

the same is based upon the appellant's representation

itself.

15. Under the circumstances whether matter was

required to be remanded back or not was an issue and

not required to be gone into since there appears to be

a clear stand of the appellant itself, which has led the

authority below to proceed and pass an order now under

challenge. Now, at this stage, we may also take note of