Case Law Details
Case Name : Navin Jindal Vs. ACIT in Civil Appeal No. 634 of 2006 (Supreme Court of India)
Appeal Number : 11/01/2010
Date of Judgement/Order :
Related Assessment Year :
- The assessee held certain number of equity shares in a listed Indian Company and the company issued equity secured partly convertible debentures (PCDs) for cash at par to its shareholders on right basis.
- The assessee received an offer to subscribe such PCDs on right basis which he renounced in favor of a buyer against a consideration.
- The assessee claimed loss on account of diminution in the value of his original equity shares (being the difference between the cum-right price per share and the ex- rights price per share) based on an earlier Supreme Court decision in case of Miss Dhun Dadabhoy Kapadia Vs CIT (63 ITR 651) against the consideration received from the buyer on account of such renunciation of right.
- The assessee claimed such loss to be short term loss as against the revenue?s claim for treating such loss as long term. The quantum of loss calculated by the assessee, however, had not been an issue before the Supreme Court.
For the purpose of determination of loss as short term or long term, when can the right to subscribe for additional equity shares be said to have come into existence?
Ruling of the Supreme Court
- The right to subscribe for additional offer of shares/ debentures on rights basis comes into existence when the company decides to come out with the rights offer. Prior to that, such right, though embedded in the original shareholding, remains inchoate. The same crystallizes only when the rights offer is announced by the company.
- The said right to subscribe for additional shares/ debentures is a distinct, independent and separate right. Such right is capable of being transferred independently of the existing shareholding, on the strength of which such rights are offered.
- In order to determine the nature of the gains/ loss on renunciation of right to subscribe for additional shares/ debentures, the crucial date is the date on which such right to subscribe for additional shares/debentures comes into existence and the date of transfer/ renunciation of such right.
- Computation is an integral part of charge ability under the Indian Income-tax Act.
- Based on the fact of the case, Supreme Court held that the loss incurred by the assessee on the renunciation of right to subscribe PCDs is a short term capital loss.
Source: Navin Jindal Vs. ACIT in Civil Appeal No. 634 of 2006 (Supreme Court)