MISS DHUN DADABHOY KAPADIA vs. COMMISSIONER OF INCOME-TAX, BOMBAY

CIVIL APPEAL No. 757/1965Supreme Court[1967] 2 S.C.R. 131 October 1966Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, VISHISHTHA BHARGAVA B6 pages
AI SummaryAllowed

What were the facts?

The assessee, Miss Dhun Dadabhoy Kapadia, held 710 ordinary shares as an investment. She was entitled to receive 710 new shares from the company, with an option to renounce them. She renounced her right to the new shares by selling them in the open market, realizing Rs. 45,262.50. The Income-tax Officer sought to tax this entire amount as capital gain. Immediately before renouncement, the old shares were valued at Rs. 253.00 per share. After renouncement, the price of the old shares fell to Rs. 198.75, resulting in a capital loss of approximately Rs. 38,000 for the assessee. The assessee claimed to set off this loss against the capital gain. This plea was rejected by the Income-tax Authorities, the Appellate Tribunal, and the High Court. The case reached the Supreme Court via an appeal.

What did the Supreme Court hold?

The Supreme Court held that the assessee's claim that her net capital gain was not represented by the entire Rs. 45,262.50 was correct. The net capital gain could only be properly computed after deducting the sum that approximately represented the loss incurred simultaneously by the assessee in her original asset of 710 old shares due to the depreciation in their value. The Court reasoned that in working out capital gain or loss, the principles applied should be those of commercial practice. Immediately before renouncement, the assessee's capital asset comprised 710 old shares valued at Rs. 253 per share plus the right to 710 new shares. After renouncement, her assets were the 710 old shares valued at Rs. 198.75 per share, along with the Rs. 45,262.50 received. The net capital gain is the difference between the value of the asset after renouncement (Rs. 710 x 198.75 + Rs. 45,262.50) and the value before renouncement (Rs. 710 x 253.00). This calculation shows the gain is Rs. 45,262.50 minus the depreciation in old shares. The Court followed the principle laid down in Commissioner of Income-tax, Bihar v. Dalmia Investment Co. Ltd. The appeal was allowed, and the High Court's answer was set aside.

What were the issues?

1. Whether, having regard to the provisions of section 12B(ii) of the Income-tax Act, 1922, the assessee is entitled to claim a deduction from the full value of the consideration of Rs. 45,262.50 received for the capital asset, the sum of Rs. 37,630 or any similar sum? Assessee's contentions: - The net capital gain should be computed after deducting the loss incurred due to the simultaneous depreciation in the value of her original shares. - The right to receive new shares was embedded in the old shares, and when this right was sold, the capital gain should be calculated by deducting the value of this embedded right (which became liquidated) from the amount realized. - The principles of accountancy applicable to valuation in such situations should be applied. - Relied on principles of commercial practice and accounting for computation of capital gain or loss. Revenue's contentions: - The entire amount of Rs. 45,262.50 realized from the renouncement of the right to new shares should be taxed as capital gain. - The High Court held that principles of Accountancy applicable to valuation of such rights are not applicable for taxation purposes.

Which sections of the Income-tax Act were involved?

Section 12B(ii),Section 66(1),Section 66A(2)

AI-generated summary — verify with the full judgment below

A B c D E F G H MISS DHUN DADABHOY KAPADIA v. COMMISSIONER OF INCOME-TAX, BOMBAY October 31, 1966 [J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.] Income-tax Act (11 of 1922), s. 128(2)-Renouncerient of right . shares for money value-Depreciation in value of origrnal shares-- Capital gain how calculated.

The asaessee was holdin~ as an investment 710 sharos Lo a company.

She became entitled to receive 710 new shares issued by the company, with an option to renounce them.

She renounced her right to receive the new shares by sale in the open market and realised a sum of Rs. 45,262. 50. The Income-tax Officer sought to tax the entire amount at a capital gain• Immediately before the renouncement, the old shares were valued at Rs. 253.00 per share. After renouncement the price of the old shares fell to Rs. 198.75 as a result of which, the assessee suffered a capital loss of about Rs. 38,000. The assessee claimed a set off of this loss against the capital gain of Rs. 45,262. 50. The plea was rejected by the Income-tax Authorities, the Appellate Tribunal and the High Court.

In appeal to this Court, HELD : The claim of the assessee that her net capital gain was n

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 66(1)

All 184 judgments and leading authorities on Section 66(1) →

Recent GST High Court judgments

Search GST case law →