COMMISSIONER OF INCOME-TAX vs. SUHASBHAI VADILAL FAMILY TRUSTNO.1

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ITR/108/1984HC GujaratGJHC24011782198421 September 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
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What did the High Court hold?

The High Court of Gujarat, in its judgment delivered by R.K. Abichandani, J., answered the referred question in the affirmative, against the Revenue and in favour of the assessee. The Court relied on its own prior decision in Income Tax Reference No. 420 of 1983, which dealt with a similar issue. The reasoning was that when computing the cost of acquisition of Rajesh Textile Mills Limited shares, which were issued in a 1:1 ratio to shareholders of Sayaji Mills Limited, the depreciation in the value of Sayaji Mills Limited shares (Rs. 108.75 per share) suffered by the assessee should be deducted. This deduction is permissible because the issue of shares by Rajesh Textile Mills was directly connected to Sayaji Mills due to an arrangement between the two companies. The Court directed that the capital gains should be recomputed on this basis. The reference was disposed of with no order as to costs.

What were the facts?

The Commissioner of Income-tax (Revenue) has referred a question of law to the High Court of Gujarat at Ahmedabad concerning the assessment of capital gains for the assessee, Suhasbhai Vadilal Family Trust No. 1. The dispute pertains to the computation of capital gains arising from the sale of 300 shares of Rajesh Textile Mills Limited. The Income Tax Appellate Tribunal had ruled that a depreciation in the value of shares of Sayaji Mills Ltd. at Rs. 108.75 per share should be allowed when computing the capital gains. The Income-tax Officer was directed to recompute the capital gains on this basis. The High Court is being asked to rule on the correctness of the Tribunal's decision.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that in computing the capital gains realized on the sale of 300 shares of Rajesh Textile Mills Limited, depreciation in the value of shares of Sayaji Mills Ltd. at Rs. 108.75 paise per share should have been allowed, and that the capital gains should be recomputed by the Income-tax Officer on that basis? Assessee's Contention: The judgment does not explicitly record the assessee's contentions but implies their agreement with the Tribunal's decision. The assessee would likely argue that the depreciation suffered on Sayaji Mills shares, which were directly linked to the acquisition of Rajesh Textile Mills shares, should be factored into the cost of acquisition. Revenue's Contention: The Revenue, by filing the reference, is challenging the Tribunal's decision. They would likely argue that the depreciation in the value of Sayaji Mills shares is not a deductible expense or adjustment for computing the capital gains on Rajesh Textile Mills shares.

Which sections of the Income-tax Act were involved?

Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 108 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

-------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus SUHASBHAI VADILAL FAMILY TRUSTNO.1 --------------------------------------------------------------

Appearance: MR B.B.NAIK with MR MANISH R BHATT for Petitioner MR JP SHAH for Respondent No. 1

--------------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE Date of decision: 21/09/98

ORAL JUDGEMENT (Per R.K.Abichandani,J.)

The Income Tax Appellate Tribunal has referred the following question for the opinion of this Court under Section 256(1) of the Income Tax Act, 1961:-

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that in computing the capital gains realised on sale of 300 shares of Rajesh Textile Mills Limited, depreciation in the value of share of Sayaji Mills Ltd. at Rs. 108.75 paise per share should have been allowed and that the capital gains should be recomputed by the Income-tax Officer on that basis?"

Similar question as the one which has been referred, has been considered and decided by us today in Income Tax Reference No. 420 of 1983 against the Revenue, by holding that while computing the cost of acquisition of the shares of Rajesh Textile Mills Limited which were offered in the ratio of 1:1 to the share-holders of Sayaji Mills Limited, the depreciation in the value of the shares of Sayaji Mills Limited, with which the issue of shares by Rajesh Textile Mills Limited was directly connected in view of the arrangement made between the two companies, of Rs. 108.75 paise per share suffered by the assessee who had acquired the right, was to be deducted and would go in to the working out of the cost of acquisition of the shares of Rajesh Textile Mills Limited. For the same reasons as have been given by us in our judgement in the said Income Tax Reference No. 420/83, we answer the question referred by the Tribunal in the affirmative against the Revenue and in favour of the assessee. The reference stands disposed of accordingly with no order as to costs. ---

*/Mohandas

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