Detachable Warrant has conceivable Cost,Sale Consideration from Transfer of Capital Asset is Liable to Capital Gain: Gujarat HC [Read Order]
Detachable – Capital – Asset – Liable – Capital – Gain – Gujarat – HC – TAXSCAN
Detachable – Capital – Asset – Liable – Capital – Gain – Gujarat – HC – TAXSCAN
In a recent case, the High Court( HC) of Gujarat has held that a detachable warrant has a conceivable cost and the sale consideration from the transfer of the capital asset is liable to capital gain.
The appellant, Deepak Nitrite Limited was holding the shares of M/s Deepak Fertilisers and Petrochemicals Ltd. Initially Deepak Fertilisers issued partly convertible debentures of Rs.100/- on the right basis to its shareholders. Each debenture of Rs.100/-was consisting of 3 parts, with a detachable warrant.
The 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 date of allotment.
The appellant sold these warrants on 09.09.1992 at Rs.8.98/- and secured Rs.1,03,27,000/- as the sale price. The Assessing Officer held that the entire sale price is liable to be taxed as a long-term capital gain without the appellant is entitled to any deduction by way of cost or expense therefrom.The Income Tax Tribunal partly allowed the appeal but the view of the C.I.T. (Appeals) was affirmed
It was submitted that the ITAT has erroneously held that detachable warrants have any cost or any conceivable cost. Tribunal has failed to appreciate the issue of whether a detachable warrant has any cost or not.
It was observed that 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 the transfer of capital asset and as such, liable to capital gain further the assessee has already accepted the cost of Rs.2.175/-.
The appellant now states that as per the 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.
A Coram comprising Chief Justice Aravind Kumar and Justice Ashutosh Shastri upheld the view taken by the lower authority since the assessee itself has accepted the cost. Further upheld that the conclusions arrived at by the Tribunal and by the C.I.T. (Appeals).
To Read the full text of the Order CLICK HERE
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