Decided on May 31,1994



R.N. Singhal, Accountant Member - (1.) DEPARTMENT has taken the following 3 substantive grounds : (1) The learned CIT (Appeals) erred in deleting the addition of capital gains of Rs. 23,370 on sale of 485 shares of TISCO which were converted into stock-in-trade before their sale. (2) The learned CIT (Appeals) failed to appreciate the fact that conversion of shares into stock-in-trade and their subsequent sale was with a view to avoid capital gains tax. He ought to have applied the ratio of the Supreme Court decision in McDowell's case (154 ITR 148) and confirmed the addition. (3) Without prejudice to the above, the learned CIT (Appeals) ought to have enhanced the income under the head 'Capital gains' representing the difference between the cost price and the conversion price as he himself has considered the amendment to Section 34 w.e.f. 1-4-1985 in the appellate order. Thus, the dispute is about the taxability and quantification of capital gains.
(2.) The assessee is an individual and the relevant previous year ended on 31-3-1985. The assessee had sold 485 equity shares of TISCO for a total sum of Rs. 1,59,615 out of 507 shares held by her at the beginning of the previous year relevant to this year. In the Profit & Loss a/c for the year ended 31-3-1985, the entries relevant to this item were as follows :- JUDGEMENT_11195_TLIT0_19940.htm Thus, these items left a profit of Rs. 42,730, viz. (1,64,917 -1,22,187). This profit of Rs. 42,730 came to he returned for taxation along with other items, as business profit. The Assessing Officer noted, inter alia, that the assessee had purchased 555 TISCO shares for a sum of Rs. 55,155 in 1977-78 and she received 22 TISCO shares as Bonus shares in the year 1981. By spreading out the original cost to the total number of shares (namely, 777 being 555 + 222) he computed the average cost at Rs. 71 per share. He noted that assessee had converted the said TISCO shares from investment to stock-in-trade on 17-3-1983 at the then prevailing market price of Rs. 241 per share. He, however, rejected the assessee's claim that only a sum of Rs. 42,730would be the taxable income in respect of this transaction in the previous year relevant for the assessment year 1985-86. He computed the capital gains on pg. 4 of the assessment order as follows :- JUDGEMENT_11195_TLIT0_19941.htm Thus, he brought to tax additional sum of Rs. 23,370.
(3.) THE CIT (Appeals) deleted the addition of Rs. 23,370 and held that profit of Rs. 42,730 only was taxable.;

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