JOYMALYA BAGCHI, J. - (1.) THIS appeal was admitted on the following substantial question of law in respect of assessment year 1993 -93 : "Whether the tribunal was justified in law in holding that the loss of Rs. 65/ - incurred by the appellant on the sale of each non -convertible Part B of the 15 percent redeemable partly convertible debentures issued by Ballarpur Industries Ltd. aggregating to Rs. 28,17,945/ - was not allowable as a short term capital loss but was required to be treated as part of the cost of acquisition of the convertible Part A of the debentures and its purported findings in this behalf are arbitrary, unreasonable and perverse ?"
(2.) THE appellant assessee filed its return of income for the assessment year 1993 -94 on 21.12.1993. Thereafter, it filed a revised return on 23.12.1994. The revised return was rectified under Section 154 of the Income Tax Act, 1961. In the said revised return the assessee in computation of capital gain claimed a short term capital loss of Rs. 28,57,947/ - as shown below : JUDGEMENT_776_TLCAL0_2012.htm After completing the assessment under Section 143 (3) of the Income Tax Act, the Assessing Officer disallowed the aforesaid short term capital loss of Rs. 28,17,945/ -. In appeal, CIT (Appeals) by order dated 19.04.1996 set aside the disallowance made by the Assessing Officer, inter alia, relying on the decision of the learned Tribunal, Calcutta in ITA No. 2649 (Cal) of 1996 wherein in respect of the self -same rights issue the learned tribunal had arrived at the conclusion that the disallowance as claimed by the assessee as short term capital loss was permissible. This order of CIT (Appeals) was challenged by the revenue before the learned Tribunal in I.T.A. No. 117 (Cal) 1998 wherein the learned tribunal allowed the appeal of the revenue, inter alia, holding that the judgement and order of the learned tribunal in the case of Kamal Trading Co. Vs. Deputy Commissioner of Income Tax in ITA No. 977 (Cal) of 1998 applied to the facts of the instant case and affirmed the disallowance made by the Assessing Officer. Hence, the appellant assessee has filed the instant appeal.
(3.) MR . Khaitan, learned counsel appearing for the appellant assessee states that the appellant assessee applied in the rights issue of 15 percent secured redeemable partly convertible debentures (PCD in short) of Rs. 400/ - each of M/s. Ballarpur Industries Ltd. (BILT in short) in which the appellant assessee had held shares. Each PCD consisted of two parts. Part A was the convertible portion having face value of Rs. 100/ -. The convertible portion at the end of six months from the date of allotment was to stand converted into one equity share of BILT. Part B was the non -convertible portion having face value of Rs. 300/ -. The aggregate sum of Rs. 400/ - for the two parts was payable as follows : JUDGEMENT_776_TLCAL0_20121.htm It was also submitted that the pricing of the PCD and their two parts was approved by the Controller of Capital Issue. The letter of offer of the said rights issue itself provided for arrangement of sale of non -convertible portion (Part B) debentures, whereby BILT had made arrangements with Citi Bank to purchase Part B portion of the PCD having face value of Rs. 300/ - at Rs. 235 per debenture from willing allotees thereby requiring the said allotees not to make any further payment on allotment and to surrender Part B portion of their PCDs in favour of Citi Bank along with a signed blank transfer deed in favour of the Citi Bank at the time of allotment by BILT. Citi Bank on its turn instead of making the payment of the consideration sum of Rs. 235/ - to the applicant i.e. the appellant assessee in the instant case paid the same to BILT on behalf of the appellant assessee in fulfillment of their letters of obligation in respect of the allotment. In such manner, the appellant assessee retained the convertible Part A of the PCD valued at Rs. 100/ - each. In terms of its agreement with the Citi Bank, non -convertible Part B of the PCD having face value of Rs. 300/ - each was sold to a bank at a price of Rs. 225/ - each resulting in loss of Rs. 65 per non -convertible Part B aggregate to Rs. 28,17,945/ -. It is contention of the appellant assessee that convertible Part A of the PCD was severable from the non -convertible Part B which was transferred at a loss by the assessee to Citi Bank and therefore the loss suffered could not be construed to be a part of the cost of acquisition of convertible Part A of the PCD retained by the appellant assessee. ;