Schrader Duncan Ltd. v. Additional Commissioner of Incometax

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The Tax Publishers2012 TaxPub(DT) 1991 (Mum-Trib) : (2012) 150 TTJ 0559 : (2012) 050 SOT 0068 : (2012) 079 DTR 0025 INCOME TAX ACT, 1961 --Capital gains--Capital lossConversion of Unit 64 into 7.5 per cent bonds--Assessee was a company. It is engaged in the business of manufacturing of automobile tyre, tube, valves and accessories and hydraulic and pneumatic equipment. Assessee claimed long term capital loss. Assessee had acquired units (including bonus units) under the under section 64 Scheme of Unit Trust of India (UTI) during the assessment years 1992-93 to 2001-02. The same units were converted by UTI into 6.75% Tax Free Bonds in the previous year relevant to assessment year 2004-05, w.e.f. 1-6-2003. Assessee worked out the indexed cost of acquisition of the units and after reducing the value at which units were converted, the assessee arrived at long term capital loss. Assessees claim was for determination of long term capital loss and for carry forward of the same for set off in subsequent assessment years in accordance with law. The assessing officer did not allow the claim as made by the assessee. He held that as per section 45, only conversion of capital asset into stock-in-trade amounts to transfer for the purpose of capital gains. Hence, conversion of under section 64 into 6.75% Tax-free under section 64 Bonds does not amount to transfer. Contrary to his stand that conversion of under section 64 into 6.75% Tax-free under section 64 Bonds does not amount to transfer, the assessing officer held that the provisions of section 45(6) would apply to conversion of under section 64 into 6.75% Tax-free under section 64 Bonds. Assessing officer held that since the units of under section 64 have been repurchased and such repurchase value has been converted into tax free bonds, provision of section 45(6) would apply. Thereafter, the assessing officer proceeded to compute short-term capital loss. The claim of the assessee for long term capital loss is hereby disallowed. However, short-term Capital Loss, which is the difference between the purchase price and sale price, is allowed to the assessee. As per the computation filed along with the return of income, the assessee has shown the purchase price of units which has been computed by multiplying the total units with the average purchase price per Unit. Whereas as per the actual acquisition cost of these units, purchase price comes certain sums. The sale value of these Units has been shown certainsums. For the 4,56,891 Bonus Units, the assessee has not disclosed any sale (repurchase) price. Therefore, the same are being valued by way of multiplying the units @ Rs. 10 per Unit as shown in the cases of other Units. The cost of these Units are taken at Rs. nil being the Bonus Units. Thus, the total repurchase value of all the Units shown in the chart is computed . The difference between the purchase price and sale (repurchase) price of these units is being allowed as Short Term and Capital Loss. Penalty proceedings under section 271(1)(c) are hereby initiated separately for concealment of income / furnishing inaccurate particulars of income. Before Commissioner (Appeals), the assessee submitted that the capital gains on the conversion of subject under section 64 units into under section 64 tax free bonds must be computed under normal provisions under section 45(1) and not under section 45(6). The Commissioner (Appeals) was of the view that provisions of section 45(6) were not applicable to the facts of the assessees case. On the question as to whether conversion of units into bonds would amount to loss, the Commissioner (Appeals) held that the essential three conditions of section 45, i.e., (i) that there should be a capital asset; (ii) there shall be a transfer and; (iii) there shall be a surplus on such transfer, are being fulfilled, inasmuch as on redemption of under section 64, the rights of the appellant are extinguished in the said unit and a totally new unit, 6.7% interest free bonds, at a fresh valuation, are being issued. Thus, while on the one hand there is an extinguishment of rights, on the other hand a surplus/loss arises as a result of the conversion.' The Commissioner (Appeals), however, proceeded to hold that the entire loss claimed by the assessee cannot be allowed. In effect, the Commissioner (Appeals) enhanced the assessment in as much as the short-term capital loss determined and allowed to be carried forward for set off by the assessing officer was also withdrawn. Aggrieved by the order of the Commissioner (Appeals), the assessee has raised Gr. before this Tribunal. The revenue has not filed any appeal against the order of Commissioner (Appeals) holding that section 45(6) does not apply to the case of the assessee and the finding that conversion of under section 64 units into 6.75% tax free bonds amounts to a transfer. Therefore, these findings of the Commissioner (Appeals) has become final. Held: Section 10(33) is applicable only to units being units of under section 64 Scheme. After redemption or conversion of units of under section64 scheme pursuant to the UTI (TUR) Act, units of Unit Scheme, 1964 virtually became extinct and the question of giving exemption from capital gain tax did not arise for consideration at all after 31-5-2003. Provisions of section 10(33) would be the provision applicable to assess the claim of the assessee for its claim for right to determine the loss on conversion of the units of under section 1964 into 6.75% tax-free bonds and the claim to carry forward such loss for set-off in subsequent assessment years in accordance with law and not provisions of section 10(35). SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1991 (Mum-Trib) : (2012) 150 TTJ 0559 : (2012) 050 SOT 0068 : (2012) 079 DTR 0025

INCOME TAX ACT, 1961

--Capital gains--Capital lossConversion of Unit 64 into 7.5 per cent bonds--Assessee was a company. It is engaged in the business of manufacturing of automobile tyre, tube, valves and accessories and hydraulic and pneumatic equipment. Assessee claimed long term capital loss. Assessee had acquired units (including bonus units) under the under section 64 Scheme of Unit Trust of India (UTI) during the assessment years 1992-93 to 2001-02. The same units were converted by UTI into 6.75% Tax Free Bonds in the previous year relevant to assessment year 2004-05, w.e.f. 1-6-2003. Assessee worked out the indexed cost of acquisition of the units and after reducing the value at which units were converted, the assessee arrived at long term capital loss. Assessees claim was for determination of long term capital loss and for carry forward of the same for set off in subsequent assessment years in accordance with law. The assessing officer did not allow the claim as made by the assessee. He held that as per section 45, only conversion of capital asset into stock-in-trade amounts to transfer for the purpose of capital gains. Hence, conversion of under section 64 into 6.75% Tax-free under section 64 Bonds does not amount to transfer. Contrary to his stand that conversion of under section 64 into 6.75% Tax-free under section 64 Bonds does not amount to transfer, the assessing officer held that the provisions of section 45(6) would apply to conversion of under section 64 into 6.75% Tax-free under section 64 Bonds. Assessing officer held that since the units of under section 64 have been repurchased and such repurchase value has been converted into tax free bonds, provision of section 45(6) would apply. Thereafter, the assessing officer proceeded to compute short-term capital loss. The claim of the assessee for long term capital loss is hereby disallowed. However, short-term Capital Loss, which is the difference between the purchase price and sale price, is allowed to the assessee. As per the computation filed along with the return of income, the assessee has shown the purchase price of units which has been computed by multiplying the total units with the average purchase price per Unit. Whereas as per the actual acquisition cost of these units, purchase price comes certain sums. The sale value of these Units has been shown certainsums. For the 4,56,891 Bonus Units, the assessee has not disclosed any sale (repurchase) price. Therefore, the same are being valued by way of multiplying the units @ Rs. 10 per Unit as shown in the cases of other Units. The cost of these Units are taken at Rs. nil being the Bonus Units. Thus, the total repurchase value of all the Units shown in the chart is computed . The difference between the purchase price and sale (repurchase) price of these units is being allowed as Short Term and Capital Loss. Penalty proceedings under section 271(1)(c) are hereby initiated separately for concealment of income / furnishing inaccurate particulars of income. Before Commissioner (Appeals), the assessee submitted that the capital gains on the conversion of subject under section 64 units into under section 64 tax free bonds must be computed under normal provisions under section 45(1) and not under section 45(6). The Commissioner (Appeals) was of the view that provisions of section 45(6) were not applicable to the facts of the assessees case. On the question as to whether conversion of units into bonds would amount to loss, the Commissioner (Appeals) held that the essential three conditions of section 45, i.e., (i) that there should be a capital asset; (ii) there shall be a transfer and; (iii) there shall be a surplus on such transfer, are being fulfilled, inasmuch as on redemption of under section 64, the rights of the appellant are extinguished in the said unit and a totally new unit, 6.7% interest free bonds, at a fresh valuation, are being issued. Thus, while on the one hand there is an extinguishment of rights, on the other hand a surplus/loss arises as a result of the conversion.' The Commissioner (Appeals), however, proceeded to hold that the entire loss claimed by the assessee cannot be allowed. In effect, the Commissioner (Appeals) enhanced the assessment in as much as the short-term capital loss determined and allowed to be carried forward for set off by the assessing officer was also withdrawn. Aggrieved by the order of the Commissioner (Appeals), the assessee has raised Gr. before this Tribunal. The revenue has not filed any appeal against the order of Commissioner (Appeals) holding that section 45(6) does not apply to the case of the assessee and the finding that conversion of under section 64 units into 6.75% tax free bonds amounts to a transfer. Therefore, these findings of the Commissioner (Appeals) has become final. Held: Section 10(33) is applicable only to units being units of under section 64 Scheme. After redemption or conversion of units of under section64 scheme pursuant to the UTI (TUR) Act, units of Unit Scheme, 1964 virtually became extinct and the question of giving exemption from capital gain tax did not arise for consideration at all after 31-5-2003. Provisions of section 10(33) would be the provision applicable to assess the claim of the assessee for its claim for right to determine the loss on conversion of the units of under section 1964 into 6.75% tax-free bonds and the claim to carry forward such loss for set-off in subsequent assessment years in accordance with law and not provisions of section 10(35).