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 All India Federation of Tax Practitioners vs. ITO (ITAT Mumbai)
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Pranawa Leafin Pvt Limited, Office No.1, 1st floor, Rangbhavan, M G Cross road, Near Bank of Baroda, Vile Parle (E), Mumbai-400057 Vs. Dy. Commissioner of Income Tax- Range 5(2), Room NO.525, 5th floor, Aayakar Bhavan, M K Road. Mumbai-400020
September, 02nd 2015
                  ,  , 

      ..,     ,                                       

                (   / Assessment Year :2005-06)

 Pranawa Leafin Pvt Limited,     / Dy. Commissioner          of Income
 Office No.1, 1st floor,
                                 Vs. Tax- Range 5(2),
 Rangbhavan, M G Cross road,            Room NO.525, 5th floor,
 Near Bank of Baroda,
 Vile Parle (E),
                                        Aayakar Bhavan, M K Road.
 Mumbai-400057                          Mumbai-400020
        ( /Appellant)             ..    ( / Respondent)

        ./   ./PAN. :AAACP3203F

            / Appellant by             Shri H P Mahajani
            /Rspondent by              Shri Durga Dutt

            / Date of Hearing
                                            : 24.6.2015
           /Date of Pronouncement : 26.8.2015

                               / O R D E R


       The assessee has filed this appeal challenging the order dated
4.11.2013 passed by ld CIT(A)-9, Mumbai and it relates to the assessment
year 2005-06. The Ld Counsel appearing for the assessee did not press
the grounds numbered as 2 and 3 and hence they are dismissed as Not
pressed. The Grounds numbered as 4 and 5 are general in nature. The
remaining ground relates to the issue of nature of capital asset, i.e,
whether the shares sold by the assessee are long term capital asset or
short term capital asset.

2.      The facts relating to the issue are set out in brief. The assessee
applied for 10 lakhs warrants issued by a company M/s Deepak Fertilizers
                                         2                       ITA No.421/M/2014

and Petrochemicals Corporation Ltd (DFPCL) by paying a sum of
Rs.28,65,000/- on 09.12.1994. The said warrants would be converted into
10 lacs equity shares of Rs.10/- each at a premium of Rs.18.65 per share.
On 03-09-1996, DFPCL allotted 10 lac shares to the assessee in lieu of the
warrant issued earlier. Hence the amount payable by the assessee was
Rs.2,86,50,000/-. The amount already paid by the assessee constituted
10% of the amount payable. The remaining amount of Rs.2,57,85,000/-
was paid by the assessee only on 30.01.2004.           On the payment of the
above     said   amount,   the   shares      became   fully   paid   up   shares.
Subsequently, the assessee sold the entire 10 lacs shares on 12.05.2004
for a consideration of Rs.3.80 crores.

3.      The assessee computed long term capital gain by taking the date of
allotment of shares, i.e., 03-09-1996 as the date of acquisition of shares.
Accordingly, the assessee treated the shares a Long term capital asset.
However, the AO held that the date of payment of call money, i.e., 30-01-
2004 should be taken as the date of acquisition of shares and accordingly
he assessed the capital gain as Short term capital gain treating the shares
as short term Capital asset. The Ld CIT(A) also confirmed the view taken
by the AO.

4.       We have heard the parties and perused the record. The assessee
has furnished a copy of share certificate at page 31 of the paper book. A
perusal of the same would show that the assessee has been allotted 10
lakhs shares having distinctive numbers 86629994 to 87629993 on 03-09-
1996.    The face value of shares is shown as Rs.10/- per share.             The
amount paid up per share is shown as Re. 1.00 per share. It is further
stated that the amount payable per share on first and final call is Rs.9.00
per share and the same is payable on 30th Jan, 2004. Thus, it is seen that
the assessee has been allotted ten lacs partly paid up shares on 03-09-
                                     3                       ITA No.421/M/2014

1996 (with a paid up value of Re.1.00 per share).       It is further noticed
that the assessee has received dividend from the above said company.
The copy of dividend warrants are placed at pages 83 and 84 of the paper
book. Since the assessee has paid 10% of the face value, the dividend
has also been paid @ 10% of the dividend amount, i.e., if the dividend is
declared at 25% (25% of Rs.10/-= Rs.2.50), the assessee has been paid
Re. 0.25 per share, i.e., Rs.2,50,000/-. Thus it is noticed that the assessee
has also been receiving dividend on the shares held by it proportionate to
the amount paid up on the shares. The dividend shall be distributed only
to the share holders. All these factors go to show that the assessee has
been holding the partly paid up shares since 3rd September, 1996. The
payment of balance amount of Rs.9/- per share is the first and final call
money, which was payable on 30th Jan, 2004 as per the terms of issue.
In our view, the subsequent payment of call money will not change the
position of right of the assessee as a shareholder in respect of partly paid
up shares. Hence we find merit in the contentions of the assessee that
the partly paid up shares of DFPCL sold by it is a Long term Capital asset.

5.      In case of Long term capital asset, the long term capital gain is
computed by substituting "Cost of acquisition" with "indexed cost of
acquisition". Accordingly, a specific query was posed to the Ld A.R as to
the manner of computation of indexed cost of acquisition, since the cost of
shares has been paid in two instalments. The Ld A.R submitted that the
assessee would claim indexation benefit from the year of respective
payments, i.e, the assessee would be entitled to indexation benefit on the
amount of Rs.28,65,000/- from the financial year 1996-97 and on the
balance amount of Rs.2,57,85,000/-, the indexation benefit shall be
claimed from FY 2004-05. Since the question of computation of indexation
benefits was not considered by the assessing officer, we feel it proper to
leave the same open for his consideration.
                                     4                      ITA No.421/M/2014

6.      Accordingly, we set aside the order of Ld CIT(A) and restore the
matter to the file of the assessing officer with the direction to treat the
shares of DFPCL as long term capital asset and accordingly compute the
long term capital gain in accordance with the law.

7.     In the result, the appeal filed by the assessee is treated as allowed
for statistical purposes.

       Pronounced accordingly on 26th Aug, 2015.
           26th Aug, 2015    

 Sd                                      sd
(  / AMIT SHUKLA)                     (.. / B.R. BASKARAN)

 Mumbai: 26th        Aug,2015.

.../ SRL , Sr. PS

    /Copy of the Order forwarded to :
1.  / The Appellant
2.    / The Respondent.
3.    () / The CIT(A)- concerned
4.     / CIT concerned
5.    ,   ,  /
     DR, ITAT, Mumbai concerned
6.     / Guard file.

                                                          / BY ORDER,
True copy
                                                       (Asstt. Registrar)
                                           ,   /ITAT, Mumbai
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