1993-VIL-652-BOM-DT
Equivalent Citation: [1993] 203 ITR 358, 72 TAXMANN 181
BOMBAY HIGH COURT
Date: 08.04.1993
ASBESTOS CEMENT LIMITED
Vs
COMMISSIONER OF INCOME-TAX
BENCH
Judge(s) : U. T. SHAH., DR. B. P. SARAF
JUDGMENT
The judgment of the court was delivered by
DR. B. P. SARAF J.-By this reference under section 256(1) of the Income-tax Act, 1961, the following three questions have been referred to this court for opinion :
" 1. Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the capital gains arising to the assessee, a non-resident maintaining its accounts in the U. K. on the sale of shares of Hindustan Ferodo Limited, an Indian company, should be computed in terms of Indian rupees rejecting the case of the assessee that as it has no place of business in India and it maintains its accounts in the U. K., the capital gains arising from the transaction should be first computed in pounds and then converted into Indian rupees for the purpose of taxation?
2. Whether, even assuming that the assessee was entitled to first compute the amount of capital gains in sterling currency and then convert it into Indian rupees, the assessee was entitled to the determination of the cost of the shares for the purpose of deduction which is not the historical cost at the time of acquisition of the concerned shares, but the cost worked out at the subsequent point of time on the basis of the exchange rate of the two currencies prevailing on the date of transaction of sale?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the Appellate Assistant Commissioner of Income-tax ought not to have considered the additional ground raised by the applicant even though the subject-matter of such an additional ground was a claim made in the original return of income and all the facts relating thereto were on the Income-tax Officer's records, which was subsequently withdrawn by filing a revised return of income and was once again raised in appeal before the Appellate Assistant Commissioner in view of the decision of the Tribunal in another case?"
The first two questions were referred by the Tribunal under section 256(1) of the Income-tax Act, 1961 (for short, "the Act"). The third question has been referred in pursuance of the direction of this court issued under section 256(2) of the Act on a notice of motion taken by the assessee.
So far as the third question is concerned, it is agreed by counsel for the parties that the controversy raised therein is no more res integra in view of the decision of the Supreme Court in jute Corporation of India Ltd. v. CIT [1991] 187 ITR 688 and, following the above decision, it has to be held that the Appellate Assistant Commissioner of Income-tax had the power to consider the additional ground raised by the appellant for the first time at the appellate stage. In that view of the matter, we answer the third question in the negative, that is, in favour of the assessee and against the Revenue.
We are thus left with the first two questions only. The controversy raised in these two questions pertains to the computation of capital gains on the sale of shares by a non-resident. The facts of the case are in a very narrow compass which, briefly stated, are as follows :
This reference relates to the assessment year 1974-75, the corresponding previous year being the year ended on March 31, 1974. During this previous year, the assessee sold 1,50,000 shares in an Indian company, namely, Hindustan Ferodo Ltd., to the Life Insurance Corporation and the Unit Trust of India. The, sale price was Rs. 22 per share. This price was also approved by the Government of India. The question arose in regard to the computation of capital gains on the transfer of these shares by the assessee. These shares had been acquired by the assessee on October 31, 1964, at the rate of Rs. 10 per share. The purchase price thus came to Rs. 15,00,000.
The assessee worked out the capital gains by converting the cost of acquisition of the shares which was Rs. 15,00,000 into pound sterling at the then prevailing exchange rate and also by converting the sale price of the shares in pound sterling at the rate prevailing at the time of transfer. According to the assessee, the difference so arrived in pound sterling converted again into Indian rupees can alone be treated as the capital gains for the purpose of assessment under the Income-tax Act, 1961. By calculating in the manner aforesaid, the assessee arrived at a capital gain of Rs. 39,873 only. This amount was arrived at by adding to the cost of acquisition certain amount by way of cost of improvement of the shares. However, the assessee later submitted a revised computation, deleting from the cost of acquisition the alleged cost of improvement and thus arrived at a figure of Rs. 3,90,751 as capital gain derived by it. The Income-tax Officer did not accept the manner of computation of the assessee. He worked out the capital gain by taking the actual sale proceeds of Rs. 1,50,000 shares at the rate of Rs. 22, which came to Rs. 33,00,000 and deducting therefrom the cost of these shares at the rate of Rs. 10 per share which amounted to Rs. 15 lakhs. The Income-tax Officer also allowed deduction of a sum of Rs. 4,000 by way of bank charges in connection with the sale and thus arrived at the figure of Rs. 17,96,000 as capital gain which, according to him, was chargeable to tax under the head "Capital gain".
The controversy regarding addition of any cost of improvement of the shares is not before us for determination because that question was not decided by the authorities below. By virtue of our answer to the third question in favour of the assessee, this may have to be examined in accordance with law by the Tribunal or the Appellate Assistant Commissioner.
The only question that falls for determination before us is whether the computation of capital gain made by the Income-tax Officer is correct or not. Before we proceed to decide this question, it may be pertinent to mention that there is no dispute either regarding the sale price or the cost of acquisition of the shares. The admitted position is that 1,50,000 shares were acquired by the assessee at the rate of Rs. 10 per share and the same were sold by the assessee during the relevant previous year at the rate of Rs. 22 per share. The total sale consideration as well as the cost of acquisition are thus not in dispute. Both the purchase price and sale price were in rupees. None of the two transactions were expressed in foreign currency. The fact that the income did arise to the assessee in India is also not in dispute. That being so, we do not find any reason why the Income-tax Officer should convert the cost of acquisition and the sale price in the currency of the country where the assessee resides, at the rates prevailing at the particular point of time and find out the difference between the two in that currency and then convert the same in terms of the Indian rupee for the purpose of computation of capital gain. Such an exercise becomes necessary only in cases where the transactions are expressed in terms of foreign currency because the assessment has to be made in India by the Indian income-tax authorities on the income to be determined in terms of the Indian rupee. The sole ground on which the assessee claims the right to compute the capital gain in such a manner is that the assessee had paid for the purchase of these shares in pound sterling in U. K.
We have considered the submissions of counsel for the assessee. We find it difficult to agree with the submission that the assessee is entitled to compute the capital gain in the manner it has sought to do. In our opinion, it will be a curious way of determining the income accruing or arising in India in terms of the Indian rupee. In fact, the place where the assessee resides or the currency in which the money is deposited in the bank for the purpose of purchase, etc., are, in our opinion, not relevant factors for determining the income arising from transactions where the cost of acquisition and consideration for transfer, etc., are all expressed in Indian rupees. In this case, the transaction of transfer of shares took place in India. The acquisition of shares was made in India. The cost of acquisition was expressed in terms of Indian rupees so also the sale price. Under the circumstances, the question of converting the cost of acquisition and sale price into foreign currency, at the rates prevailing at the relevant time, finding out capital gains in foreign currency and then converting the same into Indian rupees to find out the amount chargeable to income-tax under the head "Capital gains" cannot arise.
Reference may be made in this connection to the decision of this court dated January 18, 1993, in CIT v. Pfizer Corporation [1993] 202 ITR 115 (Income-tax Reference No. 106 of 1978). In the above case, the assessee, who was a non-resident company, got gross dividend of Rs. 87 lakhs. The net dividend after deduction of tax at source was Rs. 72,30,000. This amount was remitted to the assessee in the U. S. A. The assessee received in U. S. dollars 9,55,979.91. The assessee claimed that the amount received by him in U. S. dollars should be converted into Indian rupees by the application of rule 115 of the Income-tax Rules and the amount so arrived at should be treated as its income. Repelling the contention of the assessee, this court held that the income having accrued to the assessee in terms of Indian rupees, rule 115 had no application. The question of conversion arises only in cases where the income is expressed in foreign currency. The ratio of the above decision fully applies to the present case.
In the light of the foregoing discussion, we answer the first question referred to us in the affirmative, that is, in favour of the Revenue and against the assessee. We also answer the second question in the negative, that is, in favour of the Revenue and against the assessee. We have already answered the third question in favour of the assessee. This reference is disposed of accordingly.
Under the facts and circumstances of the case, we make no order as to costs.
DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.