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[2008] 304 ITR 211 (MAD.) HIGH COURT OF MADRAS Commissioner of Income-tax v. ew Ambadi Investments (P.) Ltd. P. D. DINAKARAN AND P. P. S. JANARTHANA RAJA, JJ. T.C (A) NO. 947 OF 2007 JULY 5, 2007 Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeable as Where assessee sold its right to subscribe to partially convertible debentures, and assessee claimed capital loss per transaction on ground that resultant fall in market value of existing shares should be deducted from amount received, assessee's claim was to be allowed [A.Y. 1994-95]. In the return, the assessee had claimed short-term capital loss to the tune of Rs.22,42,053 in respect of sale of rights to partly convertible debentures at the value of Rs. 5. According to the rights offer, for every 10 shares held, 5 PCD of Rs. 150 were issued and the same would be converted into one equity share of Rs. 10 each, plus Rs. 60 premium and balance would be the non-convertible debentures. In view of 1:2 ratio as above, for every right the corresponding drop in the market value of the existing shares would be Rs. 28.25x2=56.50. The assessee claimed the short-term capital loss for the transaction on the ground that the resultant fall in the market value of the existing shares should be deducted from the amounts received. The assessee's claim was not accepted by the Assessing Officer. The Commissioner (Appeals) held that the market value of the rights issue had to be reckoned regardless of whether or not the sale contribution of the rights was less than the notional loss. On appeal, the order of the Commissioner (Appeals) was confirmed by the Tribunal. Held that in view of the decision of the Apex Court in Miss Dhun Dadabhoy Kapadia v. CIT[1967] 63 ITR 651 and the decision of the Bombay High Court in CIT v. Motichand Construction Co. (P.) Ltd. [2003] 261 ITR 70 , it was found that in the law is well-settled on the point and, therefore, the assessee was entitled to claim the capital loss that had arisen due to transfer of rights issue to partly convertible debentures. Mrs. Pushya Sitaraman for the Appellant. JUDGMENT P. D. Dinakaran, J.-Whether the capital loss can be claimed in respect of transfer of rights…

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