Commissioner of Income Tax vs Crown Estates P. Ltd.

Whether the income tax Appellate Tribunal was justified in holding that the income earned from sale of tradable warrants amounting to Rs. 37,46,400 was not taxable on the ground that the asset transferred had no cost of acquisition, is the question raised in this appeal The assessment year involved herein is the assessment year 1994-95.

Admittedly, the assessee had stopped its trading activity since the assessment year 1993-94 and whatever stocks of shares remained with the assessee have been converted into investment. On sale of the tradable warrants held as investment in the assessment year in question, the assessee claimed that the profits arising therefrom are not taxable as the tradable warrants do not have any cost of acquisition. The Assessing Officer, however, held that the income earned on sale of tradable warrants was liable to capital gains tax. The appeal filed by the assessee against the said order was dismissed by the Commissioner of income tax (Appeals). On further appeal, the income tax Appellate Tribunal has allowed the claim of the assessee.

The question to be considered is, whether the traceable warrants which do not have any cost can be assumed to have "nil" cost of acquisition, even in the absence of any statutory provision to that effect ? Admittedly, clause (aa) of section 55(2) of the income tax Act, 1961, has been brought on the statute book by the Finance Act, 1995, with effect from April 1, 1996, to the effect that the cost of acquisition attributable to the trading warrants shall be statutorily deemed to be nil with effect from April 1, 1996. Since the assessment year involved herein is the assessment year 1994-95, that is, prior to the insertion of clause (aa) of section 55(2) of the Act, in our opinion, no fault can be found with the decision of the income tax Appellate Tribunal in holding that in the assessment year in question, the income earned on the sale of tradable warrants were (not ?) liable to capital gains tax as the said tradable warrants did not have any cost of acquisition. In the result, we see no merit in the appeal and the same is dismissed with no order as to costs.