1. This appeal has been filed late by 3 days. The assessee filed an application for condoning the delay. Having perused the application and having heard both the sides, we are inclined to condone the delay.
2. The assessee is an individual. She owned certain shares in All India Films Corporation Ltd. ('the Company'). The book value of the shares was Rs. 5 each. The company passed a special resolution reducing the share capital from Rs. 5 to Re. 1 per share. The Hon'ble High Court of Delhi confirmed the reduction of the share capital by the order dated 19-4-1977 and 18-5-1977. Accordingly, there was refund of Rs. 4 per share in respect of 16,161 shares held by the assessee in the company out of its accumulated profits. The assessee received in all Rs. 82,780 from the company after the reduction of the share capital. This amount was treated as deemed dividend under Section 2(22)(d) of the Income-tax Act, 1961 ('the Act'). The assessee accepted the position. After the reduction of the share capital on 21-3-1978, 16,160 shares were sold and one share was sold on 29-11-1977. The share sold on 29-11-1977 was, however, registered in the name of the purchaser, Shri V.V. Puri. But in respect of the balance of 16,160 shares though they were sold on 21-3-1978, they were actually registered on 27-7-1978. It may be further mentioned that the shares were sold at Re. 1 per share. The assessee, therefore, claimed short-term capital loss of Rs. 64,644 in the year relevant to the assessment year under appeal on the ground that the cost of acquisition of shares was Rs. 5 per share and having sold the shares at Re. 1 per share, she incurred the loss.
(a) The transfer of shares was registered on 27-7-1978 by the company and as such the question would not arise for consideration in this year as the accounting year ended on 31-3-1978.
(b) There was no transfer otherwise on the basis of any blank transfer by delivery of shares. Thus, the actual transfer took place on 27-7-1978 only.
(c) However, as a protective measure the market value of the shares was determined at Rs. 8.78 per share by applying Section 52(1).
4. The assessee being aggrieved filed an appeal and the matter came up for hearing before the Commissioner (Appeals). He dismissed all the grounds taken by the ITO except by holding that the face value of the shares came down to Re. 1 per share in view of the reduction of share capital. In other words, he held there was no loss to be allowed.
5. Shri Monga, the learned counsel for the assessee, contended that on identical facts in IT Appeal No. 1676 (Delhi) of 1982 dated 23-7-1983, the Tribunal in the case of another shareholder held that the capital loss arose. He has also supported the order by pointing out the relevant provisions in the Act dealing with the question as to what is the cost of acquisition of shares. The learned departmental representative contended that the cost of acquisition of shares should be taken at Re. 1 per share after the reduction of the share capital and, therefore, the order of the Commissioner (Appeals) should be accepted.
6. There is no doubt that the order of the Tribunal relied on by Mr.
Monga clearly supports his case and we agree with the conclusion arrived at by the Bench. But we wish to discuss the matter a little more as we felt that elaboration is necessary.
7. The only question to be considered is about the cost of acquisition.
Cost of acquisition, for the purpose of capital gains or loss is defined under Section 55(2) of the Act. This Sub-section (2) clearly mentions that for the purposes of Sections 48 and 49 of the Act what 'cost of acquisition in relation to a capital asset' means. Though in respect of shares or stock of a company, the mode by which the cost of acquisition can be determined as per Clause (v) of Sub-section (2), there is no reference to a situation arising where there is reduction of share capital. For the purpose of highlighting the point we are stressing, Clause (v) may be quoted : where the capital asset, being a share or a stock of a company, became the property of the assessee on- (a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares, (d) the sub-division of any of the shares of the company into shares of smaller amount, or (e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.
It is evident from the above that the Legislature did not conceive of a situation arising on reduction of share capital. Having dealt with the matter so elaborately in respect of all other situations, reduction of share capital has not been touched upon. This we think has been deliberately done. May be as contended by Mr. Monga that the provision with regard to taxability of deemed dividend would take care of the situation but whatever may be the reason, we are not able to find anything in Sub-section (2) of Section 55 to cover a situation arising on reduction of share capital os far as the determination of cost of acquisition is concerned.
There is no doubt that the cost of acquisition of shares by the assessee is Rs. 5 per share. The fact that there was reduction of share capital and that she received a part of the money has not affected the cost of acquisition. At best it can be stated that she realised a part of the price which she paid but that does not mean that the cost of acquisition has in any way been effected. It remained intact.
8. Though there is no direct decision on the question, we would like to make a reference to some observations of the Madras High Court in the case of CIT v. G. Narasimhan  118 ITR 60. The question in that case was whether there is a transfer, exchange or relinquishment involved in reduction of capital. Their Lordships held that there was no transfer of a capital asset nor it can be said that there had been any extinguishment of the rights of the shareholder as all the rights of the shareholder as a shareholder continued and remained. Ihis would indirectly show that the book value of the shares as per the assessee is not effected at all and it has to be taken as it is.
9. For the above reasons, we accept the capital loss on the sale of share by the assessee as claimed.