HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Miss Dhun Dadabhoy Kapadia v. Commissioner of Income-tax, Bombay
Civil Appeal No. 757 of 1965
[1967] 2 SCR 1 ·
Indian Income-tax Act, 1922: sections 12B(ii), 66(1) and 66A(2)
Sources & disclosures includedDownload original judgment / order
3-judge bench · J. C. Shah, J. · V. Ramaswami, J. · V. Bhargava, J.
Assessment years: 1957-58
01 · Facts of the case
The assessee held 710 Tata Iron and Steel Company ordinary shares as an investment. A 1956 one-for-one rights issue entitled her to 710 new shares at Rs.105 each or to renounce the entitlement. She sold the entitlement on 12 June 1956 for Rs.45,262.50. Around the shares going ex-rights, the quoted value of each original share fell from Rs.253 to Rs.198.75. The tax authorities and Bombay High Court treated the full receipt as capital gain and rejected her claim to deduct about Rs.37,630 representing the fall in value of the original shares. The referred issue arose for AY 1957-58.
02 · Discussion by the Hon’ble Court
The Court analysed the transaction as a whole. Immediately before renunciation, the taxpayer's capital asset comprised the 710 old shares plus the matured right to acquire 710 new shares. Afterwards she held the old shares at their lower ex-rights value plus the cash received. The net gain therefore required deducting the value diminution attributable to the rights. In the alternative formulation, depreciation of the old shares was, in a commercial sense, the value invested in acquiring the transferable right, so only the excess of sale proceeds over that diminution represented net gain. Drawing support from Dalmia Investment and ordinary business/accounting practice, the Court rejected the High Court's view that such commercial principles were inapplicable merely because the computation was for tax.
Source: Before-and-after asset comparison and alternative commercial valuation: SCR pp.4-5 / PDF pp.4-5; Accounting/commercial-practice principle and final computation: SCR pp.5-6 / PDF pp.5-6
03 · Judicial decision
The Court held that the full Rs.45,262.50 receipt was not the net capital gain and that approximately Rs.37,630, representing the simultaneous depreciation in the 710 original shares, had to be deducted. It allowed the appeal, set aside the High Court's answer, answered the referred question affirmatively and awarded the assessee costs in both courts.
Source: Deduction, affirmative answer and operative allowance: SCR p.6 / PDF p.6
04 · Outcome / in whose favour
In favour of the assessee. She obtained a recomputation principle and an affirmative answer to the reference; the Court did not treat the entire renunciation receipt as taxable net gain.
05 · AKHB REVIEW POINT
AKHB analysis: for a rights-entitlement disposal, reconstruct the complete economic transaction rather than isolating cash proceeds. Preserve the offer terms, record date, entitlement ratio, subscription price, cum-rights and ex-rights quotations, sale contract and holding character of the original shares. Compute only under the statute applicable to the relevant year: this judgment's commercial logic is historically important, but current cost-basis rules and later authorities require separate verification.
Source: AKHB analysis based on the whole-transaction and commercial-practice reasoning
Source & verification
Download original judgment / order · Open cited source rendition
Full 6-page SCR report read. The editorial headnote on PDF pp.1-2 was distinguished from the unnumbered judgment beginning on PDF p.2. The headnote's OCR-like '128(2)' was not followed because the judicial text and referred question identify section 12B(ii).
- Exact source bytes, SHA-256 and six-page count match catalogue asset 1967_2_1_6; every PDF page was read.
- The judicial text verifies Civil Appeal No. 757 of 1965, decision on 31 October 1966, the three-member bench, AY 1957-58 and previous year 1956-57.
- No Dhun Dadabhoy Kapadia record exists in content/supreme-court-cases.json. One later published record discusses this precedent, but is a different 2010 judgment and not a duplicate.
Statutory scope
This decision applies section 12B of the repealed Indian Income-tax Act, 1922 to a 1956 rights issue. Current capital-gains provisions, cost rules for rights entitlements, later statutory amendments and subsequent judicial treatment have not been checked.
Later treatment
Source checked 2026-10-10. Later judicial treatment and the current statutory computation of rights-entitlement gains have not been comprehensively checked; no current-law or citator clearance is represented.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
Coverage, AI disclosure & professional disclaimer
Selected Supreme Court income-tax decisions and procedural orders checked against their identified sources. This collection is not exhaustive. The research catalogue has 2,569 indexed PDF assets, including alternate copies and incidental matches; that is not a count of unique or reviewed judgments. Historical and unreported coverage remains open.
AI-assisted research checked against the identified source. Extraction, interpretation or omission errors remain possible. Source review does not mean independent approval by a practising professional. Verify every material statement against the complete original judgment.
General research information only; not legal or tax advice, a certified judgment or a substitute for the full order. Applicability depends on facts, assessment year, statutory version and jurisdiction. Subsequent treatment is unverified unless a note expressly identifies the sources checked. Downloading does not create a professional engagement. Obtain case-specific advice before reliance.
The official 1961–2025 structural correspondence does not establish that a precedent applies under the new Act. Verify the enacted wording, commencement and transitional provisions separately.