TMI Blog2006 (9) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act'). The Assessing Officer, therefore, completed the assessment under section 144 of the Act on 25-3-2004. The Assessing Officer referred to Schedule-V, where it was mentioned that assessee owned 8,75,640 quoted shares of Shriram Pistons and Rings Ltd. as on 31-3-2001. The market value of these quoted shares as on 30-3-2001 was Rs. 31.55 per share, and the same worked out to Rs. 69,06,610. Since these shares included issue of two bonus shares, market value of each share came to Rs. 7.88 per share. However, the value of shares as shown in the balance sheet was Rs. 32,60,000. The Assessing Officer noticed a difference of Rs. 36,46,610 in the value of shares shown in the balance sheet i.e., (Rs. 69,06,610 - 32,60,000). The Assessing Officer, therefore, called upon the assessee to explain the difference. In reply to the query raised by the Assessing Officer, it was explained that company was an Investment Company and all the investments were valued at cost. It was submitted that the same method of valuation of valuing the shares at cost price had been consistently followed from the past assessment year. It was also submitted that the market value of shares was required to be discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d shares had all along been valued at cost price. Thus, the Assessing Officer submitted that the matter may be decided in the light of these facts on record. The Ld. CIT(A) considered these submissions and observed that the issue regarding valuation of bonus shares came up for consideration before the Hon'ble Supreme Court in the case of CIT v. Dalmia Investment Co. [1964] 52 ITR 567 where it was held that correct method to apply in cases where bonus shares rank pari passu is to take the cost of the original shares and to spread it over all the original as well as the bonus shares to find out the average of all these shares. He further relied on the judgment of Hon'ble Supreme Court in the ease of CIT v. Gold Mohore Investment Co. Ltd. [1968] 68 ITR 213 which was again on the issue of valuation of bonus shares. He also noted that in the accounting year under reference, the assessee had not sold any shares of M/s. Shriram Piston Rings Ltd. But he referred to the judgment of Hon'ble Supreme Court in the case of Raja Mohan Raja Bahadur v. CIT [1967] 66 ITR 378 where it was held that income could not alone be in the form of money's worth. The income could also be in the form of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown at the rate of 31.55 per share. It was also mentioned that market price was reduced to 1/4th of Rs. 31.55 as two bonus issues were made thereafter. He referred to page 17 of the paper book No. 1. However, he submitted that investments were shown at cost in the balance sheet. He submitted that this method has been consistently followed from year to year in the past. However, in one of the communications, the Ld. AR had inadvertently mentioned that investments were valued at cost or market price, whichever was less. But the position in this regard was clarified vide letter dated 28-2-2004. He made a categorical statement at the bar and also in writing that investments had all along been valued at costs and the market value of quoted shares given in the Notes to the accounts was only for the purpose of presentation to the shareholders as per request of the Companies Act. He submitted that this position was also clarified before the Assessing Officer in the remand proceedings. He further referred to page 14 of the Paper Book No. II which is chart indicating year-wise position of shareholdings of M/s. Shriram Pistons and Rings Ltd.; by the assessee right from 1990-91 to 2001-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where it was held that the bonus shares received by the assessee did not become stock-in-trade in the hands of shareholders and it remains as capital asset. Thus, he submitted that the Ld. CIT(A) was not justified in sustaining the impugned addition. 5. The Ld. DR, on the other hand, relied on the orders of the authorities below. However, he submitted that if it is held that the shares were only investments, no addition could be made because these were not sold by the assessee in the accounting year under reference. However, he submitted that shares of M/s. Shriram Pistons Rings Ltd. were held by the assessee only with a view to manage and retain the control of the Group Companies. But when his attention was drawn as to whether there was any discussion in the assessment order or impugned order that these shares were held with an objective of retaining the control and management of the Group Companies, the Ld. DR conceded that there is none. However, he submitted that while confirming the addition, the Ld. CIT(A) has impliedly held that shares were held stock-in-trade. 6. We have heard both the parties and carefully considered the rival contentions, gone through the evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the accounting year relevant to assessment year 1949-50, the assessee had sold encumbered estate bonds for Rs. 3,21,600 i.e., less than the face value and disclosed interest received on account of difference between the amount realized by sale of bonds and amount due as principle. However, the Assessing Officer initiated the reassessment proceedings to bring to tax the difference between the face value of the Bonds and the amount due, as principle on the ground that the same had escaped assessment year 1948-49, which was in fact shown in the return filed for the assessment year 1949-50. The issue before the Hon'ble Supreme Court was whether the receipt of encumbered estate bonds amounted to receipt of cash during the previous year relating to the assessment year 1948-49 or 1949-50 when the bonds were in fact sold. The other issue raised before the Hon'ble Court was whether the mere receipt of encumbered estate bonds tantamounted to receipt of income assessable in the assessment year 1948-49. On these facts, it was held that if accounts were maintained according to mercantile system, whenever the right to receive money in the course of trading transaction accrues or arises, eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the revenue as stock-in-trade. Therefore, the issue in question can be considered only from the point of charging of capital gain. Section 45 of the Act deals with the computation of capital gain. The same is reproduced as under: "45(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income-tax under the head 'Capital Gains', and shall be deemed to be the income of the previous year in which the transfer took place." A bare reading of the aforesaid section shows that capital gain shall be liable to tax only under the following circumstances: (i) There should be a capital asset within the meaning of sub-section (14) of section 2 of the Act; (ii) There must be a transfer of a capital asset effected in the previous year relevant to assessment year; (iii) Such transfer of capital asset must result in profits or gains or even loss; (iv) Such surplus or capital gain should not be entitled to exemptions enumerated in the various sub-sections of section 54 and so specified in sub-section (1) of section 45 of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hunsur Plywood Works Ltd. The same is not applicable to the facts of the present case because the issue involved in the case before the Supreme Court was whether the issue of bonus shares by a Company out of development rebate reserve amounted to distribution of profits of the Company within the meaning of sections 34(3)(a)(i) and 155(5)(ii)(a) of the Act so as to justify withdrawal of the development rebate allowed to the Company. The issue did not relate to the fact whether resultant surplus on receipt of bonus shares could be brought to tax in the hands of recipient of such bonus shares. Therefore, this judgment is not applicable to the fact of the present cases. In any case, we have already held that there being no transfer of bonus shares within meaning of sub-section (47) of section 2 of the Act. No capital gain exigible to tax accrued or arose to the assessee merely on receipt of bonus shares. 10. In the light of these facts and circumstances of the case, we set aside the order of the CIT(A) and delete the impugned addition. This ground of appeal is allowed. 11. to 16. These paras are not reproduced here as they involve minor issues. - - TaxTMI - TMITax - Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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