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Issues Involved:
1. Determination of the loss on the sale of shares including bonus shares. 2. Validity and genuineness of a lease agreement and its impact on assessable income from property. Issue-Wise Detailed Analysis: 1. Determination of the Loss on the Sale of Shares Including Bonus Shares The primary issue revolves around the computation of capital gains or losses in respect of shares, specifically how to account for bonus shares in this computation. The assessee claimed a higher loss on the sale of shares by valuing the bonus shares separately, in line with the Supreme Court's decision in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567. The Income Tax Officer (ITO) and the Appellate Assistant Commissioner (AAC) rejected this claim, leading to an appeal before the Tribunal. The Tribunal, referencing the Supreme Court's decision in Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, held that the value of bonus shares should not be separately added to the original cost of the shares. The Tribunal stated, "In our opinion, in the circumstances of the case, the lower authorities were justified in holding that the value of the entire holding of the assessee was equal to the cost of the original shares." The High Court examined the principles laid down by the Supreme Court, emphasizing that the cost of acquisition of the original shares should not be altered by subsequent events like the issuance of bonus shares. The court observed, "The frame of the section does not permit such a theory to attribute the cost to the assessee in respect of the original shares to fluctuate with the value of the shares subsequently by the happening of such an event like the issuing of the bonus shares or otherwise." The court concluded that the Tribunal erred in its view and answered the questions for the assessment years 1968-69 and 1969-70 in the negative and in favor of the assessee, stating that the determination of the loss on the sale of shares was not in accordance with the law. 2. Validity and Genuineness of a Lease Agreement and Its Impact on Assessable Income from Property The second issue pertains to the genuineness of a lease agreement between the assessee and a firm named Peekay Management, constituted by close relatives of the assessee. The ITO and AAC concluded that the lease was not genuine and was intended to divert a portion of the assessee's income. The Tribunal upheld this view, noting that the firm was formed just a day before the lease agreement and included close relatives of the assessee. The Tribunal stated, "The facade of leasing out the properties was not genuine and has to be disregarded." The Tribunal also agreed with the ITO's determination of the annual value of the property, which was based on the potential income rather than the actual lease rent received. The High Court upheld the Tribunal's findings, stating that the Tribunal had considered all relevant and material facts. The court noted, "In the background of the facts of the case we cannot hold that the Tribunal has not considered all the aspects of the matter and if that is so, then it is not proper for this court to interfere with that finding of fact." The court answered question No. 2 for the assessment year 1969-70 in the negative and in favor of the Revenue, affirming the Tribunal's view that the lease was a facade. Question No. 3 was answered by stating that in determining the real annual value under section 22 read with section 23 of the Income-tax Act, the rent receivable should be considered, not the amount actually received by the assessee. Conclusion In summary, the court ruled in favor of the assessee regarding the computation of capital gains or losses on the sale of shares, emphasizing the immutability of the original cost of acquisition. However, the court upheld the Tribunal's findings on the genuineness of the lease agreement, affirming that the lease was a facade and the actual potential income should be considered for tax purposes. Each party was ordered to bear its own costs.
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