TMI Blog2003 (7) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Co. Ltd. [1967] 52 ITR 567 and in the case of Shekhavati Gen. Traders Ltd. v. ITO, 82 ITR 789." 2. The genesis of the present litigation as emanating from the order of the Assessing Officer and that of the Commissioner (Appeals) is that the assessee which is an investment company filed a return of income declaring as total income of Rs. 64,18,600 comprising of income from Capital Gains, dividend income and interest income. Notice under section 143(2) was issued and during the course of assessment proceedings, the Assessing Officer noticed that the assessee had not offered the capital gains on the sale of bonus shares for taxation. The capital gain has arisen on account of the sale of 12,985 equity shares of M/s. Vardhaman Spinning General Mills Ltd. which shares were sold for a consideration of Rs. 62.16 lakhs. This is also on record that these shares were acquired by the assessee company in the year 1982 as bonus shares i.e., no costs were incurred by the company for acquiring these shares. As the assessee did not offer the amount received by it on account of the sale of bonus shares for taxation, the Assessing Officer issued a notice to show cause as to why the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions of the learned Senior Counsel was that no capital gain can be imposed on an asset which has no cost of acquisition. The learned Senior Counsel would contend that in the case of bonus shares, there being no costs of acquisition or improvement thereon, the question of acquiring of any capital gain or their taxability would not arise. The learned Senior Counsel would contend that the capital asset is acquired once at a price and the price cannot be subjected to variation by the subsequent happening. The learned Senior Counsel submitted that the cost of acquisition of capital asset being constant and there being no improvement to the capital asset in the case of shares, in the event of the application of averaging formula, the cost of acquisition of capital asset would change which would hit the intention of Legislature which intended the cost of acquisition of capital asset to be constant. The learned counsel submitted that what he says draws support from section 48 of the Income-tax Act which deals with Mode of Computation of Capital Gains, whereunder it has been mandated that the income chargeable to capital gain shall be computed by deducting from full value of consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by Dalmia Investment Co. Ltd.'s case and Shekhawati General Traders Ltd. v. ITO [1971] 82 ITR 788 (SC). The submission of the learned DR was that the cost of bonus shares is not only determinable but determined on the principles of averaging as held by various courts as well as the Apex Court. According to learned DR there is a clear distinction between the determination of the cost of goodwill and that of bonus shares. The submission of the learned DR was that in view of the distinction between cost of acquisition of goodwill and cost of determination of bonus shares, B.C. Srinivasa Setty's case has no application and the very foundation of the reasoning of commissions while relying on B.C. Srinivasa Setty's case is questionable. The other submission of the learned DR was that the cost of bonus shares with respect to the period prior to 1-4-1996 has to be determined, can be determined on the principle of averaging. According to the learned DR the assessment year being 1995-96 which expires on 31-3-1996 and the amendment having come into force on 1-4-1996 being not retrospective in nature has no application to the present proceedings which pertain to year ending 31-3-1996. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to adjustment referred to in section 55 is material and subsequent issue of bonus shares does not effect or alter or dilute the cost of acquisition of original shares. The Delhi High Court did not agree with the view of Calcutta High Court in Sutlej Cotton Mills Ltd.'s case and held that the actual costs to the assessee of the original shares has to be spread over on both the original and bonus shares and, for the purposes of computing capital gain resulting from the transfer of original shares, the cost of original shares has to be determined on such averaging. 15. The differences of opinion between Calcutta High Court in Sutlej Cotton Mills Ltd.'s case and Steel Group Ltd.'s case on one side and of Delhi High Court in Escorts Farms (Ramgarh) Ltd.'s case on the other side stands resolved by the Apex Court in Escorts Farms (Ramgarh) Ltd.'s case wherein the Apex Court has confirmed the view of Delhi High Court in Escorts Farms (Ramgarh) Ltd.'s case and held that where bonus shares are issued and some of original shares are sold subsequently the average costs has to be reckoned only on the basis of average value, while holding this, the Apex Court confirmed its earlier view in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 128 ITR 294 was not applicable to the gains arising out of the sale of bonus shares. In arriving at the above conclusion, the Tribunal relied upon the decisions of the Supreme Court in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 and CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62 and of the Bombay High Court in CIT v. Alcock Ashdown Co. Ltd. [1979] 119 ITR 164. Hence, this reference at the instance of the assessee.We have carefully considered the contention of the assessee and the order of the Tribunal. We have also perused the decision of the Supreme Court in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 on which reliance is placed by the assessee. Weare, however, of the clear opinion that the ratio of the said decision has no application to gains arising from sale of bonus shares because of the well-settled legal position that the case of the bonus shares cannot be taken to be nil. Such shares have to be valued by spreading the cost of the old shares over the old shares and the bonus shares taken together treating the bonus shares as accretions of the old, if they rank pari passu. If they do not, the price may have to be adjusted either in proportion to the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no hesitation in holding the B.C. Srinivasa Setty's case has no application where it comes to the question of taxability of receipts on account of sale of bonus shares, as capital gains. 19. This brings us to the last submission of the assessee that the amendment carried out in section 55 by incorporation of sub-section (2)(iiia) clarifies the grey area as by virtue of the amendments the cost of bonus shares has been mandated to be taken as Nil. The submission of the assessee was that on account amendment which has been carried out to clear doubt, the benefit of same should be given to the assessee. 20. When we examined this contention of the assessee, we found that the amendment is operative from 1-4-1996. It has no retrospective effect. We must say that whenever the Legislature wants an amendment to be retrospective, it makes it so. Various instances of an amendment carried out under the Income-tax Act with retrospective effect can be found out in the Act itself and where the Legislature has not made an amendment retrospective, we are afraid we cannot say so. Law permits the courts to interpret Law but prohibits the court from legislating. If we say that the benefit of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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