TMI Blog2001 (9) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. ............." By its elaborate grounds in the cross-objections, the assessee merely supported the order of the CIT(A). 2. Assessee-company held 6,000 equity shares of Kothari Sugars Chemicals Ltd., which it acquired at a cost of Rs.10 each. Those shares were held as investment. Kothari Sugars and Chemicals Ltd. gave an offer by way of rights for 240 convertible debentures at Rs.700 each to the assessee. The offer made was at the rate of the one debenture for every 25 shares held. Instead of acquiring the debentures offered by way of rights, the assessee-company renounced its rights to the debentures, for a consideration of Rs.265 for each debenture. In the process, the assessee earned a profit of Rs.63,600, which was credited to the Profit Loss Account. In other words, the profit represented the entire consideration for the sale of rights obtained by the assessee. 3. The assessee claimed that the amount of Rs.63,600,is not assessable to capital gains tax, and accordingly claimed deduction for the same. It was contended that the rights in question, which yielded profit of an amount of Rs.63,600, did not have any cost of acquisition, and so, in the light of the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Miss Dhun Dadabhoy Kapadia was that the depreciation in the value of the original asset should be set off against the sale proceeds of the rights shares received by the assessee, and it is not a case where claim for total exemption from capital gains tax was involved. So, he submitted that the Apex Court did not have occasion to consider such a claim for total exemption in that case, such a claim for total exemption was considered only in the case of B.C Srinivasa Shetty, which is actually subsequent to the two decisions relied upon by the Revenue before me. He pleaded that it is the ratio laid down in the subsequent of these decisions that deserves to be applied. He accordingly contended that the impugned order of the CIT(A) deserves to be upheld. 6. I am of the view that the Revenue deserves to succeed though not fully. The case of B.C. Srinivasa Shetty related to the levy of capital gains tax on sale of goodwill. The Apex Court held that goodwill is a self-generated asset, and it is generated as the business is carried on and augmented with the passage of time. It also held that the charging section and the computation provision in respect of capital gains const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of holding other financial assets. When assessee holds shares, by virtue of such holding, assessee may acquire either bonus shares or rights to shares or debentures that may be issued. In both the cases, the assessee makes no payment, for acquiring, bonus shares or rights. So, the principles laid down by the Apex Court in the context of ascertaining the cost of acquisition of bonus shares are applicable even in respect of ascertaining the cost of acquisition of rights. I see no reason for holding a contrary view on this aspect. In the case of Dalmia Investment Co. Ltd., the Apex Court observed as under-- "....... It will be seen from the above that there are four possible methods for determining the cost of bonus shares. The first method is to take the cost as the equivalent of the face value of the bonus shares. This method was followed by the assessee-company in making entries in its books. The second method adopted by the department is that as the shareholder pays nothing in cash for the shares, cost should be taken at nil. The third method is to take the cost of the original shares and to spread it over the original shares and bonus shares taken collectively. The fourth met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares or renouncing them, wholly or partly, in favour of others. The appellant renounced her right to all the 710 shares on 12-6-1956, and realised Rs.45,262.50. When this amount was sought to be wholly taxed as a capital gain, the appellant claimed that on the issue of the new shares, the value of her old shares depreciated, since the market quotation of the old shares which was Rs.253 per share on 1-6-1956, fell to Rs.198.75 on 4-6-1956, and that a result of this depreciation she suffered a capital loss in the old shares to the extent of Rs.37,630 which she was entitled to set off against the capital gain of Rs.43,262.50 In the alternative she claimed that the right to receive the new shares was a right which was embedded in her old shares and, consequently, when she realised the sum of Rs.45,262.50 by selling her right, the capital gain should be computed after deducting from that amount the value of the embedded right which became liquidated: Held, that the appellant was entitled to deduct from the sum of Rs.45,262.50 the loss suffered by way of depreciation in the old shares. In working out capital gain or loss, the principles that have to be applied are those which are a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of the cost of acquisition in such cases. 30.2 Computation of the cost of bonus shares on the principle of averaging, however, is not simple. It is very difficult to correlate bonus shares to corresponding original shares purchased on different dates and at different costs. Necessarily, separate streams of calculations have to follow for each set of original shares purchased on a particular date and every time a sale of shares takes place. In order to overcome the problem of complexity, a simple method has been laid down for computing the cost of acquisition of bonus shares. For the sake of clarity and simplicity, the cost of bonus shares is to be taken as nil while the cost of original shares is to be taken at the amount paid to acquire them. This procedure will also be applicable to any other security where a bonus issue has been made. Here the expression "security" will take its meaning from the definition in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. 30.3 The period of holding of the bonus asset will be reckoned from the date of allotment of such an asset. 30.4 These amendments will take effect from 1-4-1996, and will according ..... X X X X Extracts X X X X X X X X Extracts X X X X
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