TMI Blog1971 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajasthan High Court involve a common question relating to the computation of capital gains in respect of sale of certain shares. It is necessary to refer to the facts in Civil Appeal No. 2039 of 1968 only. The assessee is a company incorporated under the Indian Companies Act, 1956, having its registered office at Jaipur. For the assessment year 1962-63 relevant to the previous year ending March 31, 1962, the assessee filed its return before the Income-tax Officer, Company Circle I, Jaipur. On March 29, 1949, the assessee had acquired 12,000 ordinary shares of the Orient Paper Mills of the face value of Rs. 10 each. On this holding it received 12,000 bonus shares on or about April 28, 1951. It again received 60,000 bonus shares on or abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e those which it had acquired or received by way of bonus shares prior to January 1, 1954. The Income-tax Officer by his assessment order dated July 20, 1964, accepted the statement furnished by the assessee and held that it had suffered a capital loss of Rs. 2,10,160 which was directed to be carried forward. By means of a notice dated January 4, 1967, the Income-tax Officer informed the assessee that he had reasons to believe that income chargeable to tax for the assessment year 1962-63 had escaped assessment within the meaning of section 147 of the Income-tax Act, 1961, hereinafter called the "Act". This notice was accompanied by a letter in which it was stated : " While working out the cost you claimed, the prevalent market price a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Constitution challenging the legality and validity of the notice issued under section 147 of the Act. The High Court was of the view that since the acquisition of bonus and right shares acquired by the assessee on the original holding had not been shown in the income-tax return it could be said that the Income-tax Officer had reason to believe that the income chargeable to tax had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. It was contended on behalf of the assessee before the High Court that it was altogether unnecessary for the assessee to have shown the acquisition of bonus shares in the return filed by it for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration received or accruing as a result of the transfer of the capital asset the following amounts, namely, (i) expenditure incurred wholly and exclusively in connection with such transfer, and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereof. The meaning of the cost of acquisition is explained by section 55(2) and for our purpose that sub-section with clause (i) need be reproduced : " 55. (2) For the purposes of sections 48 and 49, 'cost of acquisition', in relation to a capital asset,-- (i) where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , after the issue of bonus shares the cost of the original holding had to be spread over all the shares inclusive of the bonus or the right shares acquired on the original holding. Support for this view appears to have been found in the decision of this court in Commissioner of Income-tax v. Dalmia Investment Co. Ltd. The question which had to be decided in the above case was entirely of a different nature. The assessee there held ordinary shares in Rohtas Industries Ltd. apart from holding shares by way of investment and also as stock-in-trade of its business as a share-dealer. In 1944, the assessee acquired 31,909 of these shares and was holding them in January, 1945. In that month the Rohtas Industries Ltd. distributed bonus shares at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 55(2) relating to the manner in which the cost of acquisition of a capital asset has to be determined for the purpose of section 48. Where the capital asset became the property of the assessee before the first day of January, 1954, the assessee has two options. It can decide whether it wishes to take the cost of the acquisition of the asset to it as the cost of acquisition for the purpose of section 48 or the fair market value of the asset on the first day of January, 1954. The word "fair" appears to have been used to indicate that any artificially inflated value is not to be taken into account. In the present case it is common ground that when the original assessment order was made the fair market value of the shares in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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