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TMI Blog1968 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... cle No. 1, Jaipur, respondent, in accordance with the provisions of the Act. On or about March 29, 1949. the assessee acquired 12,000 ordinary shares of the Orient Paper Mills Ltd. of Rs. 10 each and on this original holding received 12,000 bonus shires on or about April 28, 1951, i.e., long before January 1, 1954. The assessee again received 60,000 bonus shares on or about June 4, 1954, and further acquired 25,200 right shares on June 26, 1961. Thus, in the assessment year 1962-63, there was an opening balance of 84,000 ordinary shares and 25,200 right shares of the Orient Paper Mills Ltd. with the assessee, out of which it sold 22,000 shares during the assessment year 1962-63 and the sale price realised was Rs. 8,45,110. The assessee calculated the cost price of 22,000 shares sold by it at the market rate as prevailing on January 1, 1954, which came to Rs. 8,63,500. The assessee had also acquired 15,000 ordinary shares of the Birla Jute Manufacturing Company Ltd. before January 1, 1954, and got 41,250 bonus shares on the original holding after January 1, 1954. Besides, the assessee got 22,500 right shares for the nominal value of Rs. 3,60,000. The assesse sold 15,000 shares duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d loss of Rs. 2,10,160 in assessment year 1964-65. Against this the cost in assessment year 1962-63 would become much less and instead of capital losses a figure of capital gain will get computed. I have issued a notice under section 148 to withdraw the losses claimed and allowed and to reassess at profit." The petitioner has submitted that the aforesaid reasons given by the respondent are against the provisions of the Act. The cost of acquisition for purposes of computing the capital gain his to be taken at the fair market value as on 1st January, 1954, at the option of the assessee, which in this case was exercised by it. The petitioner has further submitted that the method of computing the cost of the shares suggested by the respondent can only be applied in a case where the option is not exercised by an assessee. According to the assessee, the notice under section 148 of the Act had been issued by the respondent erroneously and in complete disregard of the provisions of the law. The assessee has, therefore, requested that the said notice be quashed and the Income-tax Officer restrained from taking proceedings in pursuance thereof. In his reply, the respondent has contended t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of shares would be a capital gain of Rs. 8,60,926 as against a capital loss of Rs. 2,10,160 as shown by the assessee. The respondent has stated that the assessee did not disclose in his return for the assessment year 1962-63 fully and truly all material facts necessary for the assessment. In the income-tax return filed by it, the assessee did not give out the details of the bonus and right shares acquired by it on the original holding, nor did it work out the cost price of the shares according to law as laid down by the Supreme Court in Dalmia Investment Company's case with the result that there was an escapement of income, which ought to have been brought to tax. It was not brought to the notice of the respondent that the assessee had acquired bonus and right shares on the original holding. Consequently, the assessment order, which was passed on 20th July, 1964, was based on insufficient data on account of the failure on the part of the assessee to supply full and complete particulars. The respondent has further stated that the assessee had no doubt an option under section 55(2) of the Act to take cost of acquisition or market value as on 1st January, 1954. But after exercisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed by the assessee is Rs. 1,04,500 against the actual worked out cost of Rs. 44,785 by applying the method of calculating the cost of shares as laid down by the Supreme Court in Dalmia Investment Company's case. After the issue of bonus shares the cost of the original holding has to be spread over all the shares inclusive of the bonus shares acquired on the original holding. The net result of calculating the cost of shares according to the method laid down in that case would be a capital gain of Rs. 14,539 as against a loss of Rs. 45,176 as shown by the assessee. The respondent has requested that the writ petition be dismissed. Under section 45 of the Act, any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53 and 54 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. Under section 55(2) of the Act, " cost of acquisition " in relation to a capital asset, where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of the acquisition of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year is a condition precedent to the exercise of his jurisdiction to assess or reassess income of the assessee. Similarly, under section 147(b), reason to believe that income chargeable to tax has escaped assessment in consequence of the information in the possession of the Income-tax Officer is a condition precedent to the exercise of his jurisdiction to assess or reassess the income of the assessee. If these conditions do not exist, steps taken by the Income-tax Officer to assess or reassess the income will be without jurisdiction. Before considering whether the conditions precedent to the exercise of jurisdiction by the Income-tax Officer under section 147 of the Act existed or not, it might be stated that the High Court has power to issue a writ in a fit case prohibiting the Income-tax Officer from proceeding with reassessment when it appears that the Income-tax Officer had no jurisdiction to commence the proceeding. In this connection we may refer to the two decisions of the Supreme Court. In Calcutta Discount Co. Ltd. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee under section 148 in both the cases. In the circumstances of the cases, it cannot be said that the respondent had no reason to believe that there was an escapement of income-tax by the assessee on account of the omission or failure on its part to disclose fully and truly the material facts necessary for its assessment for that year. Learned counsel for the assessee has submitted that it was not necessary for the assessee to have shown the acquisition of bonus shares in the returns filed by him for determination of the acquisition cost of the ordinary and bonus shares held by it, and, for this proposition, he has relied on Emerald & Co. Ltd. v. Commissioner of Income-tax. The implications of the Emerald & Company's case have been considered by the Supreme Court in Commissioner of Income-tax v. Dalmia Investment Co. and it would be useful to restate here what has been decided in Emerald & Company's case on the basis of that authority. In that case, the assessee had, at the beginning of the year, 350 shares of which 50 shares were bonus shares and all were of the face value of Rs. 250 each. The assessee sold 300 shares and claimed a loss of Rs. 35,801 by valuing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Dalmia Investment Co., which, according to the petitioner, does not apply to its case. whereas, according to the Income-tax Officer, it aptly applies. It would not be proper for us to express our views at this stage whether it applies to the present case or not. It would suffice if we may state what has been decided in that case. In that case, it has been decided that where bonus shares are issued in respect of the ordinary shares held in a company by an assessee, who is a dealer in shares, their real cost to the assessee cannot be taken to be nil or their face value. They have to be valued by spreading the cost of the old shares over the old shares and the new issue (viz., the bonus shares) taken together if they rank pari passu, and if they do not, the price may have to be adjusted either in proportion of the face value they bear (if there is no other circumstance to differentiate them) or on equitable considerations based on the market price before and after issue. The assessee has stated that it was not necessary for it to have shown the bonus shares issued in respect of the ordinary shares held by it whereas the department's stand is that it was necessary for the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 55(2) of the Act, and, after deducting the sale price which he realised from the sale of these ordinary shares, calculated the loss and all this was in conformity with the decision of their lordships of the Supreme Court in Emerald & Co. Ltd. v. Commissioner of Income-tax. I do not think that this case lays down anything in favour of the assessee as an that case against the ordinary shares which had been sold, no bonus shares had been issued. It was a simple case in which the ordinary shares which had been purchased were sold, there being no issue of bonus shares between the period of purchase and sale. The shares in respect of which the bonus shares were issued had already been averaged with the bonus shares. This distinction has been pointed out by the Supreme Court in Commissioner of Income-tax v. Dalmia Investment Co. Thus, in the instant case, if the method laid down by their lordships of the Supreme Court in Dalmia Investment Company's case is adopted, the Income-tax Officer had reason to believe that the assessee had escaped assessment. The second condition is that such under-assessment must have occurred by reason of omission or failure on the part of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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