TMI Blog1993 (12) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. Thereafter, the Income-tax Officer issued notice under section 147(a) of the Act on the ground that out of 10,000 shares of Indian Iron Steel and Company Limited sold, 5,000 shares were bonus shares received by the assessee in the same accounting year. As these shares were sold within the period of 12 months of their acquisition, they gave rise to short-term capital gains. In the assessment year 1969-70, similar notice was given by stating that 60 bonus shares of Belapur Company Limited were sold within 24 months of their receipt. After considering the objections including the objection with regard to the jurisdiction under section 147(a) of the Act raised by the assessee, the Income-tax Officer decided that on sale of the bonus shares, tax is required to be worked out on the basis of short-term capital gains. The appeals against the reassessment orders were dismissed by the Commissioner of Income-tax (Appeals). In the appeal filed by the assessee, the Tribunal arrived at the conclusion that primary or material facts omitted from the income-tax returns were that the shares which were sold were bonus shares which were acquired within the period of 12 months or 24 mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges 541 and 542 : 'An example may make this fundamental point clear. Assume that a corporation with 800 shares of stock is owned equally by James Adams and Frank Barnes, each owning 400 shares of stock. The corporation pays a stock dividend of 25 per cent. and distributes 200 additional shares (25 per cent. of 800 shares), with 100 shares going to each of the two stockholders. Adams and Barnes now hold 500 shares apiece, but each still owns one-half of the business. The corporation has not changed ; its assets and liabilities and its total capital are exactly the same as before the dividend. From the stockholder's view point, the ownership of 500 shares out of a total of 1,000 outstanding shares represents no more than did the ownership of 400 shares out of a total of 800 shares previously outstanding. Assume that the market value of this stock was $10 per share prior to the stock dividend. The total market value of all the outstanding shares was, therefore, 800 times $10, or $8,000. What would be the market value per share and in total after the additional 200 dividend shares were issued ? The 1,000 shares now outstanding should have the same total market value as the previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets. For this purpose, the court referred to the definition of short-term capital assets as defined in section 2(42A) and observed as under (at page 373) : " It is, therefore, necessary to know what is a short-term capital asset. That is defined in section 2(42A) to mean ' a capital asset held by an assessee for not more than twelve months immediately preceding the date of its transfer...' Clause (ii) of the Explanation to section 2(42A) provides that : ' in respect of capital assets other than those mentioned in clause (i), the period for which any capital asset is held by the assessee shall be determined subject to any rules which the Board may make in this behalf .' There are admittedly no rules made by the Board under this clause and, therefore, the question as to what is the period for which any capital asset is held by the assessee has to be determined on first principle. If the bonus shares were held by the assessee for not more than twelve months immediately preceding the date of their transfer, they would be short-term capital assets ; otherwise, they would be long-term capital assets." (emphasis supplied). Thereafter, the court dealt with the similar contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders. Learned counsel for the assessee further pointed out that the court has considered numerous decisions, which were cited at the time of hearing of the matter but the attention of the court was not drawn to the decision rendered by the Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, wherein it is held that in working out the capital gain or loss, the principles that have to be applied are those which are a part of commercial practice or which an ordinary man of business will resort to when making a computation for his business purposes. Relying upon this, he submitted that suppose the price of share cum bonus is Rs. 30 on a particular date, say August 31, 1992, then price of the ex-bonus shares on September 1, 1992, would be Rs. 15. Presuming that A sells 10,000 shares at Rs. 30, he will earn Rs. 3 lakhs and his long-term capital gains will be Rs. 2 lakhs. As against this, B sells 10,000 ex-bonus shares and 10,000 bonus shares at Rs. 15 and gets the price of Rs. 1,50,000 plus Rs. 1,50,000, respectively, and on the basis of the decision of this court in the case of Chunilal Khushaldas [1974] 93 ITR 369, he would be required to pay capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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