TMI Blog1991 (4) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was right in holding that, in computing long term capital gains arising out of the transfer of the original shares, the cost of acquisition of the original shares should be taken at the average cost determined by spreading over the actual cost of the original shares over the original shares and the bonus shares ? " The first dispute covered by the first question relates to the assessee's claim of Rs. 1,71,066 representing the loss on the remittance of its profits to the U. K. The registered office of the assessee is situated in the U. K. But it had income by way of profits and gains from business in India. To the extent to which the assessee required the funds for the purpose of carrying on its business in India, it retained the requisite amount, and remitted the balance to its head office. In the course of this remittance, the assessee incurred a loss on account of difference in exchange rate. This was disallowed by the Inspecting Assistant Commissioner and the Commissioner of Income-tax (Appeals) on the ground that it was not laid out for the purpose of earning income. The assessee came up in second appeal before the Tribunal and the Bench confirmed the orders of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 971] 79 ITR 294, relied upon by learned counsel for the assessee, is not relevant for the purpose of the present appeal as the question under consideration before us was not considered by the Calcutta High Court in the said case. " A miscellaneous application moved by the assessee in this behalf was dismissed by an order of the Tribunal on April 7, 1982. The first question came up for consideration in the case of this assessee in Income-tax Reference No. 226 of 1982 ( Goodriche Group Ltd. (No. 1) v. CIT [1993] 201 ITR 261 ), where the judgment was delivered on August 14, 1990. Following the said decision, we answer the first question in the negative and in favour of the assessee. The second dispute relates to the assessee's claim for a loss of Rs. 368 due to fluctuation in the exchange rate on remittance of dividends from India to the U. K. The Commissioner of Income-tax (Appeals) rejected this claim on the same ground as in the case of the claim on remittance of profits. The Tribunal also upheld the order of the Commissioner of Income-tax (Appeals) for the same reasons. In our view, the same principle as regards the loss suffered due to fluctuation in the exchange rate on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Bench of this court in Sint. Protima Roy v. CIT.[1982] 138 ITR 536. It is his contention that this decision concludes the controversy. The question in that case was whether the cost of acquisition of original shares was affected by subsequent issue of bonus shares. In the present reference, we are concerned with a case where the assessee had sold not merely its bonus shares, as in the case of Dalmia investment Co. Ltd. [1964] 52 ITR 567 (SC), " or only its original shares, as in the case of Sutlej Cotton Mills Ltd. [1979] 119 ITR 666 (Cal) and Sint. Protima Roy [1982] 138 ITR 536 (Cal). But here the assessee has sold its entire block of shares, i.e., both the original shares acquired by the company as well as the bonus shares allotted to it in respect of the original shares. The Division Bench of this court in Smt. Protima Roy [1982] 138 ITR 536 considered the decision of the Supreme Court as well as the High Court. We may extract the relevant passages from the judgment. There, the court observed as follows (at page 546 " Reliance was also placed on the decision in the case of CIT v. Gold Mohore Investment Co. Ltd. [1968] 68 ITR 213 (SC). There the balance-sheet of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question had also been previously considered by the Supreme Court as mentioned hereinbefore in the case of CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62 (SC), where also the question of the cost of bonus shares came up for consideration and the Supreme Court reiterated that where bonus shares were issued in respect of ordinary shares held by a dealer in shares who valued his stock at cost and the bonus shares ranked pari passu with the ordinary shares, the correct method of valuing the cost to the dealer of the bonus shares was to take the cost of the original shares, spread it over the original shares and bonus shares collectively and find out the average price of all the shares. There again, as we have mentioned before, the Supreme Court was concerned with the question of the cost of bonus shares in computing the capital gains. We are here concerned with the question as to how the cost of the original shares is to be computed in case bonus shares are issued. How the bonus share is to be computed is not the dispute before us. So far as this question is concerned, namely, how the cost of the original shares would be computed, in our opinion, it must be done with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquired on the original holding. Support for this view appears to have been found in the decision of this court in CIT v. Dalmia investment Co. Ltd. [1964] 52 ITR 567 (SC)". The Supreme Court thereafter at page 793 observed as follows: " The High Court completely overlooked the fact that for the ascertainment of the fair market value of the shares in question on January 1, 1954, any event prior or subsequent to the said date was wholly extraneous and irrelevant and could not be taken into consideration. If the contention of the Revenue were to be accepted the acquisition of bonus shares subsequent to January 1, 1954, will have to be taken into account which on the language of the statute it is not possible to do. " What the Supreme Court was saying, according to the learned advocate for the Revenue, was only in the context of section 55(2). We are unable to agree. What the Supreme Court was laying down about the language of the statute applied also to section 45 as modified by section 55(2) of the Act in cases where such section was applicable. This has also been reviewed by this court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 119 ITR 666 (Cal), where the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is, the price which was paid by the assessee for acquiring the capital asset on the date it was acquired subject to such adjustments as laid down under section 55, the assessee has no concern with what would be the value of that asset on some subsequent occasion, in other words, subsequent events need not be taken into consideration. The ratio of this decision is followed by the Division Bench of this court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 119 ITR 666, though there may be some factual discrepancy, with which we are not concerned. Mr. Balai Pal also referred to the decision of the Bombay High Court in the case of IV. H. Brady and Co. Ltd. v. CIT [1979] 119 ITR 359. But having regard to the ratio of the Supreme Court decision and the Calcutta High Court decision referred to above, this decision has got no application ". It will be clear from the aforesaid observations of this court that the court was concerned with the question how the cost of the original shares is to be computed in case bonus shares are issued. In CIT v. Kishore Trading Co. Ltd. [1982] 138 ITR 527 (Cal), the question was how bonus shares should be valued. The High Court held that the cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and thus the company had a total holding of 2,105 shares of the company. On April 30, 1946, the assessee received another lot of 2,105 bonus shares. Between April, 1946, and February, 1960, the assessee acquired further 4,623 shares for the aggregate of Rs. 8,55,122. In the accounting year ending December 31,1961, the assessee sold all the shares at the rate of Rs. 275 per share and realised Rs. 24,29,075. The assessee incurred an expenditure of Rs. 51,843 in connection with the sale of the shares. For the assessment year 1962-63, the assessee claimed that his capital gains by the sale of the shares were only Rs. 5,99,899. In effect, the assessee treated the cost of acquisition of the bonus shares as nil and sought to exercise the option of substituting the market value of the asset as on January 1, 1954, under section 48 and section 55(2)(i) of the Income-tax Act, 1961, in respect of these shares in place of their cost of acquisition. The Income-tax Officer spread the cost of the original shares over the whole lot of 2,680 shares which included 670 original shares and 2,010 bonus shares. Since the average cost according to this formula was much less than the market price of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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