TMI Blog2022 (5) TMI 194X X X X Extracts X X X X X X X X Extracts X X X X ..... s is to be taken as Nil while the cost of original shares is to be taken as the amount paid to acquire them. This procedure will also applicable to any other security where a bonus issue has been made. The issue under consideration has been elaborately considered by the Hon ble Tribunal in various cases such as Rajan Pai Bangalore Vs. Department of Income Tax [ 2016 (5) TMI 216 - ITAT BANGALORE] and Sudhir Menon HUF [ 2014 (3) TMI 534 - ITAT MUMBAI] and even by the Hon ble Apex Court in the case of CIT v. Dalmia Investment Co. Ltd. [ 1964 (3) TMI 17 - SUPREME COURT] as relied upon by the Ld. Commissioner while holding that the provisions of section 56(2)(vii)(c) of the Act are not applicable to the bonus shares. Even otherwise we do not find any material and reason to controvert the findings of the ld. Commissioner on the issue under consideration, therefore in view of aforesaid analysis and respectfully following the Judgments referred above of the Hon ble Apex Court and the Hon ble tribunal and the Circulars issued by the CBDT, the appeal of the revenue is liable to be dismissed. - ITA No.167/Del/2019 - - - Dated:- 29-4-2022 - Shri R.K. Panda, Accountant Member And ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of the Act it is clear that section 55 seeks to define cost of acquisition for the purpose of computation of capital gains. Section 55 does not apply for the purpose of the computation of income under head income from other sources . 4.3 It was also observed by the AO that the taxable event is receipt of property without consideration or for a consideration which is less than FMV. It was further observed by the AO that the Assessee had received property in the form of Bonus Share without consideration and therefore mischief of section 56(2)(vii)(c) is applicable in the case of the Assessee. The AO also observed that from the harmonious reading of the provision of section 56(2), 55(2)(a)(a) and section 49(4) it becomes clear that there is no conflict between section 55(2)(a)(a) and section 56(2)(vii)(c) of the Act. The Assessee also has tried to take benefit of loss on sale of original unit twice. The first benefit or first set off was claimed in Assessment Year 2015-16 as the Assessee had actually set off the actual loss arising on sale of original units against the LTCG earned on sale of shares of Ridaan/Rate Gain. The second benefit is also claimed in the same Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by, tax is attracted as a statutory consequence. A gain is conceivable when some enrichment results to the assessee from a transaction. In short, there must be a betterment in the wealth position of the assessee by the transaction. Whereas in the case of appellant, the Bonus shares were allotted at NIL cost. Factually, Bonus shares does not result in getting a property without consideration or for inadequate consideration, reason being the shareholders are entitled to the bonus shares because of his existing shareholding in the company and that the value of existing shares gets split into original shares and Bonus shares. In other words, it results in a pro - rata decrease in the value of original equity shares upon issuance of Bonus shares. The issue of Bonus shares is nothing other than capitalization of shares. In other words, there is no receipt of any property by shareholder and what stands received by him is the split shares out of his own holding. The said principle is clearly manifest from reading of section 56 of the IT Act. Further, it is contended that taxing of the difference between the consideration paid by the assessee and the market value of the property is only a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5-16 as the appellant has not offered income on receipt of s shares u/s 56(2)(vii)(c) of the Act. In this context, it is noted that under section 70 of the / the assessee is eligible for set off of the loss arising under the same head of capital gains, is noted that issue of bonus shares is by definition capitalization of its profits by the issuing company. There is neither any increase nor decrease in the wealth of the shareholder or of the issuing company on account of issue of bonus shares and as a result the value of existing share gets split in existing and new bonus shares. There is no receipt of any property by the shareholder, and what stands received by him is the split shares out of his existing holding of shares. As a result, there is no gift or accretion to property. Bonus shares are not something which has been received free or for a lesser FMV. Consideration has flown out from the holder of the shares, which is reflected in the decrease in the intrinsic value of the original shares held by him. In this regard, reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC). In the said case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cing the value per share, increasing its mobility and, thus, liquidity, in the sense that the shares become more accessible for transactions and, thus, liquidity, i.e., considered from the holders point of view. Further, it has been observed by the Hon ble ITAT as under:- Further, in the case of SudhirMenon HUF (ITA No. 4887/Mum/2013], order was passed by the ITAT Mumbai Bench on the similar grounds. 5.5 It is also noted that if the cost of the bonus shares is governed by section 55(2)(aa)(iiia) of the Act, then by applying the provisions of section 56(2), its FMV would be charged to tax twice, once at the time of receipt u/s 56(2) and secondly at the time of its sale as the cost of Bonus Shares is required to be taken at Nil as per the provisions of the Act. It is further noted that there is a specific provision under section 55(2)(aa)(iiia) of the Act which provides that for the purposes of section 48 and 49, the cost of acquisition in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not in one certificate but in two. . . . It follow that though profits are profits in the hands of the company, when they are disposed of by converting them into capital instead of paying them over to the shareholders, no income can be said accrue to the shareholder because the new shares confer a title to a larger proportion of the surplus assets at a general distribution. The floating capital used in the company which formerly consisted of subscribed capital and the reserves now becomes the subscribed capital. 4.6 The ld. Commissioner while deciding the issue, also relied upon the orders passed by the Hon ble Tribunal in the case of Dr. Rajan Vs. Department of Income Tax { ITA No. 1290/Bang/2015} wherein, the judgment referred above of the Hon ble Apex Court in the case of the CIT Vs. Dalmia Investment Co Ltd (Supra) was also relied upon by the Hon ble Tribunal and in the case of Sudhir Menon HUF Versus The ACIT ( ITA No. 4887/Mum/2013) wherein, it was clearly held by the Hon ble Tribunal that allotment of bonus shares cannot be considered as received for an inadequate consideration and therefore, it is not tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and simplicity, the cost of bonus shares is to be taken as Nil while the cost of original shares is to be taken as the amount paid to acquire them. This procedure will also applicable to any other security where a bonus issue has been made. 4.9 The issue under consideration has been elaborately considered by the Hon ble Tribunal in various cases such as Rajan Pai Bangalore Vs. Department of Income Tax and Sudhir Menon HUF (supra) and even by the Hon ble Apex Court in the case of CIT v. Dalmia Investment Co. Ltd. (Supra) as relied upon by the Ld. Commissioner while holding that the provisions of section 56(2)(vii)(c) of the Act are not applicable to the bonus shares. 4.10 Even otherwise we do not find any material and reason to controvert the findings of the ld. Commissioner on the issue under consideration, therefore in view of aforesaid analysis and respectfully following the Judgments referred above of the Hon ble Apex Court and the Hon ble tribunal and the Circulars issued by the CBDT, the appeal of the revenue is liable to be dismissed. Hence, ordered accordingly. 5. In the result, appeal filed by the Revenue Department stands dismissed. Order pronounced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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