TMI Blog1981 (7) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... d 250 shares from Jaipur Udyog Ltd. which raised the assessee's holding in that company to 1,250 shares. These shares were also sold by the assessee in the same assessment year at a loss of Rs. 19,573 with reference to the cost price of the original shares. Before the ITO it was claimed that the loss suffered was higher inasmuch as the sale also included the bonus shares which had to be valued separately in view of the decision of the Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567. The ITO, however, rejected this claim and determined the loss on the figure stated above. There was an appeal before the AAC. He agreed with the ITO's findings in both these years. Being aggrieved by the said order, the assessee went up in appeal before the Tribunal. There, the assessee repeated its claim and it was argued before the Tribunal that the sales included the bonus shares but this had to be separately valued in accordance with the principles laid down by the Supreme Court, in the above-mentioned case, which value had to be added to the cost of the original shares and the resultant losses required to be allowed in the computation of the assessee's income. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his ground, therefore, fails in both the years." In this connection, it may be appropriate to mention that there is no definite finding as to in which year the original shares were acquired. Be that as it may, it appears that the parties proceeded on the basis that these were acquired a few years before 1967-68, certainly after January 1, 1954 or even after January 1, 1964. In respect of the aforesaid finding for the assessment year 1968-69 the following question has been referred under s. 256(1) of the I.T. Act, 1961 : " Whether, on the facts and in the circumstances of the case, the determination of the loss on the sale of shares in Jaipur Udyog Ltd. and in Orissa Cement Ltd. at Rs. 75,280 (instead of Rs. 1,49,269) was in accordance with law ? " Similarly, for the assessment year 1969-70 the following question has been referred to this court: " Whether, on the facts and in the circumstances of the case, the determination of the loss on the sale of 1,250 shares of Dubhar Mills Ltd. (1,000 original shares plus 250 bonus shares) at Rs. 19,573 instead of Rs. 26,475 was in accordance with law ? " There was another finding, that is to say, the assessee, besides others, owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of a firm, she could have as well managed those properties for the benefit of her husband, particularly when there was considerable difference between the lease rent and the rent actually received or realised from those properties. The ITO stated that she continued to manage single-handed the business of moneylending and the share dealings and had also income from other sources exceeding Rs. 1 lakh and it was fantastic to suggest that the management of the four houses was proving more onerous and had, therefore, to be entrusted to a separate entity for a nominal consideration. He, therefore, agreed with the findings of the ITO that the transaction was not genuine. Before the Tribunal the contentions raised before the authorities below were again repeated. In this connection it would be appropriate to refer to the observations of the Tribunal at paras. 12 and 13 which are as follows : " 12. We have carefully considered the submissions placed before us on behalf of both the above parties. In our opinion, the orders of the lower authorities require to be upheld. As already pointed out above the firm of Peekay Management came into existence on 10-3-68 and the purpose which is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disregarded. 13. We also agree with the other contention of the learned departmental representative that the assessee being the owner of the properties he had to be assessed on the bona fide annual value of the properties as determined under section 23 of the Act, and this value could not have been ignored being the sum for which the property might reasonably be expected to let from year to year. We do not find anything on record to hold that such annual value was not the sum of Rs. 49,857 which admittedly was realised by the assessee in the assessment year 1968-69 and was held to be the annual value in that year. We, therefore, uphold the orders of the lower authorities on this point and dismiss the appeal." Upon these u/s. 256(2) of the I.T. Act, 1961, for the assessment year 1969-70, questions Nos. 2 and 3 have been referred to this court, which are as follows: " 2. Whether the finding of the Tribunal that the lease dated March 11, 1968, in favour of M/s. Peekay Managements were a facade and not genuine is vitiated by reason of its failure to consider the relevant and material facts on record and is based upon incorrect assumptions of facts and consideration of irrelevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise provided in certain sections mentioned therein, 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. Section 48 provided that the income chargeable under the head " capital gains " shall be computed by deducting from the full value of the consideration 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; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. The term " cost of acquisition " is defined in sub-s. (2) of s. 55. Where the capital asset became the property of the assessee by any of the modes specified in s. 49 and the capital asset became the property of the previous owner before the 1st day of January, 1954, it means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee. This has been substituted later as on 1st January, 1964. We are not concerned with that aspect. Therefore, the difference between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and the proceeds realised by their sale. On a reference, the High Court held that the method adopted by the Appellate Tribunal was erroneous and upheld the method of valuation adopted by the ITO. On appeal, the Supreme Court held that for the purpose of assessing the loss for the accounting year the question of proper method of valuing the bonus shares was not relevant as these were not sold and were still retained in the hands of the assessee. It was also held that the method of valuation adopted by the Appellate Tribunal was the correct method and the loss as calculated by the Tribunal was correct and according to the law in the facts of that case. As the facts were distinctly different from the facts in the instant reference, it is not necessary to deal with the said decision. Learned advocate for the Revenue drew our attention to certain arguments advanced on behalf of the assessee where the Supreme Court at p. 260 of the report observed as follows : " According to Mr. Sachin Chowdhury, who argued the case with great force and ability, the issuance of fully paid bonus shares was nothing but the purchase of such shares by the shareholder, inasmuch as consideration ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question of the cost of the original shares was not an issue before the Supreme Court. Therefore, the ratio of the decision of the Supreme Court will be of no assistance in this case. The question before us was again before the Supreme Court where the Supreme Court categorically laid down that where bonus shares were issued in respect of ordinary shares held in the company by an assessee who was a dealer in shares the real cost to the assessee could not be taken to be nil or their face value. They had to be valued by spreading the cost of the old shares with the new bonus shares if they ranked pari passu. We must bear in mind that this was also a question of valuation of bonus shares. Learned advocate for the Revenue drew our attention to the illustration at p. 582 to highlight the point that the issue of bonus shares decreased the cost of acquisition of the original shares or at least the Supreme Court proceeded on that basis. It is not necessary for us to examine the illustration in detail. There the Supreme Court was not concerned with the question of the cost of acquisition of the original shares and how it should be taken into consideration in computing the capital gains. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of the old shares over the old shares and the new issues (viz., bonus shares) taken together if they ranked pari passu. The Supreme Court reiterated the same principle in the case of Dalmia Investment Co [1964] 52 ITR 567 (SC), referred to hereinbefore. There also the Supreme Court was concerned with the cost of the bonus shares. In the case of CIT v. Gold Co. Ltd. [1970] 78 ITR 16, the Supreme Court held 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 was to spread the cost of the ordinary shares over the original shares and the bonus shares collectively and ascertain the average price of those shares. Learned advocate for the Revenue sought to urge that in the previous appeal actually the illustration indicated that the court had proceeded on the basis that the cost of the original shares would be depleted by the subsequent issue of the bonus shares. It would be improper on our part to read in the ratio of the Supreme Court decision from the said illustration as the question of the cost of original shares wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and it was not disputed that that determination was made according to the rates prevailing in the market on the aforesaid date by the Income-tax Officer when he made his assessment order on July 20, 1964. Once the market value of the shares was ascertained or determined on the date given in clause (i) of section 55(2) that would be the cost of acquisition in relation to capital assets. Up to this point there is no controversy between the Revenue and the assessee, but, on behalf of the Revenue, an almost startling position has been advanced that while determining the fair market value on January 1, 1954, the issuance of bonus or right shares after that date on the basis of the holding of the assessee prior to January 1, 1954, should have been taken into account. In other words, as was explained in the letter of the Income-tax Officer dated January 4, 1967, while working out the capital gains, the cost had to be worked out by averaging the cost of the original shares amongst the original shares and the bonus shares taken together. Thus, according to the Revenue, after the issue of bonus shares the cost of the original holding had to be spread over all the shares inclusive of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the calculation of profits earned or loss suffered." In our opinion, this represents the correct position as enunciated by the Supreme Court, as mentioned hereinbefore. The Division Bench in that case also observed at. 677, that the learned advocate for the Revenue sought to draw a distinction to the effect that the original cost of acquisition would ordinarily be diluted by a subsequent issue of bonus shares, but if the assessee exercised its option and elected to treat the cost of acquisition of its original shares at the market value as on lst January, 1954, then such subsequent issue of bonus shares would not affect the said opted cost. The court noted that this apparent distinction did not appeal to them. We are in respectful agreement with this view of the court. In a recent unreported judgment of this court, to which I was a party, in Income-tax Reference No. 174 of 1976, CIT I v. Steel Group Ltd., delivered on February 23, 1981 (since reported in [1981] 131 ITR 234), my Lord Mr. justice Guha observed as follows (p. 238): " Thus, having regard to the principle enunciated by the Supreme Court that while computing the capital gains the assessee was concerned with the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration all the relevant and material facts that the so called partnership firm which is supposed to be managing the assessee's house properties consisted of the assessee's wife, assessee's son-in-law, father of the assessee's son-in-law and the minor son of the assessee's son-in-law, that is to say, the grandson of the assessee. This fact has to be taken in conjunction with the fact that the other properties of the assessee were being managed by the assessee's wife. In the background of the facts of the case we cannot hold that the Tribunal has not considered all the aspects of the matter and if that is so, then it is not proper for this court to interfere with that finding of fact. In this connection reliance may be placed on the observation of the Supreme Court in the case of Bhaichand Amoluk Co. v. CIT [1962] 44 ITR 511 at 516. In that view of the matter we are of the opinion that the Tribunal was right in the view it took on this aspect of the matter. Therefore, question No. 2, so far as the assessment year 1969-70 is concerned, must be answered in the negative and in favour of the Revenue. Question No. 3 is answered by saying that in determining the real annual value ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
