TMI Blog2023 (9) TMI 330X X X X Extracts X X X X X X X X Extracts X X X X ..... )(c ) of the Act on the ground that there is an double benefit derived by the assessee due to bonus shares. We find that the issue in question is also covered by the decision of Dr Ranjan Pai [ 2016 (5) TMI 216 - ITAT BANGALORE] as held there is no material on record to infer that bonus shares have been transferred with an intention to evade tax, which is the object of the provision in question. Therefore, the Commissioner of Income Tax (Appeals) as well as the tribunal have rightly held that when there is an issue of bonus shares, the money remains with the company and nothing comes to the shareholders as there is no transfer of the property and the provisions of Section u/s 56(2)(vii)(c) of the Act are not attracted to the fact situat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs 8,56,57,000/-. The assessee had shown income from salary, income from house property, income from capital gains and from other sources. The assessee received bonus shares and bonus units from M/s Tech Mahindra Ltd and JM Arbitrage Advantage Fund-Bonus Options The assessee was show caused as to why the addition u/s 56(2)(vii)(c ) of the Act should not be made in respect of these bonus shares and bonus units. The assessee vide her submissions dated 04/01/2019 submitted that provisions of section 56(2)(vii)(c ) of the Act would not apply to bonus shares at all as it is merely done by capitalization of profits. The value of the shares would remain the same and there would be no increase in the wealth of the shareholders on account of bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te discretion of the person holding such share. There is no compulsion by the law that an assessee should sell his total holding immediately on allotment of bonus shares. Therefore, the ld. AO s assumption that the assessee would get double benefit is completely devoid of any merits and has no basis. The assessee made various legal submissions before the ld. CIT(A) to drive home the point that no benefit is derived by a shareholder immediately on allotment of bonus shares and further submitted that allotment of bonus shares would not be income at all. It was also submitted that cost of bonus shares would be Rs Nil in terms of section 55(2)(aa)(i) of the Act. 5. The ld. CIT(A) duly distinguished the various case laws relied upon by the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use cost of acquisition of bonus shares is nil as per the provisions of section 55(2)(aa)(i) of the Income Tax Act. 9.13 The AO also erred in concluding that the provisions of section 55(2)(aa)(i) are not applicable in case of ascertaining the cost of acquisition of bonus shares. The AO failed to recognize the fact that had the legislature intended so, the exclusion would have been provided for non applicability of the provisions of section 55(2)(aa)(i) with respect to issuance of bonus shares to the transactions referred in section 56(2) of the Act. The AO himself accepted on page 35 of the Assessment Order that the overall wealth of a person post bonus or pre-bonus remains the same. The AO incorrectly ignored the fact that an assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant u/s 56(2)(vii)(c) of the Act and making an addition of Rs. 37,56,83,191/- is hereby deleted. 6. We hold that the bonus shares are issued only out of capitalization of existing reserves in the company. In the instant case, the ld. AO had not disputed the fact that the overall wealth of a shareholder post bonus or pre bonus remains the same. Having held so, it is wrong on his part to invoke the provisions of section 56(2)(vii)(c ) of the Act on the ground that there is an double benefit derived by the assessee due to bonus shares. We find that the issue in question is also covered by the decision of Hon ble Karnataka High Court in the case of Principal Commissioner of Income Tax vs Dr Ranjan Pai in ITA No. 501 of 2016 dated 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f fresh funds or increase in the capital employed, which remains the same. The total funds available with the company remains the same and issue of bonus shares does not result in any change in respect of capital structure of the company. [See: 'GENERAL INSURANCE CORPORATION supra]. Thus, there is no addition or alteration to the profit making apparatus and the total funds available with the company remain the same. In substance, when a shareholder gets a bonus shares, the value of the original share held by him goes down and the market value as well as intrinsic value of two shares put together will be the same or nearly the same as per the value of original share before the issue of bonus shares. Thus, any profit derived by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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