TMI Blog1988 (1) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Rs. 19,20,000. In July 1979, the assessee received 38,240 bonus shares in the ratio of 239 : 1. Out of these bonus shares, the assessee had sold 13,600 shares on 31-8-1979 to the financial institution at the rate of Rs. 50 per share with the approval of the Reserve Bank of India. In order to find out the cost of acquisition of these bonus shares the assessee has divided the market value of the original shares as on 1-1-1964 by the total number of shares, i.e., 38,400 (160 original shares plus 38,240 bonus shares). The average price so worked out was claimed to be the cost of acquisition while computing the income under the head ' Capital gains '. The assessing officer observing that the shares sold were only bonus shares which were allot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total number of shares. He further submitted that by the decision of their Lordships of the Supreme Court in the case of Dalmia Investment Co. Ltd., the bonus shares are to be valued by spreading the cost of the old shares over the old and the new shares (namely, bonus shares) taken together. The cost of acquisition which according to him is to be taken into consideration in arriving at the average price is the cost of acquisition as defined in section 55(2)(i) of the Act, which provides that where the capital asset became the property of the assessee before the 1st day of January, 1964, the cost of acquisition means the cost of acquisition of the assets to the assessee or the fair market value of the assets as on the 1st day of January, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he old and new shares and if the shares do not rank pari passu assistance may have to be taken of other evidences to fix the cost of the bonus shares and in such cases it might be necessary to compare the resultant price of the two kinds of the shares in the market to arrive at a proper cost valuation. The said decision was approved in a later decision in the case of Gold Mohore Investment Co. Ltd. In the present case the bonus shares rank pari passu to the original shares and, therefore, in view of the aforesaid two decisions of the Supreme Court the average is to be worked out by spreading the cost of the original shares over the original as well as the bonus shares. 5. The cost of acquisition is defined in section 55(2) for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it . . . The statute says that you must imagine a certain state of affairs ; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs ". 6. In this case, the market value as on 1-1-1964 has been deemed as the cost of acquisition of the original shares. Therefore, that substituted cost of acquisition should be adopted for all purposes while computing the capital gains, including for the purpose of finding out the average cost of acquisition of the bonus shares. It would even otherwise be illogical to say that the cost of acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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