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TMI Blog1986 (7) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Rs. Rs. (i) Sale of proceeds of 120 equity shares 3,24,000 Less : Market value as on 1-1-1954 (120 x 828.57) 99,428 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; (-)80,614 ---------------------------- &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat since the original shares which the assessee had acquired prior to 1-1-1954 and which were settled on trust had not been received back by the assessee at the time of revocation and that since the shares that were sold were different from those original shares acquired by the assessee prior to 1-1-1954, the market price as on 1-1-1954 could not be taken as cost of acquisition and that cost at which the shares had been originally acquired should have been taken as cost of acquisition. The ITO treated this note as information received by him and reopened the assessment. The assessee objected to the reopening of the assessment on the ground that the said audit note could not form valid basis for reopening. The ITO held that material facts were not truly and fully disclosed at the time of original assessment and as such, he had jurisdiction to reopen the same under section 147(a) of the Income-tax Act, 1961 ('the Act'). He observed that since scrips of shares which were sold were not the same which were originally settled upon the trust, the assessee could not be said to be in possession of the scrips held continuously from 1-1-1954, and as such, he was not entitled to substitute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould have been clearly brought out by the ITO because it is only failure to state truly and fully the material facts by the assessee that confers jurisdiction on the ITO to reopen the assessment under section 147(a). If all material facts are fully and truly stated, the ITO is not entitled to reopen the assessment under that provision. In the present case, all the material facts were on record. The whole assessment filed was before the ITO. The trust has been revoked in 1963. There was a circular by the Government dated 12-5-1964 [F. No. 12/1/64-IT(AI)] addressed to all the Commissioners. The position was clarified in the following words : "Where one type of share is converted into another type of share (including conversion of debentures into equity shares), there is, in fact, no 'transfer' of a capital asset within the meaning of section 2(47) of the Income-tax Act, 1961. Hence, any profits derived from such conversion are not liable to capital gains tax under section 45(1) of the Income-tax Act. However, when such newly converted share is actually transferred at a later date, the cost of acquisition of such share for the purposes of computing the capital gains shall be calcula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1956 to 1963, the trustees were the owners. On revocation of the trust, the assessee again became the owner of the shares. When he became the owner on revocation of trust, he had not paid any price. Consequently, the cost of acquisition would be deemed to be the cost for which the previous owner of the shares acquired the same. The previous owners were the trustees. They had also not acquired for any price. They acquired the same from the assessee. Consequently, the cost of acquisition would be deemed to be the cost for which the assessee originally acquired those shares. This would be the position under section 49(1), read with the Explanation. Section 55(2)(ii) lays down that for the purposes of section 49, cost of acquisition in relation to a capital asset, where the capital asset became the property of the assessee by any of the modes specified in sub-section (1) of section 49, and the capital asset became the property of the previous owner before 1-1-1954 could be the cost of the capital asset to the previous owner or the fair market value of the assets as on 1-1-1954 at the option of the assessee. In the present case, the assessee would have option to substitute the fair ..... X X X X Extracts X X X X X X X X Extracts X X X X
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