TMI Blog1989 (5) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... nt also disputes the finding of CIT(A) that Bonus shares received on gifted shares cannot for any purpose be linked up with original gifted shares for the purpose of determining cost of acquisition of Bonus shares. Under s. 49(1)(ii) of IT Act, 1961 when capital asset became the property of appellant under a gift, the cost of acquisition of asset to be taken for the purpose of capital gain is cost to the previous owner. The CIT(A) has ignored this provision in determining the cots of bonus shares at Nil. Grounds for asst. yr. 1982-83: (i) The learned ITO and CIT(A) have erred in determining the capital loss on sale of 971 shares of Shakti Insultated Wires (P) Ltd. @ Rs. 14,814. Appellant disputes the computation of this loss. (ii) The loss of Rs. 14,814 is determined on the basis of the order for asst. yr. 1981-82 wherein part of the shares of the said company were sold. The Appellant has filed Tribunal Appeal against the determination of this loss and prays that loss on sale of remaining shares during the previous year relevant to asst. yr. 1982-83 be determined by taking working of actual cost of the entire holding of the appellant which was disposed off in asst. yrs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held prior to 1-1-64 @ Rs. 134.72 Rs. 1,34,046 . Of 110 shares purchased in S.Y. 2020 11,000 . Of 831 Shares @ Average price of Rs. 57.10 as shown above 47,525 . Of 5 shres purchased in S.Y. 2031 1,028 . . Rs. 1,93,599 . Loss: Rs. 77,139 The loss claimed by the assessee in two assessment years in appeal Asst. yr. 1981-82 Rs. 72,478 Asst. yr. 1982-83 Rs. 4,661 Rs. 77,139 4. The ITO observed in the assessment order for asst. yr. 1981-82 that since the assessee could not produce the evidence as to whether the bonus shares were sold in S.Y. 2036 or the original shares were sold, the assessee's contention that the cost be taken at Rs. 1,30,698 at the market rate of Rs. 134.72 per share as on 1st Jan., 1964 for 970 shares sold in asst. yr. 1981-82 cannot be accepted. Since the entire 1,941 shares of the aforesaid company owned by the assessee were sold in asst. yrs. 1981-82 1982-83, the ITO determined the capital gains/loss for both the years as under: Cost shown in the statement . . Rs. 1,47,462 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vs. ITO 1972 CTR (SC) 120 : (1971) 82 ITR 788 (SC) and the judgment of Hon'ble Calcutta High Court in the cases of CIT vs. Steel Group Ltd. (1981) 22 CTR (Cal) 254 : 131 ITR 234 (Cal) and CIT vs. General Investment Co. Ltd. (1981) 20 CTR (Cal) 282 : 131 ITR 366 (Cal) cited before the learned authorities below. The mere non-availability of distinctive number of shares sold in the respective years will not disentitle the assessee to exercise its option under s. 55(2) to adopt the fair market value prevailing on 1st Jan., 1964 in place of the cots price of the share for computation of the long term capital loss in relation to sale of number of shares owned by the assessee prior to 1st Jan., 1964. The learned authorised representative relied upon the judgment of the Hon'ble Supreme Court in the case of Shekhawati General Traders Ltd. vs. ITO. The head-note is reproduced hereunder: " Held , that for the ascertainment of the fair market value of the shares in question on 1st Jan., 1954, any issue of bonus shares subsequent to that date was wholly extraneous and irrelevant and could not be taken into consideration. The assessee was bound to disclose under cl. (a) of s. 147 only such ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition is not that but what the assessee had actually paid at the time of its acquisition. The moment an assessee exercised his option for substituting the market value as on 1st Jan., 1964, as cost of acquisition of the original shares that value was deemed to be the cost of acquisition after that date 1st Jan., 1964, and all the incidents prior to that date should be ignored. Therefore, the assessee's claim was to be upheld." 7. The learned Departmental Representative supported the orders passed by the authorities below and also invited our attention towards the judgment of Hon'ble Madras High Court in the case of CIT vs. T.V.S. Sons Ltd. (1983) 37 CTR (Mad) 192 : (1983) 143 ITR 644 (Mad). The head-note of the said judgment is also reproduced hereunder: "The question of determining the cost of acquisition of bonus shares are sold and capital gains have to be determined in respect of the sale of the bonus shares alone. However, when the entire shareholding including the original shares and the bonus shares are compulsorily acquired, the question of determining the cost of acquisition of the bonus shares separately would not arise. The valuation of bonus shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acquire bonus shares is a right embedded in the original shares and they are a legal accretion thereto. The learned Departmental Representative further pointed out that at page 756 of the aforesaid judgment the Hon'ble Delhi High Court has observed that the Calcutta High Court in the case of CIT vs. Steel Group Ltd. reported in relied upon by the authorised representative of the assessee in the present case had not relied on the decision of the Bombay High Court in the case of W.H. Brady Co. Ltd. vs. CIT (1979) 10 CTR (Bom) 221 : (1979) 119 ITR 359 (Bom). The reliance placed by the learned Departmental Representative on the aforesaid judgment of Delhi High Court in the case of Escort Farms (Ramgarh) Ltd. is not applicable under the facts of the appellant's case as is evident from the following extracts appearing in the handnote of the aforesaid judgment at page 143 ITR 750: "But in view of the specific language of s. 55(2)(i) of the IT Act, 1961, regarding the substituted market value of 1st Jan., 1954, this cannot be done where the assessee has elected to exercise the option to adopt the market value as on that date in the place of the actual cost of acquisition as decided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een worked out has also been reproduced earlier in this order. 10. The second ground of appeal raised by the assessee in her appeal for asst. yr. 1981-82 raises an interesting and important question of law. The assessee sold 500 shares of Cable Corporation of India during the previous year relating to asst. yr. 1981-82. These 500 shares sold by the assessee during the year under appeal consisted of bonus shares received by the appellant on the shares received by her by way of gift from her husband Shri Abhay L. Khatau. 11. The question for consideration is how to compute the long-term capital gains/loss arising on the sale of bonus shares received by the appellant in respect of the original shares gifted to the appellant by her husband. The appellant contends that on the basis of the finding given by the CIT(A) that cost to the assessee in respect of such bonus shares sold during the previous year is 'nil', no tax on capital gains is leviable in respect of sale of aforesaid 500 bonus shares, in view of the judgment of Hon'ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC). Without prejudice to this main contention, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther, if the appellant were to sell these 650 gifted shares, or any part thereof at any time, the capital gains arising on the sale of these shares gifted to the appellant would have been includible in the total income of the husband of the appellant, Shri Abhay L. Khatau as a result of the Supreme Court's decision in the case of Seventilal Maneklal Sheth vs. CIT (1968) 68 ITR 503. However, the 650 bonus shares received by the appellant in S. Y. 2023 on the originally gifted 650 shares stand on altogether different footing. The Madras High Court in the case of CWT vs. T. Saraswathi Achi (1980) 125 ITR 186 (Mad) was dealing with a case where the assessee gifted to her minor daughter 10,000 shares of a company. The company issued bonus shares as a result of which the minor daughter came to own another 10,000 shares. The Madras High Court held that the original transfer of 10,000 shares was a gift to the minor daughter and their value was rightly includible in the assessee's wealth. However, the provisions of s. 4(1)(a)(ii) of the WT Act were not attracted to the impugned bonus shares as the receipt by the minor daughter of bonus shares was not by transfer from the original transferor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of bonus shares, such as, Shekhawati General Traders vs. ITO, CIT vs. Dalmia Investment Co. Ltd. and CIT vs. Gold Mohre Investment Co. Ltd. will not have any application, to the present case, because the person who is holding the originally gifted shares by a fiction of law is a different person from the appellant who has been allotted the bonus shares and in respect of which she has not incurred any expenditure. As a result, the ITO has correctly taken the entire sale proceeds of 500 shares of Cable Corporation of India Ltd., being the bonus shares as the long-term capital gains because there was no cost of acquisition in respect of the bonus shares. The ITO's action in this behalf is upheld although on altogether different ground." 13. The learned authorised representative submitted that in view of the aforesaid finding gift by the CIT(A) that cost of such 500 Bonus shares sold by the assessee is 'nil' hence no tax on capital gains is chargeable in the case of the appellant. 14. The learned Departmental Representative vehemently argued that the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty, does not in any case help the assessee. The learned Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions must be interpreted as being not referable to such capital assets and tax can be levied in respect of capital gains on sale of such capital assets. We, therefore, hold that no tax is chargeable on capital gains on sale of above referred 500 bonus shares of Cable Corporation of India sold by the assessee during the year under appeal. 16.1. In view of the aforesaid finding given with regard to main contention submitted in ground No. (ii) of the assessee's appeal for asst. yr. 1981-82, perhaps it may not be necessary to give any further finding on the alternative contention of the appellant that in case the capital gains on sale of aforesaid 500 bonus shares is held to be liable to tax, the cost of acquisition of the aforesaid 500 bonus shares should be taken at Rs. 30,965 and capital gains on the same be determined at Rs. 29,035, we hold that the aforesaid alternative prayer of the assessee is also clearly supported by the decision of Tribunal, Bombay Bench 'D' in the case of F. Hoffman-La Roche Co. Ltd. reported in (1988) 68 CTR (Trib) (Bom) 7 : (1988) 27 ITD 17. 17. In the result, both the appeals filed by the assessee are allowed. - - TaxTMI - TMITax - Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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