TMI Blog2005 (9) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... artmental appeal for asst. yr. 1995-96, the appeal number has been shown as ITA No. 5194/Del/1998 and the assessee has requested for rectification in the appeal memo to avoid any sort of confusion to all concerned. Be that as it may, since the cross-objection arises out of the Departmental appeal for asst. yr. 1995-96, we proceed to dispose of the same along with the Departmental appeal. 2. In the appeal. filed by the Department, the issue involved is whether the CIT(A) is justified in deleting the addition of Rs. 53,51,500 on account of shares of M/s Modern Thread Ltd., received by the assessee. The facts of the case are, the assessee is a company engaged in the business of investment and trading of shares, securities and yarns. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company is not a party to the transaction and that the shares in MTIL were received only on account of an arrangement between the said two companies Reliance has been placed in the following two cases in support of the contention that bonus shares given by a company are to be treated only as capital and not income that applying the same ratio the shares received from MTIL cannot be treated as any income in its hands and that only for bringing the shares received free of cost, entries were passed in the books of account. Reliance is placed on the following two cases. (i) CIT vs. Madan Gopal Radhey Lal (1969) 73 ITR 652 (SC) (ii) CIT vs. Groz-Beckert Saboo Ltd. (1979) 8 CTR (SC) 155 : (1979) 116 ITR 125 3. In the case of CIT vs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have fallen in market rates on issue of shares of MTIL to its shareholders, just as the market of a share falls when companies shares are issued. 6. The contentions of the AO are that the receipt of shares of MTIL is on account of assessee's holding of shares in MWL and the shares in such company being held as stock-in-trade, that any benefit arising on account of stock-in-trade should be treated as a benefit or perquisite under s. 28(iv). The further contention of the AO is that the debit to the P L a/c under purchases cannot be allowed since it is only a fictitious entry by which the shares have been brought to the books and further that the shares having been allotted in the year of assessment, the benefit to the assessee should be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss appropriation account. Later on, on the advice of the auditors of the assessee-company, the board of directors resolved that the credit balance which was transferred to the profit and loss appropriation account be transferred to capital reserve account. The ITO assessed the amount of Rs. 3,82,905 in the hands of the assessee under s. 28(iv) of the IT Act, 1961, for the asst. yr. 1971-72. The AAC held that the amount was not assessable. On further appeal, the Tribunal observed that the facts on record disclosed that the firm was maintaining a current account with the assessee-company as its business activity had come-to an end, and in order to recover outstandings from third parties or to make payment of outstanding dues to third p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planning and should not be encouraged or entertained. 7. It was held by the CIT(A) that the contentions raised by the assessee and case laws relied upon by it are applicable to the ratio of the case and that the conclusion of the AO is erroneous. 8. The issue involved in the appeal basically is whether when the shareholder of a company which is a dealer in shares and holding such shares as stock-in-trade receives shares of another company free of cost, on account of exchange of the unit belonging to the first company with the second company, the value of such shares can be treated as its income treating the same as value of benefit or perquisite arising from business. It is very common that the value of the shares in the company origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso, the reliance placed by the AO on McDowell's case in no way is relevant as the assessee was not involved in any manner in the transaction between the MWL and MTIL, which resulted in allotment of shares of MTIL. Under such circumstances, it would be clear that there cannot be any gain or perquisite to the shareholder of the company which disposed off its unit when such shareholder is compensated by allotment of shares of the company which acquired such unit, to compensate from the fall in value of the shares of the company which disposed off such unit. It is also a fact that the basis on which the shares in the company acquiring the unit have been allotted to the shareholders of the company disposing of the unit, is not fixed on a mutual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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