1991 (8) TMI 66 - HC - Income Tax

Summary

Issues:
1. Computation of capital gains based on the cost of acquisition of shares.
2. Application of the Supreme Court decision in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567.
3. Interpretation of section 48 of the Income-tax Act, 1961 regarding the deduction of the cost of acquisition while computing capital gains.
4. Relevance of spreading the cost of original shares over bonus shares for determining capital gains.

Analysis:

1. The case involved the computation of capital gains arising from the sale of shares by a public limited company engaged in the pharmaceutical and medicinal products business. The dispute centered around the deduction of the cost of acquisition of shares while calculating capital gains for the assessment year 1970-71.

2. The assessee claimed a deduction based on the original cost of the shares, but the Income-tax Officer rejected this claim. Instead, the Officer calculated the cost of shares by spreading out the cost of the original shares over both the original and bonus shares received by the assessee, following the decision in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567.

3. The Tribunal, in line with its decision for a previous assessment year, upheld the Income-tax Officer's approach. The Tribunal referred the question of whether the cost of shares should be spread over original and bonus shares for determining capital gains to the High Court for opinion under section 256(1) of the Income-tax Act, 1961.

4. The High Court analyzed the Supreme Court decisions in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 and CIT v. Gold Co. Ltd. [1970] 78 ITR 16, emphasizing the method of spreading the cost of original shares over both original and bonus shares to calculate profits or losses accurately. The Court reiterated that this method applies even when computing the cost of original shares.

5. The High Court concluded that the question raised before it was settled by the Supreme Court decisions and its own previous judgment. The Court reaffirmed the necessity of spreading the cost of original shares over original and bonus shares for computing capital gains, dismissing the argument that the Supreme Court's decision only pertained to bonus shares.

6. Ultimately, the High Court answered the referred question in the affirmative, confirming the Tribunal's decision and rejecting the assessee's plea for further appeal to the Supreme Court under section 261 of the Income-tax Act, 1961. The Court emphasized the clarity of the Supreme Court pronouncement, rendering additional references unnecessary.

7. The judgment highlights the importance of consistent application of legal principles in determining capital gains and the significance of precedent set by higher courts in resolving disputes related to the computation of income under the Income-tax Act, 1961.