1985 (3) TMI 44 - HC - Income Tax

Summary

Issues:
1. Jurisdiction of the Commissioner of Income-tax to act under section 263 of the Income-tax Act, 1961.
2. Valuation of bonus shares in computing capital gains.
3. Whether the Tribunal should refer the question to the High Court.

Analysis:

1. Jurisdiction of the Commissioner of Income-tax:
The case involved a dispute regarding the jurisdiction of the Commissioner of Income-tax to act under section 263 of the Income-tax Act. The Commissioner initiated proceedings under section 263 as he found the original assessment order to be prejudicial to the Revenue. The Income-tax Officer had determined the cost of acquisition of shares based on the market value as on January 1, 1964. The Tribunal held that the Commissioner had the jurisdiction to invoke section 263 as the market value was uniformly adopted for all shares, including bonus shares. However, the Tribunal modified the Commissioner's direction and remitted the matter back to the Income-tax Officer to redetermine the capital gains in accordance with law after considering the assessee's objections.

2. Valuation of Bonus Shares:
The dispute also revolved around the valuation of bonus shares in computing capital gains. The assessee contended that the Commissioner erred in valuing bonus shares at "nil" and argued that bonus shares should be valued by spreading the cost of the original shares over both original and bonus shares. The Tribunal agreed with the assessee's contention and held that the valuation of bonus shares and the determination of capital gains arising from their sale should be decided by the Income-tax Officer upon remittance of the matter.

3. Referral to High Court:
The assessee sought a direction from the High Court to refer a question regarding the Tribunal's decision to the court. However, the High Court found no justification to direct a reference as the Tribunal's order allowed the assessee to present all contentions before the Income-tax Officer. The High Court dismissed the petition, emphasizing that the Commissioner had the jurisdiction to act under section 263, and the Tribunal's decision was justified in upholding this jurisdiction.

In conclusion, the High Court upheld the jurisdiction of the Commissioner of Income-tax under section 263 and dismissed the petition, stating that there was no need for a reference to the High Court. The case highlighted the importance of proper valuation of shares and the authority of the Commissioner to rectify prejudicial assessments under the Income-tax Act.