1959 (3) TMI 8 - SC - Income Tax

Whether the computation of the loss by the assessee company at ₹ 35,801 is in accordance with law or whether the loss computed by the Income-tax Officer/Tribunal is in accordance with law ? Held that - The loss as calculated by the Tribunal is correct and according to law

Summary

Issues:
Calculation of loss by the assessee company, computation of loss by the Income-tax Officer, valuation of bonus shares, correctness of calculations made by the Department, interpretation of the issuance of fully paid bonus shares, consideration of bonus shares in assessing profit and loss, comparison of calculations by the assessee company, Income-tax Officer, and Tribunal.

Analysis:
The Supreme Court judgment addressed an appeal by an assessee company against the High Court's decision regarding the computation of the company's loss. The case involved the valuation of bonus shares received by the company, which impacted the calculation of profit and loss for the assessment years 1951-1952 and 1952-1953. The High Court upheld the Income-tax Officer's calculation of the loss, leading to the appeal to the Supreme Court.

The crux of the matter revolved around the treatment of bonus shares in the company's accounts. The assessee company contended that the issuance of fully paid bonus shares should be considered an expenditure, as it represented a diminution of the shareholder's interest in the company's reserves. On the other hand, the Department argued that the bonus shares did not alter the shareholders' proportional interests and should not be factored into the profit and loss calculations until they were sold.

The Supreme Court analyzed the different calculations made by the assessee company, the Income-tax Officer, and the Tribunal for the assessment years in question. The Court emphasized that for the purpose of assessing the loss, it was not necessary to determine the exact cost of the bonus shares at that moment, as they had not been sold. The Court agreed with the Tribunal's approach, which calculated the loss based on the purchase and sale prices of the ordinary shares, excluding the valuation of the bonus shares.

Ultimately, the Supreme Court held that the Tribunal's calculation of the loss was correct and in accordance with the law. The Court concluded that the questions regarding the valuation of bonus shares could be left open until they were actually sold. Therefore, the appeal by the assessee company was dismissed, and no costs were awarded in the case.