1996 (9) TMI 3 - SC - Income Tax

Questions relating to computation of capital gains on sale of bonus shares - Supreme Court observed that the High Court had failed to give reasons for rejection of the applications filed by the Revenue under section 256(2) - We direct the Income-tax Appellate Tribunal, Ahmedabad, to refer the questions of law in the different cases

Summary

Issues:
- Interpretation of the Income-tax Act, 1961 regarding computation of capital gains on sale of shares, specifically bonus shares.
- Applicability of valuing bonus shares at average cost for computing the cost of acquisition.
- Direction to the Income-tax Officer to consider the average price of bonus shares for capital gains computation without reducing the cost price of original shares.
- Determination of the cost of original shares at either the cost price or the substitute price as on a specific date.
- Review of High Court's rejection of Revenue's applications under section 256(2) of the Income-tax Act.

Analysis:
The Supreme Court heard a batch of ten cases where the Revenue, represented by the Commissioner of Income-tax, Gujarat, appealed against orders passed by the High Court of Gujarat. The primary issue revolved around the computation of capital gains on the sale of shares, particularly bonus shares. The Revenue questioned the correctness of the Appellate Tribunal's decision to value bonus shares at average cost for determining the cost of acquisition. The court noted that the High Court had failed to provide reasons for rejecting the Revenue's applications under section 256(2) of the Income-tax Act and had not considered the findings of the Appellate Tribunal adequately.

The Supreme Court reviewed the orders of the Appellate Tribunal and concluded that the questions of law raised by the Revenue did indeed arise from the Tribunal's decisions. The court emphasized that a thorough discussion of alternate views was necessary in the Tribunal's findings. Consequently, the Supreme Court set aside the High Court's orders and directed the Income-tax Appellate Tribunal, Ahmedabad, to refer the legal questions posed by the Revenue for the High Court's consideration. The Tribunal was instructed to forward the questions, along with the case statement and relevant documents, to facilitate a prompt resolution by the High Court. The appeals were allowed, with no order regarding costs.

In summary, the Supreme Court's judgment focused on the proper interpretation of the Income-tax Act, specifically regarding the treatment of bonus shares in computing capital gains on share sales. The decision highlighted the importance of providing detailed reasons for rejecting applications and the need for a comprehensive discussion of legal issues in tribunal orders. The directive to refer the questions to the High Court aimed to ensure a thorough and expeditious resolution of the matters at hand.