1989 (5) TMI 93 - AT - Income Tax

Issues Involved:

1. Determination of long-term capital loss on the sale of shares of Shakti Insulated Wires (P) Ltd. for the assessment years 1981-82 and 1982-83.
2. Determination of capital gains on the sale of 500 shares of Cable Corporation of India for the assessment year 1981-82.
3. Determination of the cost of acquisition of bonus shares received on gifted shares for the purpose of capital gains.

Issue-wise Detailed Analysis:

1. Determination of Long-term Capital Loss on the Sale of Shares of Shakti Insulated Wires (P) Ltd. for the Assessment Years 1981-82 and 1982-83:

The assessee sold 970 shares in the assessment year 1981-82 and 971 shares in the assessment year 1982-83, totaling 1,941 shares sold at Rs. 60 per share. The assessee claimed a capital loss based on the cost of acquisition and market value on 1st Jan., 1964. The ITO and CIT(A) determined the capital loss differently, not accepting the assessee's computation due to lack of evidence regarding whether the shares sold were original or bonus shares.

The Tribunal found that the assessee's claim to adopt the market value as on 1st Jan., 1964, for the shares held prior to that date was valid, supported by the Supreme Court judgment in Shekhawati General Traders Ltd. vs. ITO. The Tribunal accepted the market value of Rs. 134.72 per share for shares held before 1st Jan., 1964, and directed the long-term capital loss to be allowed as claimed by the assessee, which was Rs. 72,478 for the assessment year 1981-82 and Rs. 4,661 for the assessment year 1982-83.

2. Determination of Capital Gains on the Sale of 500 Shares of Cable Corporation of India for the Assessment Year 1981-82:

The assessee sold 500 shares of Cable Corporation of India, which were bonus shares received on shares gifted by her husband. The CIT(A) determined the cost of these bonus shares as 'nil,' leading to the entire sale proceeds being treated as long-term capital gains.

The Tribunal referred to the Supreme Court judgment in CIT vs. B.C. Srinivasa Setty, which held that if the cost of acquisition is 'nil,' no capital gains tax is leviable. The Tribunal agreed that no tax on capital gains was chargeable for the sale of these 500 bonus shares, as the cost of acquisition was 'nil.'

3. Determination of the Cost of Acquisition of Bonus Shares Received on Gifted Shares for the Purpose of Capital Gains:

The assessee argued that the cost of acquisition of bonus shares should be linked to the original gifted shares under s. 49(1)(ii) of the IT Act, 1961, and the market value as on 1st Jan., 1964, should be substituted for the original cost. The CIT(A) rejected this, stating that the bonus shares could not be linked to the original gifted shares for determining the cost of acquisition.

The Tribunal found that the assessee's contention was supported by the decision in F. Hoffman-La Roche & Co. Ltd. vs. IAC, which allowed the market value as on 1st Jan., 1964, to be deemed as the cost of acquisition for computing capital gains, including for bonus shares. The Tribunal directed that the cost of acquisition should be spread over the original and bonus shares, allowing the assessee's claim.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, directing that the long-term capital loss on the sale of shares of Shakti Insulated Wires (P) Ltd. be determined as claimed by the assessee and that no tax on capital gains be levied on the sale of 500 bonus shares of Cable Corporation of India. The Tribunal also upheld the assessee's method of determining the cost of acquisition for bonus shares received on gifted shares.

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