1971 (10) TMI 2 - SC - Income Tax

Disclosure of information regarding issue of bonus shares - reassessment proceedings under s. 147 cannot be invoked on the ground that the assessee had not furnished these details - appeals are allowed and the judgment of the High Court is set aside. The impugned notice issued to the assessee in each case shall stand quashed

Summary

Issues:
Computation of capital gains in the sale of shares, interpretation of the cost of acquisition for capital assets, jurisdiction of the Income-tax Officer under section 147 of the Income-tax Act.

Analysis:
The case involved a dispute over the computation of capital gains from the sale of shares by an assessee. The assessee had acquired shares before January 1, 1954, and sold some of them during the assessment year 1962-63. The cost of acquisition was calculated based on the market value prevailing on January 1, 1954. The Income-tax Officer initially accepted the assessee's calculation, resulting in a capital loss. However, in a subsequent notice, the Officer claimed that the cost calculation was incorrect as it did not consider bonus shares received after January 1, 1954.

The High Court upheld the Income-tax Officer's jurisdiction under section 147 of the Income-tax Act, stating that the failure to disclose the acquisition of bonus shares in the return could lead to an escapement of assessment. The judges differed in their opinions, with one judge concluding that the notice was valid under section 147(a) while the other judge found it to be covered by section 147(b).

The Supreme Court analyzed the statutory provisions under sections 45, 48, and 55(2) of the Act to determine the cost of acquisition for capital assets. Section 55(2) allows the assessee to choose between the actual cost of acquisition or the fair market value as of January 1, 1954. The Court emphasized that the fair market value determined on that specific date should not be influenced by events before or after it. The Court rejected the revenue's argument to include bonus shares received post-1954 in the cost calculation, citing a previous case that was not relevant to the current scenario.

Ultimately, the Supreme Court allowed the appeals, setting aside the High Court's judgment and quashing the impugned notice issued by the Income-tax Officer. The Court clarified that the information regarding bonus shares acquired after January 1, 1954, was irrelevant for the assessment and did not justify the belief of an escapement of tax assessment. The assessee was awarded costs for the appeal.