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2024 (6) TMI 807 - AT - Income TaxApplicability of Section 55(2)(b)(i) to bonus shares - Cost of acquisition of bonus shares which became the property of assessee before 1.4.2001 - Applicability provisions of section 55(2)(aa)(B)(iiia) or it is to be applied subject to the provisions of sub-clause (i) (ii) of clause (b) of Section 55(2) - bonus shares were 'allotted to the assessee without payment' and on the basis of his holding the original shares so as to bring the case of the assessee within the ambit of sub-clause (iiia) HELD THAT - The provision u/s 55(2)(aa)(B)(iiia) of the Act was introduced w.e.f. 1.4.1996 by Finance Act, 1995. Section 55(2)(aa)(B)(iv)(ac) of explanation (b) was introduced w.e.f. 1.4.1998 by Finance Act, 2018. The assessee wants to press the assistance of this explanation so as to ascertain the fair market value of the asset as on 1.4.2001 when this bonus shares have became property of the assessee before 1.4.2001. As carefully gone through the provisions of sub-clause (iiia). We do not find any word used therein which can be said to be vague or ambiguous or failing to convey clearly the legislative intent. The legislative intent is clear that the capital gains arising on transfer of bonus shares on or after 1-4-1995 i.e., assessment year 1996-97 should be computed by taking the cost of bonus shares to be nil if the conditions of clause (iiia) are satisfied. It is not disputed by the assessee that bonus shares were allotted to him without payment and on the basis of original shares held by him. The plain and natural meaning of the term allotted (a past tense) as occurring in sub-clause (iiia) is that the factum of allotment of bonus shares should have taken place in the past. The said term is neither restricted nor qualified nor followed by any date and hence we are not inclined to insert or read any date after the aforesaid term, as contended by the assessee. We do not think that the plain words of sub-clause (iiia) are capable of any such interpretation as suggested by the learned counsel for the assessee. In CESC Ltd v. Dy. CIT (No. 2) 2003 (6) TMI 20 - CALCUTTA HIGH COURT as held In the absence of any restrictions provided within the scheme of Chapter XV, the court is not supposed to read something, which is otherwise not permissible. While interpreting a provision, the High Court is not supposed to legislate indirectly. The court has to read the statute, as it is when the statute is capable of conveying clear and unambiguous simple grammatical meaning.' We are therefore unable to agree with the submission of the Ld. Counsel for the assessee that sub-clause (iiia) would apply in those cases only where bonus shares are 'allotted on or after 1-4-1995' as such a construction requires for its support, addition of words or rejection of words which is not permissible in the face of clear provisions of sub-clause (iiia). Departmental Circular No. 717 dated 14th August, 1995 highlights that sub-clause (iiia) has been inserted with effect from 1-4-1996 in order to overcome certain difficulties and the problem of complexity in working out the cost of bonus shares and consequential computation of capital gain as a result of judicial decisions. The aforesaid amendment, therefore, is required to be construed in a manner so as to promote the purpose and object of the amendment. The Legislature wants to adopt a simple method for computation of capital gains with effect from the assessment year 1996-97 by providing that the cost of acquisition shall be taken to be nil in cases falling under sub-clause (iiia). Sub-clause (iiia) has been made specifically applicable with effect from the assessment year 1996-97 requiring thereby that income from capital gains would be computed, with effect from assessment year 1996-97, by taking the cost of acquisition of bonus shares to be nil. It is well-settled that even existing rights can be impaired by express enactment or by necessary implication from the language employed in the statute. In the present case, sub-clause (iiia) enacts that the cost of bonus shares would be taken to be nil if they were allotted to the assessee without payment and on the basis of his holding the original shares. The provision of sub-clause (i) of clause (b) in section 55(2)(b) of the Act is in respect of financial asset, where a purchase price has been paid by an assessee for acquiring such financial asset. Whereas, in present facts, the assessee has admittedly not paid any price for acquiring the bonus shares. Under such circumstances, the specific provision relating to acquisition of financial asset under section 55(2)(aa)B(iiia) of the Act, without any cost would be applicable. As the legislature has expressly provided for cost of acquisition to be at Nil , in a situation where the financial asset is allotted to an assessee without any payment, upholding the argument of the assessee to apply sub-clause (i) of clause (b) to section 55(2)(b) of the Act will make sub-clause (iiia) to section 55(2)(aa)B of the Act redundant. As noted that section 55(2)(b) of the Act talks of other capital asst, which segregates from sub-clause (iiia) to section 55(2)(aa)B of the Act, that talks about Bonus shares specifically. The decisions relied by the ld. A.R. has not considered being this distinguishing feature between these two provisions. Thus, we find no merits in the arguments of ld. A.R. and all the grounds of appeal raised by the assessee herein are dismissed.
Issues Involved:
1. Validity of the authorities' orders. 2. Variation of returned income under "capital gains." 3. Alleged arbitrary and conjectural nature of the impugned order. 4. Detection of undisclosed long-term capital gains. 5. Interpretation of Section 55(2)(aa)(iiia) and Section 55(2)(b)(i) of the Income Tax Act. 6. Applicability of Section 55(2)(b)(i) to bonus shares acquired before 01.04.2001. 7. Relevance of judicial decisions post the insertion of clause (iiia) in Section 55(2)(aa). 8. Reliance on the Hyderabad Bench's decision in Shashi Parvatha Reddy. 9. Failure to address the prayer for alternate relief under Section 55(2)(ac). Detailed Analysis: 1. Validity of the Authorities' Orders: The appellant contended that the orders of the authorities were contrary to the express provisions of law and failed to follow binding precedents. The Tribunal found that the authorities' orders were in accordance with the law and binding precedents. 2. Variation of Returned Income under "Capital Gains": The appellant challenged the variation of the returned income under "capital gains" by an amount of Rs. 2373,26,55,269/- and the computation of an income of Rs. 547,62,86,232/- in respect of the transfer of shares. The Tribunal upheld the authorities' computation, noting that the cost of acquisition of bonus shares should be taken as nil as per Section 55(2)(aa)(iiia) of the Act. 3. Alleged Arbitrary and Conjectural Nature of the Impugned Order: The appellant argued that the impugned order was arbitrary and based on conjectures and surmises. The Tribunal found that the order was based on a correct interpretation of the law and relevant judicial precedents. 4. Detection of Undisclosed Long-Term Capital Gains: The appellant contended that the impugned order erroneously recorded the detection of undisclosed long-term capital gains. The Tribunal concluded that the authorities correctly identified the undisclosed gains based on the provisions of Section 55(2)(aa)(iiia). 5. Interpretation of Section 55(2)(aa)(iiia) and Section 55(2)(b)(i): The core issue was whether the cost of acquisition of bonus shares should be determined under Section 55(2)(b)(i) or Section 55(2)(aa)(iiia). The Tribunal held that Section 55(2)(aa)(iiia), which provides that the cost of acquisition of bonus shares is nil, applies and is not subject to Section 55(2)(b)(i). 6. Applicability of Section 55(2)(b)(i) to Bonus Shares Acquired Before 01.04.2001: The appellant argued that the cost of acquisition of bonus shares acquired before 01.04.2001 should be determined as per Section 55(2)(b)(i). The Tribunal rejected this argument, stating that Section 55(2)(aa)(iiia) clearly applies to bonus shares allotted without payment, regardless of the acquisition date. 7. Relevance of Judicial Decisions Post the Insertion of Clause (iiia) in Section 55(2)(aa): The appellant claimed that the judicial decisions cited by the authorities were irrelevant post the insertion of clause (iiia) in Section 55(2)(aa). The Tribunal found that the authorities correctly relied on relevant judicial precedents, including the decision in Shashi Parvatha Reddy, which supported the interpretation of Section 55(2)(aa)(iiia). 8. Reliance on the Hyderabad Bench's Decision in Shashi Parvatha Reddy: The appellant argued against the reliance on the decision in Shashi Parvatha Reddy. The Tribunal upheld the reliance on this decision, noting that it correctly interpreted the provisions of Section 55(2)(aa)(iiia). 9. Failure to Address the Prayer for Alternate Relief under Section 55(2)(ac): The appellant contended that the authorities failed to address the prayer for alternate relief under Section 55(2)(ac). The Tribunal found that the authorities correctly applied the provisions of Section 55(2)(aa)(iiia) and that the alternate relief under Section 55(2)(ac) was not applicable in this case. Conclusion: The Tribunal dismissed the appeal, affirming the authorities' orders and computations based on the provisions of Section 55(2)(aa)(iiia) of the Income Tax Act. The Tribunal concluded that the cost of acquisition of bonus shares should be taken as nil, and the authorities correctly computed the capital gains. The appeal was dismissed in its entirety.
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