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TMI Blog1994 (12) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... count ending on 30-6-1981. 3. Smt. R. Vijayalakshmi, the mother of Jagadish Chandran (Ind.). had acquired prior to 1-1-1964, 1,000 equity shares (of the face value of Rs. 100 each) of M/s. Premier Mills Ltd. During 1965 and 1966, she purchased 160 equity shares of the same company. In 1967, she received bonus shares in the ratio of 1: 1. which augmented her holdings to 2,320 shares. In 1967. she purchased 30 shares, thus increasing the entire holdings to 2,350 shares. There were further issues of bonus shares in 1975 and 1977. On 3-8-1978, she gifted a major portion of her holdings to her son Jagadish Chandran (Ind.). which comprised the bonus shares issued in 1967. 1975 and 1977. 4. On his part, the assessee-individual sold during the previous year relevant to the assessment year 1982-83, which is now before us, 2,000 shares at. the rate of Rs. 202 per share. The said 2,000 shares comprised : (a) 1,160 shares. being the entirety of the 1967 bonus issue; and (b) 840 shares being a part of the 1975 bonus issue. 5. The H.U.F. of which Jagadish Chandran is the karta had acquired prior to 1-1-1964. 1,000 equity shares of the said Premier Mills Ltd. The assessee-HUF had purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessees of the bonus shares being nil the capital gains arising on the sale of the bonus shares could not be computed, the Assessing Officer took the line that in the case of CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567, the Supreme Court has clearly held that bonus shares did have a value which should be ascertained by applying appropriate method. Accordingly, he rejected the main contention of the assessees herein. The Assessing Officer rejected the alternative contention too. Going on the footing that in the case of Dalmia Investment Co. Ltd., the Supreme Court has held that value of bonus shares must be ascertained by adopting the principle of averaging, he computed the cost of acquisition of the bonus shares at Rs. 30.64 per share. For this purpose, he took into reckoning the actual cost to the assessees of the original holdings and not the substituted cost as on 1-1-1964. 9. The assessees were unsuccessful before the CIT(A). 10. Thereupon, the assessees moved the ITAT. When the matter came up before the ITAT, Madras Bench-D, the Members of that Bench were of the opinion that the decision of the ITAT, Bombay Bench-D in the case of F. Hoffman-La Roche Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken to its logical consequence. Perhaps, this is a case where the other doctrine, namely, that a fiction should be limited for the purpose for which it is created and should not be allowed to operate beyond its legitimate field has to be applied. 11. It was for the said reasons that the Members of the ITAT Madras Bench D opined that this was a fit, and proper case that should be referred to a. Special Bench for a detailed consideration of the issue involved. And it was in these circumstances that the matter is now before the Special Bench. 12. Shri K.R. Ramamani, the learned counsel for the assessee, took us through the facts and circumstances of the case and contended that the case of F. Hoffman-La Roche Co. Ltd. was rightly decided by the Bombay Bench of the Tribunal. Under the scheme of the Act capital gains arising on the transfer of a capital asset will have to be computed with reference to, inter alia, the provisions of sections 48. 49 and 55. Section 48 stipulates that capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts, namely: (i) expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed prior to 1-1-1964 and which was sold after the said date. Under that section it is only in cases where the capital asset became the property of the assessee before the cut-off date that the assessee has an option of having either the actual cost of acquisition of the asset or fair market value of the asset on the cut-off date. Therefore, in cases where the capital asset becomes property of the assessee after the said cut-off date, the question of allowing the assessee the option of taking the fair market value of the asset on the relevant cut-off date does not arise. Here, in relation to the option available to the assessee. the context is clearly the sale after 1-1-1964 of a capital asset acquired prior to that date. Proposition No. (2) : The principle of averaging laid down by the Supreme Court in the case of Dalmia Investment Co. Ltd. is a judge-made procedure designed to find out the cost of acquisition of bonus shares. Although in one sense bonus shares are acquired without the shareholders having to pay for them. yet on the principle of costing it would not only be possible but legitimate to arrive at the average cost of the bonus shares. The need to ascertain the aver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year relevant to the assessment year 1975-76 she had sold 675 shares, 375 of which came from the block of shares gifted to her and the rest from the 1966-67 bonus issue. The sale transaction gave rise to capital gain. Since the shares became t he property of the assessee by way of gift, the cost to the previous owner, or the value as on January 1, 1954 had to be taken and it was common ground that the assessee had chosen the value as on January 1. 1954, namely, Rs. 184 per share. On this basis, the assessee contended that she had earned capital gain of Rs. 2,261 only. On his part, the Assessing Officer, even while applying the principle of averaging, took into reckoning not only the original shares but also all the bonus shares issued subsequently, and worked out the average cost per share at Rs. 47.17. On this basis, the Assessing Officer computed the long-term capital gain at Rs. 57,820 and brought it to charge. The first appellate authority allowed the assessee's claim, relying on the Supreme Court cases of (i) Shekhawati General Traders Ltd., and (ii) Dalmia Investment Co. Ltd. The Tribunal affirmed the order of the first appellate authority and dismissed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as acquired after 1-1-1954. The Gujarat case of Navnitlal Sakarlal v. CIT (1994] 208 ITR 194 was also to the same effect. Relying upon the Gauhati case of CIT v. Jhabarmal Agarwalla [1992] 195 ITR 351, the learned Departmental Representative contended that it is the settled principle of interpretation that where the language is plain and admits of but one meaning, there is no room for an intendment. In view of the foregoing, therefore, contended Shri Unnikrishnan, the appeals are fit to be dismissed. 19. In his reply, Shri Ramamani contended that the two cases one of the Calcutta High Court and the other of the Gauhati High Court, referred to and relied upon by the Departmental Representative are not applicable to the facts of the cases before us. The Gauhati case was a case of straight substitution. There the question was not whether the value as on 1-1-1964 of the original holdings could be taken into reckoning for the purposes of applying the principle of averaging. The Calcutta cease is also distinguishable on the same lines. There, the assessee claimed that the capital gains arising out of the sale of bonus shares should be computed by taking the average price of ori ..... X X X X Extracts X X X X X X X X Extracts X X X X
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