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TMI Blog2007 (1) TMI 283X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court rendered in the case of Seth Rasesh Family Trust No. 1 v. CIT [1995] 215 ITR 530. 4. As against this, it is submitted by the ld. AR of the assessee that the principle of averaging applicable for ascertaining the cost of bonus shares is relevant only when shares are sold in lots at different point of time but when the entire holding is sold through one transaction, the question of averaging the cost does not arise as the original cost of acquisition is known. Reliance was placed on the judgment of Hon'ble Madras High Court rendered in the case of CIT v. TVS & Sons Ltd. [1983] 143 ITR 644. It was also submitted that Hon'ble Madras High Court has considered the judgment of Hon'ble Apex Court rendered in the case of CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 . Reliance was also placed specifi-cally on two judgments (1) Mala Ramesh v. CIT [1995] 214 ITR 223 (Mad.) and (2) T.S. Srinivasan v. CIT [2000] 244 ITR 443 (Mad.). The Assessing Officer has considered the cost of bonus shares on the basis of averaging and that cost of bonus shares is indexed from the year of allotment of bonus shares whereas entire cost was incurred by the assessee at the time of acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rior to amendment in section 48 regarding substitution of indexed cost of acquisition instead of cost of acquisition and, hence, this judgment also cannot be made directly applicable in the present case. We find that the judgment of Hon'ble Madras High Court rendered in the case of TVS & Sons Ltd. (supra) supports the case of the assessee. In this case, it was held by the Hon'ble Madras High Court that no separate value should be allotted to bonus shares as entire block of shares has been sold and whole cost of original shares including bonus shares being a known figure. It was also held that it would be unnecessary to ascertain the original cost of each share. The Hon'ble Madras High Court has followed its own earlier judgment in the case of Mala Ramesh (supra), but both these decisions are also related to assessment years prior to amendment in section 48 regarding replacing of cost of acquisition by indexed cost of acquisition and these this judgments of Hon'ble Madras High Court also cannot be made applicable in the present case directly. The issue in the present case is regarding arriving at the cost of bonus shares by averaging and spreading of total cost of shares over total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction from sale proceeds for working out capital gain and no indexation benefit was allowed. As per the amendment by Finance Act, 1992, the assessee is entitled to benefit of indexation from 1-4-1993. If the method adopted by Assessing Officer is approved, the assessee is not getting benefit of indexation from the date of acquisition of shares till allotment of bonus shares on that portion of total cost, which has been worked out as cost of bonus shares. Hence, we are of the considered opinion that assessment order on this issue cannot be sustained. Since, total shares including original shares and bonus shares have been sold out in this year and indexation cost of acquisition has been worked out by the assessee on the basis of original cost and date of purchase, we are of the considered opinion that there is no reason to interfere in the order of the ld. CIT(A) on this issue as it has been noted by the ld. CIT(A) that the total indexed cost of acquisition worked out on the basis of indexation of original cost till the year of allotment of bonus shares before working out the cost of bonus shares is same at Rs. 47,82,765 as claimed by the assessee without working out cost of bonus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of 20 per cent but still he has held that the assessee is entitled to deduction under section 80G to the extent of Rs. 47,35,653 as claimed by the assessee although it will go to reduce total taxable income to an amount below the amount of total long-term capital gain. Now the revenue is in appeal before us. 9. It is submitted by the ld. DR of the revenue that the action of the Assessing Officer is correct in view of the provision of section 112(2) and, hence, the order of the ld. CIT(A) should be reversed and that of the Assessing Officer should be restored. As against this, it is submitted by the ld. counsel for the assessee that the definition of GTI (gross total income) for the purpose of Chapter VI-A does not require reduction of LTCG (long-term capital gain) as interpreted by ITO. It is submitted that deduction under section 80G must be allowed from the GTI including LTCG because neither the definition in section 80B(5) nor section 80G provide for excluding LTCG from the GTI for working out the deduction nor is there any reference to section 112. It is also submitted that as per section 80G(4), there is a ceiling for the deduction under section 80G i.e., 10 per cent of GT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of deduction allowable. The second interpretation is as noted by the ld. CIT(A) in para 5.1 of his order that the intention of section 112(2) is that LTCG should be taxed fully at 20 per cent. This interpretation means that there should be a cap on amount allowable under Chapter VI-A and for that, GTI should be reduced by LTCG. In the present case, the gross total income after reducing LTCG works out to Rs. 10,68,822, i.e., Rs. 9,47,14,618 less capital gain Rs. 9,36,44,171 less deduction under section 80L Rs. 1,625. As per this interpretation, deduction allowable under section 80G although worked out by the assessee at Rs. 47,37,275 should be restricted to this amount at Rs. 10,08,882 and as a result, whole of capital gain of Rs. 9,36,44,171 will be liable to tax as provided under section 112(2). We are of the considered opinion that section 112 cannot be ignored since it fixed a cap on deduction allowable under Chapter VI-A to ensure that whole of the long-term capital gain is subjected to tax and, accordingly, we hold that deduction should be allowed to the assessee under section 80G to the extent of Rs. 10,08,822 only. This issue is decided partly in favour of the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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