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TMI Blog2011 (7) TMI 153X X X X Extracts X X X X X X X X Extracts X X X X ..... dent on the issue of bonus shares - Therefore, once the bonus shares are issued, the averaging out formula has to be followed with regard to all the shares" - Hence, the bonus shares acquired by the assessee are covered by section 115C(b) of the Act, and the same are eligible for benefit under section 115F of the Act - Decided in favour of assessee. - IT APPEAL NO. 2989 (MUM.) OF 2008 - - - Dated:- 15-7-2011 - P.M. JAGTAP, V. DURGA RAO, JJ. Vijay Mehta and Umesh K. Gala for the Appellant. R.S. Srivastava for the Respondent. ORDER V. Durga Rao, Judicial Member. This appeal filed by the assessee is directed against the order of CIT(A)-XXXIII, Mumbai, passed on 14-2-2008 for the assessment year 2005-06 wherein the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange. 4.1 The asset involved is bonus shares. As pointed out by the Assessing Officer, it cannot be said that the appellant has acquired the bonus shares. It cannot be also said that the appellant has purchased the bonus shares. Similarly, the appellant has also not subscribed to in convertible foreign exchange only with regard to the original shares. The original shares are entirely different assets than the bonus shares. Each share has a distinct number. So the appellant's contention that the bonus shares should be considered as part of original shares and hence the appellant has subscribed to in convertible foreign exchange with regard to the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee relied upon judgment of the Hon'ble Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 wherein the Hon'ble Court held as under : "Where bonus shares are issued in respect of ordinary shares held in a company by an assessee who is a dealer in shares, their real cost to the assessee cannot be taken to be Nil or their face value. They have to be valued by spreading the cost of the old shares over the old shares and the new issue (viz., the bonus shares) taken together if they rank pari passu, and if they do not, the price may have to be adjusted either is proportion of the face value they bear (if there is no other circumstance to differentiate them) or on equitable considerations based on the mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme Court took the view that in the case of a dealer in shares who values his stock at cost, where bonus shares issued in respect of ordinary shares held by him rank pari passu with the original shares, the correct method of valuing the cost to the dealer of the bonus shares is to take the cost of the original shares, spread it over the original shares and the bonus shares collectively and find out the average price of all the shares." 6. The learned counsel for the assessee also placed reliance on the judgment of the Delhi High Court in the case of Escorts Farms (Ramgarh) Ltd. v. CIT [1983] 143 ITR 749/[1982] 11 Taxman 91 wherein it was held as under : "From a layman's point of view, the cost of the original shares is the price paid f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne where the assessee has elected to exercise an option as decided in Shekhawati General Traders Ltd.'s case [1971] 82 ITR 788 (SC)." 7. The learned counsel for the assessee further relied on the Memorandum Explaining Finance Bill, 1995 [212 ITR (St.) 357] wherein it was held that : "For the sake of clarity and simplicity, section 55 is being amended to provide that the cost of bonus shares will be taken as nil for computation of capital gain on sale of bonus shares. This would not affect the cost of original shares. This procedure will also be applicable to any other security where a bonus issue has been made. It was further held that with a view to encouraging the flow of foreign exchange remittances into India and investment in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under : "(b) "foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange." 10. On perusal of the above provision, it is clear that foreign exchange asset for the purpose of section 115F is the one which assessee has acquired in convertible foreign exchange. In the present case, the assessee subscribed to shares in convertible foreign exchange and acquired the foreign exchange asset. Insofar as this aspect is concerned, there is no dispute from the revenue authorities. The only dispute is with regard to the bonus shares received by the assessee. The objection of the revenue authorities is that the assessee has received the bonus shares without ..... X X X X Extracts X X X X X X X X Extracts X X X X
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