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TMI Blog2011 (1) TMI 896X X X X Extracts X X X X X X X X Extracts X X X X ..... 91 declaring a total income of Rs. 3,22,760. The Assessing Officer issued a notice under section 148 of the Income-tax Act, 1961 (for short, "the Act") on August 1, 1995, calling upon the assessee to show cause as to why the sale proceeds of bonus shares should not be brought to capital gains tax. The appellant filed a revised return on October 27, 1995, again declaring the same total income. 3. The appellant had transferred the shares owned by it in M/s. Parkside Explosives and Industries Ltd. While computing the cost of acquisition of 85,076 shares of the said company, originally 42,538 shares were acquired for a price and another 42,538 shares were acquired subsequently as bonus shares. Similarly, the appellant sold 31,078 equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 (C) 2,14,644 Total (A + B + C) 15,36,288 48(2) Basic deduction 10,000 30 per cent. of balance 4,57,886 4,67,886 10,68,402" 5. The assessing authority, however, applied the ratio laid down in the decision of this court in CIT v. T. V. S. and Sons Ltd. reported in [1983] 143 ITR 644 (Mad) and worked out the capital gains as under : Rs. Rs. "(i) Sale price of 85076 equity shares of Parkside Explosives and Industries Ltd. 29,77,660 Less : Cost of 85076 equity shares consisting of 42538 original shares + 42538 bonus shares (i.e. Rs. 6,49,637 + Rs. 6,49,637) 12,99,274 Capital gain (A) 16,78,386 (ii) Sale price of 31078 equity shares of Coonoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43 ITR 644 (Mad) has also been referred to, the method adopted by the appellant for working out the capital gains in respect of the disposal of shares held by it, both original as well as bonus, alone should have been accepted and, therefore, the orders of the Tribunal as well as that of the lower authority should be set aside. 9. As against the above submissions, Mr. Naresh Kumar, learned senior standing counsel for the respondent, by drawing our attention to the principles in regard to the valuation to be made for arriving at the capital gains in the matter of sale of shares of original acquisition and the bonus shares together, as stated by the Commissioner of Income-tax (Appeals) contended that the case on hand inasmuch as the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the average cost of original shares must inevitably get reduced protanto. To take a very simple illustration, if a shareholder holds a single share which he has purchased at Rs. 100 and subsequently a bonus share is issued to him, then, on the theory of averaging and of obtaining the notional cost of the bonus shares, the purchase cost of Rs. 100 for the single original share must be divided by two, one for the original share and the other for the bonus share. The result of this averaging is that the cost of each share would be Rs. 50. There are two consequences of the principle of averaging, namely, (i) to attribute to the bonus share a cost when for that share there is no actual cost of acquisition, and (ii) to reduce the actual cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2001] 249 ITR 511 (Mad) is concerned, at page 511, the Division Bench itself has stated as to how the decision reported as T. V. S. and Sons Ltd. [1983] 143 ITR 644 (Mad) cannot be applied, as in the said case, the said issue related to the shares held prior to January 1, 1954, and in respect of the sale of said shares along with the bonus shares, the assessee therein opted for the fair market price and consequently the decision reported as T. V. S. and Sons Ltd. [1983] 143 ITR 644 (Mad) could not be applied by the Division Bench. Therefore, the subsequent Division Bench decision reported as R. Ramachandran [2001] 249 ITR 511 (Mad) has no application to the facts of this case. 14. We, therefore, do not find any flaw in the conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X
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