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TMI Blog2008 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... E N T MR. JUSTICE P.V. REDDI (CHAIRMAN) MR. A. SINHA (MEMBER) MR. RAO RANVIJAY SINGH (MEMBER) A.A.R. NO. 761 OF 2007 Name address of the applicant Kern-Liebers International GmbH, Dr. Kurt-Steim-Str. 3578713, Sramberg, Germany Commissioner concerned Director of Income-tax (International Taxation) Bangalore Present for the Department Ms. Anita Sumanth, Advocate Mr. Satish Aggarwal, C.A. Mr. Shailesh Kumar, Addl. DIT (Int. Tax) Present for the Applicant Mr. Yeshwant .U. Chavan, Addl. Director of Income-tax (International Taxation), Bangalore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ITO passed an order on 8-5-2007 taking the cost of acquisition of the bonus shares as 'nil'. Pursuant to this order of the ITO, the Indian buyer deducted the amount of tax while making payment to the applicant and deposited the amount with the Government. A tax-withholding certificate was issued to the applicant by the Indian buyer. In these circumstances, the applicant has filed this application to obtain a ruling on the following questions: ("i.) In case of bonus shares acquired before April 1, 1981 whether fair market value prevailing on April 1, 1981 can be taken as cost of acquisition in view of provisions of section 55(2) (aa)(iiia) read with section 55(2)(b) of the Income-tax Act, 1961 for the purpose of computing capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actors to be taken into account while computing the capital gain are (i) the full value of consideration for transfer (ii) the cost of acquisition of the capital asset and the cost of improvement; and (iii) the expenditure incurred in connection with the transfer. Items (ii) and (iii) have to be deducted from item (i). Section 55(2) defines the expression "cost of acquisition". The relevant parts of the said sub-section are extracted hereunder: " (2) For the purposes of sections 48 and 49, "cost of acquisition",- 1. in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereafter in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... il, 1981 at the option of the assessee; (emphasis supplied) (ii) where the capital asset became the property of the assessee by any of the modes specified in { 12 {sub-section (1) of }} 12 section 49, and the capital asset became the property of the previous owner before the 16 {{1st day of April, 1981 10}} 16, means the cost of the capital asset to the previous owner or the fair market value of the asset on the {{1st day of April, 1981}} 10, at the option of the assessee; 4. There are four categories of capital assets enumerated in clauses (a), (aa), (ab) and (b) of sub-section (2) of section 55. Clause (b) is a residuary provision governing "any other capital asset". We are concerned here with the capital asset falling wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bject to the provisions of sub-clause (i) (ii) of clause (b). The 'capital asset' referred to in clause (b) takes with in its fold the financial assets in the form of shares or other securities as specified in clause (aa). It is clear from clause (b) of Section 55(2) that in the case of a capital asset falling within the ambit of that clause, acquired before 1st April, 1981, the cost of acquisition can be taken as fair market value of the that asset as on 1st April, 1981. This provision prevails over sub-clause (iiia) of clause (aa). The applicant is therefore entitled to the benefit conferred by clause (b)(i) of S.55(2). 5. The learned Counsel for the applicant has drawn our attention to a recent decision of the Income-tax Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pressed by the learned Members of the Tribunal. 6. Accordingly, we answer the 1st question in affirmative and give the ruling that the fair market value prevailing on 1st April, 1981 ought to be taken as the cost of acquisition in the case of bonus shares held by the applicant on 1-4-1981. Question No.(ii) 7. It is obvious that the Order passed by the ITO under Section 195(2) read with Section 154 of the Income Tax Act amounts to tentative fixation of tax liability and its subject to final view taken in the course of regular assessment (vide Transmission Corporation of A.P. Ltd v. CIT). Now that the legal position as regards the first question has been clarified, the applicant can adopt the normal procedure by filing a return ..... X X X X Extracts X X X X X X X X Extracts X X X X
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