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TMI Blog1996 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ee received 174 shares. There was a further bonus issue when the assessee received 94 shares. The total shareholding of the assessee as on December 31, 1972, was 355 shares. On March 28, 1973, the assessee sold all the 355 shares for Rs. 56,900. The question of assessment of capital gains from the sale of these shares arose. As per the calculation submitted by the assessee, the capital gain was Rs. 22,109. The capital gain, according to the Income-tax Officer, was Rs. 40,892. The assessee appealed to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner gave a direction to the Assessing Officer in the matter of ascertaining the cost of bonus shares. According to the Appellate Assistant Commissioner, the cost of the bonus shares should be fixed by finding out the average price of all the shares in accordance with the ratio of the judgment of the Supreme Court in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567. On receipt of this order, the Income-tax Officer reworked the capital gains. He arrived at the same figure of Rs. 40,892. What he did was to start with the cost of 87 shares, i.e., 58 shares on partition and 29 by way of gift at Rs. 16,008 and thereaft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the shares got on partition (58 shares) and the shares got by way of gift (29 shares) will be ignored as far as the cost of acquisition is concerned, because the pegged value as on January 1, 1954, of Rs. 184 per share shall have to be adopted in lieu thereof as already directed. The Income-tax Officer was directed to rework the cost of acquisition in terms of the order passed by the Tribunal. Subject to the above observations, the appeal filed by the Department in I.T.A. No. 857 (Mds.) of 1974-75 was treated as allowed. In view of the order passed in the Departmental appeal, the appeal filed by the assessee in I.T.A. No. 1130 (Mds.) of 1975-76 was dismissed. Before us, learned counsel appearing for the assessee submitted that in so far as the original shares are concerned, which were acquired prior to January 1, 1954, they should be valued as per the provisions of section 55(2) of the Income-tax Act, 1961, by taking into consideration the fair market value as was prevalent on January 1, 1954. Learned counsel further submitted that in order to ascertain the cost of acquisition of the bonus shares obtained subsequent to January 1, 1954, the market value as obtaining on Janu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. and Sons Ltd. [1983] 143 ITR 644 and a decision of the Calcutta High Court in Goodricke Group Ltd. (No. 2) v. CIT [1993] 201 ITR 266. 2. So far as the original shares are concerned, the assessee exercised his option to value the original shares as per the fair market value prevalent on January 1, 1954. The bonus shares were obtained after January 1, 1954. Hence, the option given under section 55(2) of the Act will not be applicable to the assessee in so far as the bonus shares are concerned. 3. In order to ascertain the cost of bonus shares, the cost price of the original share should be spread over both original shares as well as bonus shares. Learned standing counsel for the Department submitted that the assessee is not entitled to ask for valuing the bonus shares on the basis of the fair market value, prevalent on January 1, 1954, of the original shares. We have heard both learned counsel appearing for the assessee as well as learned standing counsel appearing for the Department. There is no dispute that in so far as the original shares are concerned, which were acquired prior to January 1, 1954, they should be valued as per the fair market value prevalent on January ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the above decision that the principle of averaging by spreading the cost over the old shares and the new bonus shares as enunciated by the Supreme Court in Dalmia Investment Co.'s case [1964] 52 ITR 567, and other cases, will apply as a general rule in cases where the assessee claims to deduct the actual cost of acquisition, instead of the statutory cost of acquisition. It also stands to reason since the fair market value as per the statutory cost of acquisition' will be a notional or fictional figure-mostly inflated-having no connection with the original or actual cost. It is after discussing the effect or impact of the issue of the bonus shares, on the value of the original shares generally and also the various possible methods for determining the cost of the bonus shares, that the Supreme Court in Dalmia Investment Co.'s case [1964] 52 ITR 567 stated that the real cost to the assessee of the bonus shares cannot be taken to be nil or their face value and they have to be valued by spreading the cost of the old shares over the old shares and the new issue (bonus shares), taken together, etc. The principle so laid down is one of general application." According to the facts ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal shares and the bonus shares were sold in one block. Therefore, the method adopted by the assessee in valuing the bonus shares separately as on the dates when they were issued is not acceptable in view of the decisions of the Supreme Court cited supra. Further, in CIT v. Prema Ramanujam [1991] 192 ITR 692, this court never said the bonus shares should be valued separately as on the dates when they were issued. In CIT v. T. V. S. and Sons Ltd. [1983] 143 ITR 644 this court has clearly held that the Tribunal was not justified in valuing the cost of the bonus shares and including it for the purpose of determining the cost of acquisition to determine the capital gains. Similarly, the Calcutta High Court in Goodricke Group Ltd. (No. 2) v. CIT [1993] 201 ITR 266 held : " that where an assessee sells the entire block of his shares, original shares as well as bonus shares, the appropriate method of computing the value of the shares would be to spread the cost of the original shares over the original shares and bonus shares collectively and to ascertain the average price of all shares". A combined reading of the decisions cited supra would go to show that in a case where the origin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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