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TMI Blog1991 (8) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... out of the sale of the shares, the assessee claimed before the Income-tax Officer that it should be allowed deduction in respect of cost of acquisition on the basis of the original cost of the shares. The Income-tax Officer rejected this claim and worked out the cost of the shares by spreading out the cost of the original shares, on the original as well as bonus shares received by the assessee, following the decision of the Supreme Court in CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567. He worked out the cost of shares of Jyoti Ltd, at Rs. 79.55 and the cost of shares of Alembic Glass Industries Ltd. at Rs. 55.65 and computed the" long-term capital gains at Rs. 7,59,933. The Appellate Assistant Commissioner having upheld the view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the original shares. It was submitted that income chargeable under the head "Capital gains" has to be computed as provided in section 48 of the Act. Under section 48 of the Act, the cost of acquisition of the capital asset has to be deducted while computing capital gains. The cost of original shares is the price which the assessee had paid when he acquired them, and, therefore, as provided in section 48 of the Act, this cost has to be deducted while computing the capital gains. It was urged that since, admittedly, the shares sold by the assessee were original shares, there is no question of spreading the cost of the original shares over the bonus shares to work out the cost of each share. The question of spreading over the cost of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r shares at actual cost. On January 29, 1948, the assessee sold all these shares for a total cost of Rs. 15,50,458, that is, at Rs. 14 per share and, in its return for the assessment year 1949-50, claimed a loss of Rs. 7,444 on the sale. The Supreme Court, by a majority, observed that there were four possible methods for determining the cost of bonus shares. The first method is to take the cost as the equivalent of the face value of the bonus shares. That was the method followed by the assessee in making entries in its books. The second method adopted by the Department is that, as the shareholder did not pay anything in cash for the shares, the cost should be taken as nil. The third method is to take the cost of the original shares and to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of the bonus shares. In order to work out the profits earned by the assessee in the case before it, the Supreme Court worked out the cost of the original as well as bonus shares by spreading the cost of the original shares over the original shares and the bonus shares. It must be remembered that the Supreme Court was not dealing with the sale merely of bonus shares ; it was dealing with sale of both original as well as bonus shares and, while working out the profits earned by the assessee, the cost of the original shares stood reduced as a result of the spreading over of the cost, as stated above. In CIT v. Gold Co. Ltd. [1970] 78 ITR 16 (SC), the question which arose before the Supreme Court was with regard to the cost of the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whether the Tribunal was right in holding that, for the purpose of working out capital gains arising out of sale of original shares of Messrs. Jyoti Ltd. and Messrs. Alembic Glass Industries Ltd., the cost of the shares to be deducted from the sale proceeds should be worked out by spreading the cost at which the original shares were acquired over the original shares and the bonus shares. This question was answered in the affirmative and against the assessee following the decision of the Supreme Court in the case of Dalmia Investment Co. Ltd. [1964] 52 ITR 567. This court held that the above question was directly covered by the said decision of the Supreme Court. It was, however, urged that this court had answered the question referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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