9911796707
TMI Blog1981 (4) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... accounting year relevant to the assessment year 1952-53. The assessee sold 76 shares, 25 shares and 100 shares (original shares) of the aforesaid company in the accounting years relevant to the assessment years 1950-51, 1951-52 and 1952-53. In the assessment for these assessment years, the profit and loss resulting from the sales of the aforesaid shares was determined on the basis of the cost of these shares at Rs. 960 per share. But in those years as well as in the subsequent years, the assessee was valuing the closing stock of its bonus shares at the end of each year at nil. In the previous year, relevant to the assessment year under reference 1972-73, the assessee sold all the 160 bonus shares of M/s. Kamarhati Co. Ltd. In the profit and loss account of the year, the assessee credited the profit resulting from the sale of these shares by valuing the cost at nil, just as it was valuing the closing stock of these shares at nil at the end of each year. The profit and loss account of that year disclosed a loss of Rs. 3,17,484. But, in the return filed for the assessment year, the assessee claimed that the loss disclosed in the profit and loss account should further be enhanced by R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Supreme Court in their subsequent ruling in CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62. The fact that all the original shares were already sold out and that in determining the profit from the sale of the original shares in the earlier years the assessee was given the benefit of deduction of their entire cost from the sale proceeds would not make any difference, in our opinion, to the applicability of the principle laid down by their Lordships of the Supreme Court in the aforementioned cases (52 ITR 567 and 74 ITR 62), so far as determination of the cost of the bonus shares is concerned. careful reading of these rulings would go to show that the bonus shares must be deemed to have been obtained at some cost and not free, since, as a consequence of the issue of the bonus shares the original shares suffered some detriment in the sense of depreciation of their value in the market and that the cost of the bonus shares could be determined at the average price arrived at by spreading the cost of the original shares over the original shares and bonus shares if the, bonus shares ranked pari passu with the original shares. But the spreading of the cost of the original s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment Co. Ltd. [1964] 52 ITR 567, in this case, where the assessee was following the particular method and the assessee had not changed that method during the year of accounting. In support of this contention reliance was placed on the decision of this court in the matter of Chouthmal Golapchand [1938] 6 ITR 733. There the Division Bench of this court reiterated the principle, as the stock was at all previous times valued at cost price and was brought into the balance-sheet at the beginning of the year at its cost price and when it was taken out of the assets of the company, it also should be valued in the same way at the cost price. Mr. justice Costello, who delivered the concurring judgment, observed that it was clear law that a trader puts into his accounts one value at the end of any accounting year, he should start his next year's accounts with precisely the same value. We must, however, bear in mind that in that case the question involved was not the question of profit arising out of sale of shares or any stock. For the same proposition, reliance was also placed on the judgment of the Allahabad High Court in the case of Ramswarup Bengalimal v. CIT [1954] 25 ITR 17 as also th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear by valuing the bonus share at their face value whereas the ITO arrived at the loss of Rs. 27,766 by the method of averaging the price of the shares. The Appellate Tribunal had adopted a third method by which the 50 bonus shares were completely ignored and the loss was arrived at by considering solely the purchase value of the 300 shares and the proceeds realised by their sale. On a reference, the High Court had held that the method adopted by the Tribunal was in error and upheld the method of valuation adopted by the ITO. On further appeal to the Supreme Court, it was held that for the purpose of assessing the loss for the accounting year the question of the proper method of valuing the bonus shares was not relevant as they were, not sold and were still retained in the hands of the assessee. The Supreme Court further reiterated that the method of valuation adopted by the Tribunal was the correct method and the loss as calculated by the Tribunal was correct and according to law. For our present purpose it has to be reiterated that the question of the value of bonus shares was kept open and was not decided by the Supreme Court as the bonus shares in question were not sold in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and the original shares together representing the same proportional interest that the original shares represented before the issue of the new ones ... In short, the corporation is no poorer and the stock-holder is no richer than they were before ... If the plaintiff gained any small advantage by the change, it certainly was not an advantage of pounds 417,450 the sum upon which be was taxed ... What has happened is that the plaintiff's old certificates have been split up in effect and have diminished in value to the extent of the value of the new. ... If a shareholder sells dividend stock, he necessarily disposes of part of his capital interest, just as if he should sell a part of his old stock, either before or after the dividend. What he retains no longer entitles him to the same proportion of future dividends as before the sale. His part in the control of the company likewise is diminished." The Supreme Court, in this context, held that where bonus shares were issued in respect of ordinary shares held in a company by an assessee who was a dealer in shares, their real cost to the assessee could not be taken to be nil or their face value. Those had to be valued by spreading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... su, the proper method of valuation of the bonus shares was to take the amount spent by the shareholder in acquiring his original shares and to spread it over the old and new shares treating the new as accretions to the old and to treat the cost of the original shares as the cost price of the old shares and bonus shares taken together. Our attention was also drawn to a Bench decision of this court in the case of Sutlej Cotton Mills Ltd. v. CIT [1979] 119 ITR 666. There, the court held that in determining the cost of acquisition of the original shares on which bonus shares had been issued, it could either be the actual cost of acquisition or, at the choice of the assessee, the market value thereof on the 1st January, 1954. When an assessee elected to adopt the market value as on the 1st January, 1954, for the purpose of computation of capital gain or loss in the transfer of its originally acquired shares he was in effect substituting the original cost of acquisition of such shares by another amount as allowed by the statute and the capital gains on the transfer had to be calculated on such cost. Subsequent issue of bonus shares did not affect, alter or dilute the cost of acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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