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TMI Blog2024 (6) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... ITBA/NFAC/S/250/2023- 24/1056728180(1), ("the impugned Order") is exfacie unjust, arbitrary, and based on conjectures and surmises and circumvents the grounds and the precise submissions of the Appellant. 4. That the impugned Order, while not disputing any of the facts in the case of the Appellant all of which were submitted during the regular assessment proceedings and in fact endorsing those by tabulating in the impugned Order the manner in which the bonus shares became the property of the Appellant prior to 01.04.2001, ought not have recorded that there is "in detection of undisclosed long term capital gains", more so, when the same is pursuant to an incorrect reading of express legal provisions. 5. That the impugned Order is erroneous in as much as it has failed to read that the provisions of Section 55(2) (aa) with all its sub-clauses have been made subject to the provisions of Section 55(2)(b)(i) of the Act, and thus proceeded to assign a nil cost to bonus shares which became the property of the Appellant before 01.04.2001 and thus denying what the law has granted to the Appellant. 6. That the impugned Order fails to appreciate the applicability of the express provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Cost of acquisition Long term capital gain and loss 180,13,600 Wipro shares-FMV as at 01.04.2001 is applied for cost of acquisition 55(2)(b)(i) 5,85,30,33,205 24,10,94,02,240 (18,25,63,69,035) 418,70,169 Wipro shares -FMV as at 31.01.2018 is applied for "cost of acquisition" 55(2)(ac) 13,60,45,81,507 12,93,57,88,713 66,87,92,794 13,17,309 Wipro shares original cost of acquisition is applied 55(2)(ac) 42,8024,010 47,92,84,626 (5,12,60,616) Total - 612,01,078 Wipro shares 19,88,56,38,722 37,52,44,75,579 17,63,88,36,857 Thus, a long term capital loss of Rs. 17,63,88,36,857/- from sale of Wipro shares was computed in the prescribed manner as per Section 48 of the Act, forming part of the returned long term capital loss. 3.1 Out of the total 1,80,13,600 Wipro shares that became the property of the assessee prior to 01.04.2001, the original number of Wipro shares acquired by the assessee were 2,81,450 and shares allotted to-the assessee as bonus shares were 1,77,32,150. Further, all the 4,18,70,169 Wipro shares acquired by the assessee on or after 01.04.2001 and before 01.02.2018 were bonus shares allotted by Wipro Limited. After calling for informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonus shares, placing reliance on the judgment of the Hon'ble Supreme Court in Escorts Farms (Ramgarh) Ltd vs CIT [19961 222 ITR 509 (SC) and other judgements in concluding. 3.5 The Ld. AO concluded the regular assessment proceedings on 29-09-2022 by passing the Assessment Order resulting in assessing a total income of Rs. 744,96,55,656/- and thereby disallowing the claim of carried forward loss. The ld. AO raised a demand of Rs. 125,87,94,625/- as amount payable by the assessee. 3.6 Aggrieved by the assessment order, assessee went in appeal before NFAC to grant relief. 4. NFAC observed that the cost of bonus shares shall be taken to be "Nil" and the entire sale consideration received on the transfer of bonus shares shall be treated as capital gain. Further, it was observed that there are four categories of capital assets enumerated in clauses (a), (aa), (ab) and (b) of sub-section (2) of section 55 of the Act. Clause (b) is a residuary provision governing "any other capital asset". Here, NFAC was concerned with the capital asset falling within the scope of sub-clause (aa) and category (B) thereof. The bonus shares allotted without payment of consideration is an additional f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tressed by the CBDT Circular No. 06/2014, which has clarified that bonus units at the time of issue would not be subjected to additional income tax under section 115R of the Act [relating to tax on distributed income to unit holders], since issue of bonus units was not akin to distribution of income by way of dividend. This was inferred from the provisions of section 55(2) of the Act, which prescribes that cost of acquisition of bonus units would be 'Nil' for the purpose of computation of capital gains. 4.5 Further, NFAC relied on the judgement of Hon'ble Madras High Court in the case of H.F. Craig Harvey reported in (2000) 112 Taxman 633 (Mad.), wherein held as follows: "21. Insofar as the question referred at the instance of the assessee is concerned, we are of the view that once the fair market value of the shares as on 1-1-1964, is determined, it remains an unalterable figure and any issue of bonus shares subsequent to that date is wholly extraneous and irrelevant and cannot be taken into consideration. This Court in Mala Ramesh v. CIT [1995] 214 ITR 223 has taken the view that the value of the bonus shares is not to be separately ascertained when an entire block of shares i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find no infirmity in the order of the Tribunal in holding that the assessee is not entitled to deduct the sum of Rs. 1,53, 128 as cost of bonus shares in addition to the cost of acquisition of original shares in the two amalgamated companies." 4.6 Further, NFAC relied on the judgement in the case of Shashi Parvatha Reddy, (2017) 87 taxmann.com 227 (Hyderabad-Trib) wherein the Tribunal held as follows: '9. Having regard to the rival contentions and the material on record, the undisputed facts are that the assessee has acquired the original shares from AppLabs Technologies Private Ltd by inward remittance of foreign exchange, while some other shares were acquired by overseas investors also by inward remittance of foreign exchange. It is also not in dispute that the Company, AppLabs Technologies Pvt Ltd had allotted bonus shares in the ratio of 1:9 to all the shareholders including the assessee and the overseas investors and that due to non fulfilment of certain conditions, the overseas investors had to transfer their shares along with the bonus shares to the assessee without any cost. It is also undisputed that the assessee has transferred maximum number of original shares t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 18 per share. In other words, by the issue of bonus shares pro ra , which ranked pari passu with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares. This will ordinarily be the case but not when the shares do not rank pari passu and we shall deal with that case separately. When the shares rankspari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus shares, in two 50 nP. coins. The total value remains the same, but the evidence of that value is not in one certificate but in two" Thus, it is clear that where the original shares are purchased/acquired in foreign exchange, then the same shall also be attributed to the bonus shares which have been allotted subsequently. The Coordinate Bench of this Tribunal in the case of Sanjay Gala and Smt. Deivanayagam Maruthi (cited supra) also followed the above decision to hold that the bonus shares issued on original shares by investing convertible foreign exchange are -also foreign exchange asset u/s. 115E of the Act Therefore, in our opinion, the bonus shares acquire the nature of the original shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f (i) & (ii) (i) = Nil (ii) = Lower of Rs 308.95 and Rs 324.92 actual cost to the assessee 308.95 363.84 12,93,57,88,713 47,92,84, 626 6,12,01,078 37,52,44,75,578 5.1 He submitted that Section 55(2) of the Act provides the meaning of the expression of acquisition" for capital assets through four clauses. It is apparent that out of the four, only clauses (aa) and (ac) are made subject to, inter-alia, sub-clause (i) of clause (b). In this regard, it is to be noted that the cost of acquisition of bonus shares was sought to be dealt with by the Parliament for the first time by way of insertion of sub-clause (iiia) in Section 55(2)(aa)(B) vide the Finance Act, 1995, stating it as "shall be taken to be Nil'. 5.2 However, he submitted that what is of utmost importance to note is that there was no amendment made to the governing portion of this sub-clause (iiia) in Section 55(2)(aa)(B) which provides that the said sub-clause (iiia) is subject to the provisions of sub-clauses (i) and (ii) of clause (b) of Section 55(2), and thus the sub-clause (iiia) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding place to another provision or other provisions to which it is made subject. " 5.6 He further submitted that the Hon'ble Supreme Court in K. T. Plantation (P) Ltd. vs. State of Karnataka, (2011) 9 SCC 1, has reaffirmed the same as under words: "Section 107 itself has been made "subject to" Section 110 of the Act. The words subject to' conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. In Black Law Dictionary, 5th Edn. At p. 1278, the expression "subject to" has been defined as under: "Liable, subordinate, subservient, inferior, obedient to; governed or effected by; provided that; provided; answerable for. " Since Section 107 is made subject to Section 110, the former section conveys the idea of yielding to the provision to which it is made subject that is Section 110 which is the will of legislature. " 5.7 Thus, he submitted that in the light of the above, the sub- clause (iiia) of Section 55(2)(aa)(B) shall yield to subclause (i) of Section 55(2)(b) to which the former have been made subject to. 5.8 Moreover, he submitted that when an assessee avails the legislatively granted option of substitut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of view of plain logic and reasoning, the option of FMV cannot be restricted only to the original shares and must also extend to the bonus shares. The provisions of the statute are quite clear, unambiguous and hardly capable of being interpreted in any other manner. To sum up, the legal position is like this. So far as bonus shares allotted before 1st April, 1981 are concerned, and even after the insertion of s. 55(2)(aa)(iiia), for the purpose of computing capital gains on transfer of the said bonus shares, the assessee has an option to take their fair market value as on 1st April, 1981 as the cost acquisition. " 5.10 The ld. A.R. further submitted that the Finance Act, 2017 w.e.f. 1-4-2018 substituted the date of 01.04.2001 for 01.04.1981 and therefore, the aforesaid decision is clearly applicable to the instant case. Thus, the Act explicitly provides for substituting the fair market value as at 01.04.2001 for both the original shares and the bonus shares that became the property of the Assessee before 01.04.2001, at the option of the Assessee. 5.11 He submitted that the learned Assessing Officer in the assessment order has alternatively applied the following two methods for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. 7. We have heard the rival submissions and perused the materials available on record. Now the issue before us is with regard to whether provisions of section 55(2(aa)(B)(iiia) of the Act is directly applied or it is to be applied subject to the provisions of sub-clause (i) & (ii) of clause (b) of Section 55(2) of the Act. For clarify, we reproduce section 55(2) of the Act in its entirety. "55(2) [For the purposes of sections 48 and 49, "cost of acquisition",-- [(a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [ or a right to manufacture, produce or process any article or thing] [ or right to carry on any business [or profession]], tenancy rights, stage carriage permits or loom hours,-- i. in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and ii. in any other case [not being a case falling under sub-clauses (i) to (iv) of subsection (1) of section 49], shall be taken to be nil; (aa)[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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an equity oriented fund or a unit of a business trust referred to in section 112A, acquired before the 1st day of February, 2018, shall be higher of - i. the cost of acquisition of such asset; and ii. lower of - A. the fair market value of such asset; and B. the full value of consideration received or accruing as a result of the transfer of the capital asset. Explanation - For the purposes of this clause, -- (a) "fair market value" means,-- (i) in a case where the capital asset is listed on any recognized stock exchange as on the 31st day of January, 2018, the highest price of the capital asset quoted on such exchange on the said date: Provided that where there is no trading in such asset on such exchange on the 31st day of January, 2018, the highest price of such asset on such exchange on a date immediately preceding the 31st day of January, 2018 when such asset was traded on such exchange shall be the fair market value; (ii) in a case where the capital asset is a unit which is not listed on a recognized stock exchange as on the 31st day of January, 2018, the net asset value of such unit as on the said date; (iii) in a case where the capital asset is an equi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for the purpose of payment of stamp duty in respect of an immovable property. (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on it liquidation and the assessee has been assessed to income-tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution; (iv) [***] [(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on --- a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares, b) the conversion of any shares of the company into stock, c) the re-conversion of any stock of the company into shares, d) the sub-division of any of the shares of the company into shares of smaller amount, or e) the conversion of one kind of shares of the company into another kind. Means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asst is derived.]." 7.1 The contention of the ld. A.R. is that provisions of section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 1996-97) will have to be made in accordance with the provisions of the said sub-clause. Therefore, the crucial factor for applicability of sub-clause (iiia) is not as to when the bonus shares were received by the assessee on allotment. Crucial factor that attracts the applicability of sub- clause (iiia) is that the transfer of securities including bonus shares must have taken place during the previous year relevant to assessment year 1996-97, i.e., on or after 1-4-1995 giving rise to the computation of capital gains in assessment year 1996-97. If they have been transferred on or after 1.4.1995, the provisions of sub-clause (iiia) as also the legal effect created by it cannot be avoided. This aspect of the matter has also been clarified in para 30.4 of the Departmental Circular No. 717 dated 14-8-1995 issued by the Central Board of Direct Taxes which provides: "These amendments will take effect from 1-4-1996 and will, accordingly, apply to the securities transferred on or after 1-4-1995". Following the ratio laid down in Karnataka Small Scale Industries Development Corporation Ltd v. CIT [2003] 7 SCC 224, the said circular has the effect of explaining the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as never been the case of the assessee, at any stage of the proceedings either before the authorities below or before us, that he has made any payment to the company for allotment of bonus shares. He has also not led any evidence or filed details to show that any payment as such was made to the company for allotment of bonus shares. The term 'payment' as occurring in sub-clause (iiia) is not defined in the Act. However, it is defined at p. 1150 in Black's Law Dictionary (Seventh Ed.) as follows: "Payment 1. Performance of an obligation, usually by the delivery of money. Performance may occur by delivery and acceptance of things other than money, but there is payment only if money other valuable things are given and accepted in partial or full discharge of an obligation 2. The money or valuable thing so delivered in satisfaction of an obligation." According to P. Ramanatha Aiyer's "The Law Lexicon' (Reprint 2002 -General Editor: Hon'ble Justice Y.V- Chandrachud p. 1426), 'payment', in legal contemplation, "is the discharge of an obligation by the delivery of money or its equivalent, and is generally made with the assent of both parties to the contract". T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment therefor nor is any payment made by the shareholder to the company against such allotment. These aspects are inbuilt in the very nature of bonus issues. In the Departmental Circular also, the position is stated in the following words: "Bonus shares are issued to an existing shareholder without making a payment in cash. This also explains the rational behind the emphasis in sub-clause (iiia) on bonus shares being 'allotted without any payment and on the basis of holding any other financial asset'. 7.6 However, before us ld. A.R. submitted that provisions of section 55(2)(aa)(B)(iiia) of the Act to be applied subject to the provisions of explanation (b)(i) in section 55(2)(a)(iv)(ac) of the Act. 7.7 We have carefully gone through the above provisions. The provision u/s 55(2)(aa)(B)(iiia) of the Act was introduced w.e.f. 1.4.1996 by Finance Act, 1995. Section 55(2)(aa)(B)(iv)(ac) of explanation (b) was introduced w.e.f. 1.4.1998 by Finance Act, 2018. The assessee wants to press the assistance of this explanation so as to ascertain the fair market value of the asset as on 1.4.2001 when this bonus shares have became property of the assessee before 1.4.2001. 7.8. We have care ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject within the letter of the law, the subject is free, however, however apparently within the spirit of the law the case might otherwise appear to be." 7.8.2 In Canadian Eagle Oil Co. v. R. [1946] AC 119, 140, Viscount Simon, LC said: "In the words of Rowlatt J (in Cape Brandy Syndicate v. IRC [1921] 1 KB 64, 71) whose outstanding knowledge of this subject was coupled with a happy conciseness of the phrase "in a taxing Act one has to look at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." 7.8.3 In CWT v. Smt. Hashmatunnisa Begum [1989] 176 ITR 982 (SC) the Court held : "One of the pillars of statutory interpretation viz., the literal rule, demands that if the meaning of the statutory interpretation is plain the courts must apply regardless of the result." 7.8.4 In Orissa State Warehousing Corporation v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. (Per Lord Loreburn, LC in Vickers Sons and Maxim Ltd. v. Evans [1910] AC 444: 1910 WN 161 (HL), quoted in Jumma Masjid v. Kodimaniandra Deviah, AIR 1962 SC 847.)" 7.8.6 At this stage, reference may be made to the Departmental Circular No. 717 dated 14th August, 1995 which reads as under: "Simplified procedure for computation of capital gain on transfer of bonus shares.- 30.1 Bonus shares are issued to an existing shareholder without making a payment in cash. Presently, cost of acquisition of these shares is taken on the basis of principles laid down by the Supreme Court. It has been held that after a bonus issue, the cost of each of the bonus shares as also each of the original shares is to be determined by spreading the cost of the original shares over the number of the original and bonus shares. There are no provisions under the Income-tax Act to deal with the computation of the cost of acquisition in such cases. 30.2 Computation of the cost of bonus shares on the principle of averaging however, is not simple. It is very difficult to correlate bonu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generaliaspecialiabus non derogant, which means that when there is a conflict between a general and a special provision the latter shall prevail. The said principle has been stated in Craies on Statute Law, 5th Edition, at pg 205, thus: The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular' enactment must be operative, and the general enactment must be taken to affect only the other pads of the statute to which it may properly apply." 7.11. This is to say, here there are general words in a later Act capable of reasonable and sensible application without extending them to subjects specially dealt with by earlier legislation, one is not to hold that earlier and special legislation indirectly repealed, altered, or derogated from merely by force of such general words, without any indication of a particular intention to do so. 7.12. Time and again the courts have expressed their coordinated views on the fact that in a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has admittedly not paid any price for acquiring the bonus shares. Under such circumstances, the specific provision relating to acquisition of financial asset under section 55(2)(aa)B(iiia) of the Act, without any cost would be applicable. As the legislature has expressly provided for cost of acquisition to be at 'Nil', in a situation where the financial asset is allotted to an assessee without any payment, upholding the argument of the assessee to apply sub-clause (i) of clause (b) to section 55(2)(b) of the Act will make sub-clause (iiia) to section 55(2)(aa)B of the Act redundant.
7.17 Further, it is to be noted that section 55(2)(b) of the Act talks of other capital asst, which segregates from sub-clause (iiia) to section 55(2)(aa)B of the Act, that talks about Bonus shares specifically. The decisions relied by the ld. A.R. has not considered being this distinguishing feature between these two provisions. Thus, we find no merits in the arguments of ld. A.R. and all the grounds of appeal raised by the assessee herein are dismissed.
8. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 29th Apr, 2024. X X X X Extracts X X X X X X X X Extracts X X X X
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