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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 ..... t find any word used therein which can be said to be vague or ambiguous or failing to convey clearly the legislative intent. The legislative intent is clear that the capital gains arising on transfer of bonus shares on or after 1-4-1995 i.e., assessment year 1996-97 should be computed by taking the cost of bonus shares to be nil if the conditions of clause (iiia) are satisfied. It is not disputed by the assessee that bonus shares were allotted to him without payment and on the basis of original shares held by him. The plain and natural meaning of the term allotted (a past tense) as occurring in sub-clause (iiia) is that the factum of allotment of bonus shares should have taken place in the past. The said term is neither restricted nor qualified nor followed by any date and hence we are not inclined to insert or read any date after the aforesaid term, as contended by the assessee. We do not think that the plain words of sub-clause (iiia) are capable of any such interpretation as suggested by the learned counsel for the assessee. In CESC Ltd v. Dy. CIT (No. 2) [ 2003 (6) TMI 20 - CALCUTTA HIGH COURT] as held: In the absence of any restrictions provided within the scheme of Chapter XV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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. As 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. - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER And SHRI SOUNDARARAJAN K., JUDICIAL MEMBER For the Appellant : Sri Sandeep Huilgol, A.R. For the Respondent : Sri Sunil Kumar Agarwal, D.R ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER : This appeal by assessee is directed against order of NFAC for the assessment year 2020-21 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of clause (iiia) in Section 55(2)(aa) of the Act vide the Finance Act, 1995 w.e.f 1-4-1996 and at the same time tite authorities below have omitted to objectively consider those which the Appellant had referred to, which are binding precedents in the facts and circumstances of the Appellant. 9. That the impugned Order is erroneous in placing reliance on the decision of the Hon'ble Hyderabad Bench of the Tribunal in the case of Shashi Parvatha Reddy [2017] 87 Taxmann.com 227 to buttress the conclusion of assigning nil value to bonus shares. 10. Without prejudice, the impugned Order has failed to address the prayer for alternate relief as per Section 55(2)(ac) of the Act which allows substitution of fair market value as at 31.01.2018 for being extended to bonus shares allotted prior to 01.04.2001 which is also clarified in F No. 370149/20/2018-TPL dated 04.02.2018. 11. All the grounds are without prejudice to each other. 2 . The crux of above grounds is with regard to the cost of acquisition of bonus shares numbering 1,77,32,150, which became the property of assessee before 1.4.2001. In other words, the issue is as to whether the cost of these bonus shares which satisfy the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee on or after 01.04.2001 and before 01.02.2018, being bonus shares, the cost of acquisition should be taken as Nil as per the provisions of Section 55(2)(aa)(B)(iiia) of the Act. 3.2 As regards ascertaining the cost of acquisition of Wipro shares, the assessee submitted as follows i Wipro shares that became the property of the Appellant before 01.04.2001: Section 55(2)(b)(i) requires the FMV as on 01.04.2001 at Rs. 1338.40 per Wipro share to be reckoned as the cost of acquisition and the same should be applied to the entire holding of 1,80,13,600 Wipro shares. This is the statutory cost available to the assessee and cannot be subject to any averaging. It was also submitted that the principle of averaging for listed shares is automatically carried out in the quoted price of such share at the stock exchange at every allotment of bonus shares, thus already meeting with the proposition of the SCN. ii Wipro shares acquired between 01.04.2001 and before 01.02.2018: Section 55(2)(ac) of the Act requires the FMV as on 31.01.2018 at Rs. 308.95 per Wipro share to be reckoned as the cost of acquisition. This is the statutory cost available to the assessee and it cannot be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Apex Court in the case of Commissioner of Income Tax, Patiala v. Shahzada Nand and Sons and Ors., 1966 AIR 1342, has observed as under: 8 Another rule of construction which is relevant to the present enquiry is expressed in the maxim generaliaspecialia bus 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 parts of the statute to which it may properly apply. 4.2 NFAC observed that, 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonus shares which was prevalent after 1-1-1954. This court held that once the value of the original shares was determined in accordance with the statutory provisions, then, the said value remains an unalterable figure and the said value should be adopted for the purpose of dividing the same by bonus shares as well as the original shares and any alteration to the above method would be hit by the provisions of section 55(2). This Court held that once the value has been determined under section 55(2), that value should be taken into account and both the original shares and bonus shares should be clubbed together and the average value should be found by dividing the fair market value opted on 1-1-1954, by the total number of shares. The Same view was taken in CIT v. Dalmia Investment Co. Ltd. [1964] 52 1 TR 567 (SC); Shekhawati General Traders Ltd. v. ITO [1971] 82 ITR 788 (SC); CIT v. Prema Ramanujam [19911 192 ITR 692 (Mad.), CIT v. G.N. Venkatapathy [19971 225 ITR 952/92 Taxman 401 (Mad.) and CIT v. T.V.S. Sons Ltd. [1983] 143 ITR 644 (Mad.). 22. The Supreme Court in Escorts Farms (Ramgarh) Ltd. v. CIT [1996] 222 ITR 509/88 Taxman 453 has also accepted the principle that the subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of inward remittance of foreign exchange. The assessee could not have acquired the bonus shares unless and until he owns the original shares and fulfills the conditions for allotment of bonus shares. The original shares definitely have a cost of in foreign exchange. The Hon'ble Supreme Coutt in the case of Dalmia Investment Co. Ltd. (supra) has considered the issue as to whether the bonus shares can be said to have been acquired without any consideration. After considering the judicial precedents and various aspects of the bonus shares, the Hon'ble Supreme Court has held as under. Where bonus shares are issued in respect of ordinary shares held in a company by an assessee who is a dealer in shares, their real cost to the assessee cannot be taken to be Nil or their face value. They have to be valued by spreading the cost of the old shares over the old shares and the new issue (viz., the bonus shares) taken together if they rank pari passu, and if they do not, the price may have to be adjusted either is proportion of the face value they bear (if there is no other circumstance to differentiate them) or on equitable considerations based on the market price before and after is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered as Nil cost and accordingly dismissed the ground of the assessee. Aggrieved, assessee came in appeal before us. 5. The ld. A.R. submitted that the Assessee is a partnership firm belonging to the promoter group of Wipro Limited. Pursuant to a SEBI approved share buyback scheme of Wipro Limited, the Assessee tendered listed equity shares of Wipro Limited of face value of Rs. 2/- each for a net buyback price of Rs. 324.92/- per equity share. The cost of acquisition for computing income under the head capital gain arising from the said transfer of the capital asset was arrived at by the Assessee in the manner stated hereinbelow: Type Period Number of shares Section Section remarks Implication Cost of acquisition per equity share Total cost of acquisition Original Bonus Before 01.04.2001 Before 01.04.2001 2,81,450 1,77,32,150 55(2)(b)(i) 55(2)(b)(i) cost of acquisition of the asset to the assessee or the fair market value of asset on the 1 st day of April 2001, at the option of the assessee FMV as on 01.04.2001=1,338.40 1,338.40 1,338.40 37,66,92,680 23,73,27,09,560 Total 1,80,13,600 24,10,94,02,240 Bonus Bonus on or after 01.04.2001 but before 01.02.2018 or on after 01.02.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . if the capital asset (in this case, the bonus shares) became the property of the assessee before 01.04.2001, then the only legal and logical corollary to be drawn is that the provisions in sub-clause (iiia) of S.55(2)(aa)(B) must yield to sub-clause (i) of Section 55(2)(b). 5.5 Moreover, he submitted that it is also vital to note that the intention of the Parliament in this regard is made even clearer by the fact that while substituting 1981 with 2001 in Section 55(2)(b)(i) vide the Finance Act, 2017, there was no amendment whatsoever to the provisions of Section 55(2)(aa)(B)(iiia). Hence, not just once, but twice, the Parliament has expressly and unambiguously decided to provide that the provisions of Section 55(2)(b)(i) shall prevail over the provisions contained in Section 55(2)(aa)(B)(iiia). That is to say, the latter was and continues to be subject to the former, i.e. S.55(2)(b)(i). In this regard, the interpretation of the expression subject to has been dealt with by the Hon'ble Supreme Court in South India Corporation (P) Ltd. v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207 in the following words The expression subject to conveys the idea of a provision yie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther assume that on 1st Jap., 1981, the X Co. Ltd allots bonus shares in the ratio of 1: 1. In such a situation, the assessee will get 10,000 shares more and his holding will become 20,000 shares. However, the entire capital base will also go up in the same proportion and the market value of assessee's shareholding, which will continue to be 1 per cent of the entire share capital, will also continue to remain the same, i.e. Rs. 1,00,00,000. The reason is this. The allotment of bonus shares will not affect overall valuation of company which will however, be spread over more number of shares. But then, if FMV is to be taken in respect of original shares only, the assessee will be at a clear disadvantage in the sense that post bonus issue market value of 10,000 shares will only be Rs. whereas pre bonus issue, the market value of those 10,000 shares would have been Rs. That clearly is incongruous, and quite appropriately not supported by the scheme of computation of capital gains under scheme of the Act. 5.9 He submitted that through this illustration, the Tribunal concluded as under: In any event, for the reasons set out above, even from the point of view of plain logic and reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (1967) 65 ITR 252 (Mysore) b) Hon ble High Court of Karnataka s judgement in West Palm Developments LLP v. ACIT (order dated 19.11.2021 in ITA No.598 of 2016) c) Hon ble High Court of Gauhati s judgement in Assam Co- operative Apex Bank Ltd. v. CIT (1978) (112 ITR 257) d) Hon ble High Court of Gujarat s judgement in Deepak Nitrite Ltd. v. CIT (2008) (307 ITR 289) e) Hon ble High Court of Calcutta s judgement in ITO v. R.L. Rajghoria (1979) (119 ITR 872) f) Hon ble Allahabad High Court s judgement in Smt. Sarika Jain v. CIT (2018) (407 ITR 254). g) Hon ble Bombay High Court s judgement in Motor Union Insurance Co. Ltd. v. CIT 91945) (13 ITR 272) h) Hon ble Calcutta High Court s order dated 19.7.1982 in Mrs. A. Ghosh vs. CIT (1983) 141 ITR 45 (Cal.) i) ITAT Mumbai s decision in the case of Heinrich de Fries GmbH Vs. JCIT Special Range 12 (2005) 96 TTJ 864 j) ITAT Mumbai s decision in the case of Alcan Inc Vs. DCIT (IT) Range 1(1) Mumbai (2008) 110 ITD 15 k) ITAT Mumbai s decision in the case of DDIT 3(1) Vs. H R Johnson (Overseas) Ltd. (ITA No.1314/Mum/2013) 6. The ld. D.R. relied on the order of lower authorities. 7. We have heard the rival submissions and perused the materials a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such asset has been renounced, means the aggregate of the amount of the purchase price paid by him to the person renouncing such right and the amount paid by him to the company or institution, as the case ay be, for acquiring such financial asset;] [(ab) in relation to a capital asset, being equity share or shares allotted to a shareholder of a recognized stock exchange in India under a scheme for [demutualization or] corporatization approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Bord of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange;] [ Provided that the cost of a capital asset, being trading or clearing rights of the recognized stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualization or corporatization, shall be deemed to be nil;] [(ac) subject to the provisions of sub-clauses (i) ad (ii) of clause (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A, acquired before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the assessee by any of the modes specified in [sub-section (1) of ] section 49, and the capital asset became the property of the previous owner before the [1st day of April, [2001]], 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, [2001]], at the option of the assessee; Following proviso and the Explanation thereto shall be inserted after sub-clause (ii) of clause (b) of sub-section (2) of section 55 by the Finance Act, 2020 w.e.f. 1.4.2021: Provided : that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001. Explanation For the purposes of this proviso, stamp duty value means the value adopted or assessed or assessable by any authority of the Central Government or a State Government 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isition of bonus shares to be adopted for determining the capital gains on bonus shares till assessment year 1995-96 while, under the amended law effective from the assessment year 1996-97, the cost of acquisition of bonus shares is statutory required, under sub-clause (iiia), to be taken to be Nil , if they had been allotted to an assessee without payment. Thus, there is a great shift in the statutory mode for the computation of capital gains in respect of bonus shares w.e.f. assessment year 1996-97. The cost of class of onus shares has to be statutory taken to be Nil if the conditions of sub clause (iiia) are fulfilled in case involving computation of capital gain w.e.f. assessment year 1996-97. 7.2 Sub-clause (iiia) has been made specifically applicable with effect from the assessment year 1996-97 which means that the computation of capital gains in respect of securities including bonus shares transferred on or after 1-4-1995 (i.e., during the previous year relevant to the assessment 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 49, the cost of acquisition of any additional financial asset as bonus shares or security or otherwise which is allotted to the assessee without any payment and on the basis of holding any other financial asset' shall be taken to be nil. The fact that the bonus shares were allotted to the assessee without payment. It is also not in dispute that the bonus shares were allotted to the assessee on the basis of his holding the original shares. The assessee also admits that bonus shares giving rise to the capital gains were transferred during the previous year 2019-20 relevant to the assessment year 2020-21. 7.4 The issue that arises for consideration is whether, on the facts and in the circumstances of the case, it can be said that bonus shares were 'allotted to the assessee without payment' and on the basis of his holding the original shares so as to bring the case of the assessee within the ambit of sub-clause (iiia). At the outset, it may be mentioned that it has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are capital. Neither the shareholders to whom the shares are allotted have to pay anything nor does anything go out of the coffers of the company upon allotment of bonus shares. Allotment of bonus shares is not dependent on payment by a shareholder to the company but accrues to him, as of right and by way of bonus, on the basis of his shareholding as and when the company decides to issue the bonus shares. Bonus shares are treated in commercial world as free distribution of shares on the basis of the shares already held. On perusal of British Master Tx Guide (1988-89) under the head Bonus and Rights Issues at p. 598, as quoted, with approval, in Escorts Farms (Ramgarh) Ltd. v. CIT (1996) 222 ITR 509 (SC), in which it is stated that Bonus issue are free distribution of shares (e.g. two new shares for each share already held) . Thus, the issue as also the allotment of bonus shares does neither give rise to any obligation on the part of the shareholder to make 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 fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed to legislate indirectly. The court has to read the statute, as it is when the statute is capable of conveying clear and unambiguous simple grammatical meaning.' We are therefore unable to agree with the submission of the Ld. Counsel for the assessee that sub-clause (iiia) would apply in those cases only where bonus shares are 'allotted on or after 1-4-1995' as such a construction requires for its support, addition of words or rejection of words which is not permissible in the face of clear provisions of sub-clause (iiia). In taking this view, we are supported by several judicial authorities, some of which are cited below. 7.8.1 In A. V. Fernandez v. State of Kerala 1957 AIR SC 657, the Hon'ble Supreme Court observed: As Lord Cairns said many years ago in Partington v. The Attorney General [(1869) 4 H.L 100, 122] :- As I understand the principle of all fiscal legislation it is this : if the person sought to be taxed comes within 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner (1846) 7 Moo PCC 1: 4 MIA 179, courts cannot aid the legislatures defective phrasing of an Act, we cannot add or mend, and by construction make up deficiencies which are left there. [See State Of Gujarat v. Dilipbhai Nathjibhai Patel [1998] 3 SCC 234: 1998 SCC (Cri) 737: JT (1998) 2 SC 253]. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. (See Stock v. Frank Jones (Tipton) Ltd [1978) 1 ALL ER 948: (1978) 1 WLR 231 (HL). Rules of interpretation do not permit courts to do so, unless the provision as it stands is meaningless or of a doubtful- meaning Courts are not entitled 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose and object of the amendment. The Legislature wants to adopt a simple method for computation of capital gains with effect from the assessment year 1996-97 by providing that the cost of acquisition shall be taken to be nil in cases falling under sub-clause (iiia). Sub-clause (iiia) has been made specifically applicable with effect from the assessment year 1996-97 requiring thereby that income from capital gains would be computed, with effect from assessment year 1996-97, by taking the cost of acquisition of bonus shares to be nil. 7.10 Further, as rightly pointed by the ld. D.R., while taking aid of the maxim Generaliaspecialiabus non derogant , the Hon'ble Apex Court in the case of Commissioner of Income Tax, Patiala v. Shahzada Nand and Sons and Ors 1966 AIR 1342, has observed as under: 8. ...Another rule of construction which is relevant to the present enquiry is expressed in the maxim 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 particul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the provision were unequivocal. The Court held: The rules of interpretation would come into play only if there is any doubt with regard to the express language used. Where the words are unequivocal, there is no scope for importing any rule of interpretation as submitted by the appellant. 7.15 It is well-settled that even existing rights can be impaired by express enactment or by necessary implication from the language employed in the statute. In the present case, sub-clause (iiia) enacts that the cost of bonus shares would be taken to be nil if they were allotted to the assessee without payment and on the basis of his holding the original shares. 7.16 The provision of sub-clause (i) of clause (b) in section 55(2)(b) of the Act is in respect of financial asset, where a purchase price has been paid by an assessee for acquiring such financial asset. Whereas, in present facts, the assessee 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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