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TMI Blog1990 (2) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... nner in which the computation of such capital gains was done is not available in the order of the ITO. The Commissioner of Income-tax, who took action u/s. 263 on the ground that the assessment made on 16-5-1984 was erroneous in so far as it was prejudicial to the interest of the revenue, has given the relevant facts which are as follows : 3. The assessee originally held 19,520 shares of Piem Hotels Ltd. During the accounting year relevant to the assessment year 1982-83, she received certain bonus shares in the ratio of 1:1. The assessee sold 11,025 shares during the assessment year 1983-84 and disclosed capital gains of Rs. 40,241. According to the CIT, the assessee had deducted cost at Rs. 10 per share, while computing such capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------- Rs. 40,241 ---------------------------- This cost of original shares, according to Shri Raheja, was rightly adopted by the ITO and the fact that the bonus shares were issued during the year, did not necessarily mean that the cost to the assessee of the original shares got diluted ipso facto. On these facts, we have to decide whether the CIT is justified in giving direction that the capital gain should be recomputed by taking the cost of the shares at Rs. 5 per share on the basis of the average cost of the original shares and the bonus shares. The CIT has relied on the following decisions, in support of the finding that he has given in his order. CIT v. Dalmia Investment Co. Ltd. [1964] 52 ITR 567 (SC), CIT v. Gold Moho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken to be nil or their face value but the proper method of valuation was to spread the cost of the old shares over the old shares and the new shares. It may be stated that in both these decisions, the issue about the valuation of bonus shares was considered and decided in a different context and the question of determining the cost of the shares sold for the purpose of capital gain did not come up before the Supreme Court. In both these decisions. In that sense also, the reliance of the CIT on these two decisions is misplaced and does not advance the case of the department. 7. In the case of W.H. Brady Co. Ltd., the Bombay High Court considered the question of acquisition of assets for the purpose of computation of capital gain, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the case of Gold Mohore Investment Co. Ltd., the Supreme Court was again concerned with the valuation of the bonus shares in the case of an assessee dealing in shares and it followed the principle laid down by the same Court in the case of Gold Mohore Investment Co. Ltd. and Dalmia Investment Co. Ltd. The common thread running through all these decisions, the manner of computing the valuation of bonus shares either for the purpose of working out business profit when such shares were sold along with other shares or for the purpose of computing capital gain. 9. In the present case, what are sold are the original shares held by the assessee. This fact has not been disputed either by the ITO or by the CIT in his order or at the time of h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d date by the Income-tax Officer when he made his assessment order on July 20, 1964. Once the market value of the shares was ascertained or determined on the date given in clause (i) of section 55(2) that would be the cost of acquisition in relation to capital assets. Up to this point there is no controversy between the revenue and the assessee, but, on behalf of the revenue, an almost startling position has been advanced that while determining the fair market value on January 1, 1954, the issuance of bonus or right shares after that date on the basis of the holding of the assessee prior to January 1, 1954, should have been taken into account. In other words, as was explained in the letter of the Income-tax Officer dated January 4, 1967, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset on the first day of January, 1954. The word "fair" appears to have been used to indicate that any artificially inflated value is not to be taken into account. In the present case it is common ground that when the original assessment order was made the fair market value of the shares in question had been duly determined and accepted as correct by the Income-tax Officer. Under no principle or authority can anything more be read into the provisions of section 55(2)(i) in the manner suggested by the revenue based on the view expressed in the Dalmia Investment Co.'s case. The High Court completely overlooked the fact that for the ascertainment of the fair market value of the shares in question on January 1, 1954 any event prior or subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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