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TMI Blog1989 (5) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... determined at Rs. 29,035. (iii) Appellant also disputes the finding of CIT(A) that Bonus shares received on gifted shares cannot for any purpose be linked up with original gifted shares for the purpose of determining cost of acquisition of Bonus shares. Under s. 49(1)(ii) of IT Act, 1961 when capital asset became the property of appellant under a gift, the cost of acquisition of asset to be taken for the purpose of capital gain is cost to the previous owner. The CIT(A) has ignored this provision in determining the cots of bonus shares at Nil. Grounds for asst. yr. 1982-83: (i) The learned ITO and CIT(A) have erred in determining the capital loss on sale of 971 shares of Shakti Insultated Wires (P) Ltd. @ Rs. 14,814. Appellant disputes the computation of this loss. (ii) The loss of Rs. 14,814 is determined on the basis of the order for asst. yr. 1981-82 wherein part of the shares of the said company were sold. The Appellant has filed Tribunal Appeal against the determination of this loss and prays that loss on sale of remaining shares during the previous year relevant to asst. yr. 1982-83 be determined by taking working of actual cost of the entire holding of the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 . . Rs. 1,93,599 . Loss: Rs. 77,139 The loss claimed by the assessee in two assessment years in appeal Asst. yr. 1981-82 Rs. 72,478 Asst. yr. 1982-83 Rs. 4,661 Rs. 77,139 4. The ITO observed in the assessment order for asst. yr. 1981-82 that since the assessee could not produce the evidence as to whether the bonus shares were sold in S.Y. 2036 or the original shares were sold, the assessee's contention that the cost be taken at Rs. 1,30,698 at the market rate of Rs. 134.72 per share as on 1st Jan., 1964 for 970 shares sold in asst. yr. 1981-82 cannot be accepted. Since the entire 1,941 shares of the aforesaid company owned by the assessee were sold in asst. yrs. 1981-82 & 1982-83, the ITO determined the capital gains/loss for both the years as under: Cost shown in the statement . . Rs. 1,47,462 Less : Cost of 100 (not 120) shares shown Rs. 12,000 actual cost Rs. 11,000 Rs. 1,000 . Cost of 5 shares sold as above Rs. 674 . . Cost shown Rs. 286 Rs. 388 Rs. 1,388 Cost of 1941, shares shown . . Rs. 1,46,074 Less : Sale proceeds . . Rs. 1,16,460 Long-term capital loss for both the years . . Rs. 29,614 Long term capital loss of asst. yr. 198 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the long term capital loss in relation to sale of number of shares owned by the assessee prior to 1st Jan., 1964. The learned authorised representative relied upon the judgment of the Hon'ble Supreme Court in the case of Shekhawati General Traders Ltd. vs. ITO. The head-note is reproduced hereunder: "Held, that for the ascertainment of the fair market value of the shares in question on 1st Jan., 1954, any issue of bonus shares subsequent to that date was wholly extraneous and irrelevant and could not be taken into consideration. The assessee was bound to disclose under cl. (a) of s. 147 only such material facts which were necessary for its assessment for the relevant assessment and not those facts which were wholly extraneous or irrelevant for the purpose of assessment. Under cl. (b) of s. 147, the information had to be such as would lead the ITO to believe that income chargeable to tax has escaped assessment. The information, in this case, relating to the acquisition of bonus share subsequent to 1st Jan., 1954, could not possibly furnish any reason to the ITO to form the belief that income chargeable to tax had escaped assessment for the relevant assessment year. The ITO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of Hon'ble Madras High Court in the case of CIT vs. T.V.S. & Sons Ltd. (1983) 37 CTR (Mad) 192 : (1983) 143 ITR 644 (Mad). The head-note of the said judgment is also reproduced hereunder: "The question of determining the cost of acquisition of bonus shares are sold and capital gains have to be determined in respect of the sale of the bonus shares alone. However, when the entire shareholding including the original shares and the bonus shares are compulsorily acquired, the question of determining the cost of acquisition of the bonus shares separately would not arise. The valuation of bonus shares on the averaging method is not intended to distort the total outlay on the shares in the purchase amount. The theory of averaging is a principle of costing resorted to to determine the cost of the bonus shares alongwith a view to reckoning the result of any transaction in respect of bonus shares alone, but when the entire block of shares held by a shareholder is sold and in that sale all the bonus shares held by the shareholder also figure, there can be no occasion or necessity for determining the cost of the bonus shares separately. The whole cost of the shares including the bonus s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned Departmental Representative on the aforesaid judgment of Delhi High Court in the case of Escort Farms (Ramgarh) Ltd. is not applicable under the facts of the appellant's case as is evident from the following extracts appearing in the handnote of the aforesaid judgment at page 143 ITR 750: "But in view of the specific language of s. 55(2)(i) of the IT Act, 1961, regarding the substituted market value of 1st Jan., 1954, this cannot be done where the assessee has elected to exercise the option to adopt the market value as on that date in the place of the actual cost of acquisition as decided by the Supreme Court in the case of Shekhawati General Traders Ltd. 1972 CTR (SC) 120 : (1971) 82 ITR 788 (SC)." 8. Since the assessee in this case had exercised the option to adopt the market value as on 1st Jan., 1964 in place of the actual cost of acquisition, the aforesaid judgment of Hon'ble Delhi High Court is not applicable to the facts of the present case. 9. We have carefully considered the rival submissions made by both the sides. The assessee's claim that cost of 970 shares sold during the asst. yr. 1981-82 should be taken as its market value as on 1st Jan., 1964 @ Rs. 134. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nus shares received by the appellant in respect of the original shares gifted to the appellant by her husband. The appellant contends that on the basis of the finding given by the CIT(A) that cost to the assessee in respect of such bonus shares sold during the previous year is 'nil', no tax on capital gains is leviable in respect of sale of aforesaid 500 bonus shares, in view of the judgment of Hon'ble Supreme Court in the case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC). Without prejudice to this main contention, the appellant further submitted that the cost of acquisition of aforesaid 500 bonus shares sold during the year under appeal should be worked out by spreading the cost of the original shares over the original as well as the bonus shares and it was further submitted that the market value as on 1st Jan., 1964 should be deemed as the cost of acquisition of the original shares as on 1st Jan., 1964 and should be substituted in place of original cost of shares and such substituted cost of acquisition should be adopted for all purposes while computing the capital gains including the for the purposes of finding out the average cost of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here the assessee gifted to her minor daughter 10,000 shares of a company. The company issued bonus shares as a result of which the minor daughter came to own another 10,000 shares. The Madras High Court held that the original transfer of 10,000 shares was a gift to the minor daughter and their value was rightly includible in the assessee's wealth. However, the provisions of s. 4(1)(a)(ii) of the WT Act were not attracted to the impugned bonus shares as the receipt by the minor daughter of bonus shares was not by transfer from the original transferor of the gifted shares, but by allotment of the shares from the company itself. The Bombay High Court in the case of Popatlal Bhikamchand vs. CIT (1959) 36 ITR 577 and CIT vs. M.P. Birla (1982) 28 CTR (Bom) 218 : (1983) 142 ITR 377 (Bom) and the Madras High Court in the case of CIT vs. T. Saraswathi Achi (1982) 133 ITR 315 (Mad) have, on identical facts and circumstances of the case come to the same conclusion as that of Madras High Court in the case of CWT vs. T. Saraswathi Achi. The bonus shares were never allotted to the assessee and she was not in a position to transfer them in favour of her minor daughter. As such, the Madras High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bonus shares. The ITO's action in this behalf is upheld although on altogether different ground." 13. The learned authorised representative submitted that in view of the aforesaid finding gift by the CIT(A) that cost of such 500 Bonus shares sold by the assessee is 'nil' hence no tax on capital gains is chargeable in the case of the appellant. 14. The learned Departmental Representative vehemently argued that the judgment of Hon'ble Supreme Court in the case of B.C. Srinivasa Setty, does not in any case help the assessee. The learned Departmental Representative invited our attention towards page 300 of 128 ITR and contended that the Hon'ble Supreme Court has held that where it is not possible to envisage the cost of assets or when no cost at all can be conceived, then only the ratio of the aforesaid judgment of Hon'ble Supreme Court will apply. According to the learned Departmental Representative, the cost of bonus shares is easily conceivable and can be conveniently envisaged and hence the aforesaid judgment of the Hon'ble Supreme Court cannot be validly applied in the case of the appellant. 15. We have carefully considered the rival submission made by both the sides and ha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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