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TMI Blog2003 (11) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... e sale price of 1400 shares of ITC Classic Finance which was wrongly taken at page-2 of the assessment order at Rs. 3,19,754 in place of Rs, 2,41,606 as per statement filed by the appellant. The observation of the CIT(Appeals) in this respect reading as "It is a subsequent observation which is not very apparent from the assessment order filed by the appellant before me" is irrelevant and misleading. This mistake is apparent with reference to the sale figure shown in the statement filed by the appellant with the return and the figure adopted by the Assessing Officer in the Asst. order." "(b) That in any case the unintended addition of Rs. 78,148 by wrongly taking the sale price of ITC Classic Finance shares at Rs. 3,19,754 is wrong and unjustified and the CIT(A) should have deleted such addition." "3. That the appellant craves leave to alter, amend, modify any of the grounds and/or tale additional ground/s before or at the time of this appeal." Ground No.1: Cost of Acquisition of Bonus Shares for Computing the Capital Gains 2. Briefly stated, the facts of the case, as relevant to the first ground of appeal, are that the assessee had purchased 1200 shares of ITC Ltd. on 26-6- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) becomes entitled to subscribe to any additional financial asset; or (B) is allotted any financial asset without any payment, then, subject to the provisions of sub-clauses (l) and (ii) of clause (b),- (i) (ii) (iii) (iiia) in relation to the financial asset allotted to the assessee without any payment and on the basis of holding of any other financial asset, shall be taken to be nil in the case of such assessee; (iv) (ab) (b) in relation to any other capital asset, - (i) (ii) (ii) (iv) (v) (3) 4. The assessee appealed before the CIT(A) without success. 5. Appearing for the appellant-assessee, Shri M.P. Thard, the learned Counsel for the assessee, submitted that the assessee had sold, in December 1994, all the 1200 original shares, which were acquired by him in June 1992 at the cost of Rs. 3,76,800. He pointed out that, in terms of the law then prevailing, i.e., assessment year 1995-96, the assessee, instead of claiming the entire cost of acquisition of the aforesaid original 1200 shares while working out the capital gains on them in assessment year 1995-96, followed the averaging method and spread over the aforesaid cost over 2400 shares ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance on the decision in CIT v. Kumudam Endowments [2000] 242 ITR 159 (Mad.). 6. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 7. We have heard the parties, considered their submissions and perused the materials placed before us. Issues, as raised by the learned counsel for the assessee, revolve around the following: (i) Whether sub-clause (iiia) can be construed, as contended by the assessee, in a manner that excludes its applicability to the bonus shares allotted before the commencement of the previous year relevant to the assessment year 1996-97, i.e., 1-4-1995 in respect of which the cost of acquisition had also been determined and become final before the said date. (ii) Whether the assessee is correct in his submission that a right which, according to him, stood vested in him before sub-clause (iiia) came into force could not be impaired or abrogated unless the said sub-clause is given retrospective effect. (iii) Whether the rule against retrospectivity hits the aforesaid existing right of the assessee merely because a part of the requisites (i.e., allotment of bonus shares) for taxing the capital ga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 (reproduced in paragraph 21 below) which provides: "These amendments will take effect from 1-4-1996 and will, accordingly, apply to the securities transferred on or after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year under appeal. 11. 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 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, usu. by the delivery of money. Performance may occur by delivery and acceptance of things other than money, but there is payment only if money or other valuable things are given and accepted in partial or full discharge of an obligation 2. The money or valuable thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 (reproduced in paragraph 21 of this order) 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'. 13. In view of the above, the requisite conditions envisaged by clause (iiia) regarding bonus shares having been 'allotted to the assessee without any payment and on the basis of holding of any other financial asset' are fulfilled in the present case. The case of the assessee, thus, falls ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dear provisions of sub-clause (iiia). In taking this view, we are supported by several judicial authorities, some of which are cited below. 16. 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 free, however apparently within the spirit of the law the case might otherwise appear to be: 17. In Canadian Eagle Oil Co. v. R. [1946] AC 119,140, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. 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 Deviah, AIR 1962 SC 847.)" 21. 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 Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al gains would be computed, with effect from assessment year 1996-97, by taking the cost of acquisition of bonus shares to be nil. 23. This brings us to the next submission of the learned counsel for the assessee that a right which has already vested in a person before the statute came into force cannot be impaired or taken away unless the statute is given retrospective effect. It is on this ground that he contended that the cost of bonus shares allotted before 1-4-1995 as adopted by the assessee on the basis of the law prevailing till assessment year 1995-96 had the effect of conferring a vested right in him in that the said cost would be allowed in future against the sale of the said bonus shares and that the said right so vested in him could not be impaired or abrogated as sub-clause (iiia) has no retrospective effect so as to cover the case of the assessee. 24. The proposition advanced by the learned counsel for the assessee that a retrospective operation cannot be given to a statute so as to impair an existing right or obligation requires consideration of the issue as to whether the application of sub-clause (iiia) effective from assessment year 1996-97, is at all a case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2003] 262 ITR 278, p. 281 (SC), the Hon'ble Supreme Court has held that there was no scope for importing any rule of interpretation when the words used 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." 26. 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. Even if the assessee had any vested right existing before assessment 1996-97 in the matter of allocation of cost to the bonus shares, the same stood completely impaired and abrogated by the express provisions of sub-clause (iiia) with effect from the assessment year 1996-97. Our view is supported by several ruling decisions. In B. Prabhakar Rao v. State of AP [1985] Suppl. SCC 432/1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quoted, with approval, the following passage from the "Principles of statutory Interpretation" (by Hon'ble Justice G.P. Singh, 7th Edn., 1999, at p.369): "The rule against retrospective construction is not applicable to a statute merely 'because a part of the requisites for its action is drawn from a time antecedent to its passing'. If that were not so, every statute will be presumed to apply only to persons born and things come into existence after its operation and the rule may well result in virtual nullification of most of the statutes. An amending Act is, therefore, not retrospective merely because it applies also to those to whom pre-amended Act was applicable if the amended Act has operation from the date of its amendment and not from an anterior date." 29. On general grounds of public policy, the Legislature has declared, by sub-clause (iiia), that the cost of acquisition of bonus shares allotted without payment shall be taken to be nil. However, as stated above, the event of taxability is not the allotment of bonus shares but the transfer of bonus shares which gives rise to capital gains. In this sense, sub-clause (iiia) is prospective inasmuch as it has application on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be taken into account. In our opinion, the conduct of the tenant prior to the coming into force of the new section can be taken into account. No doubt a statute must be applied prospectively. But a statute is not applied retrospectively because a part of the requisites for its action is drawn from a moment of time prior to its passing. The clause in question makes a particular conduct the ground for an application for eviction. The necessary condition for the application of section 9(1)(ii) may commence even before the Act came into force and past conduct which is as relevant for the clause as conduct after the coming into force of the Act, cannot be overlooked." 32. In Ahmedabad Mfg. Calico Printing Co. Ltd v. S.C. Mehta, ITO[1963] 48 ITR 154 (Se), the Hon'ble Apex Court has observed: "This language which creates the legal fiction is clearly prospective and shows that what was correct at the time when the rebate was granted is rendered incorrect on the happening of the crucial event after the coming into force of the sub-section, and by the express terms of section 28 of the Finance Act, 1956, the sub-section comes into force on April 1,1956. We are unable, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eavy reliance on the judgment in CIT v. Kumudam Endowments [2000] 242 ITR 159 (Mad.). In Kumudam Endowments case, the opening sentence of the judgment states that the Revenue, in that case, wanted that "the assessee should be penalised in anticipation of a likely violation" which the Court said it is "unable to appreciate this argument or subscribe to the same". The facts of the aforesaid case are that the provisions of section 11 (5) of the Act were, amended with retrospective effect from 1st April, 1983, by the Amending Act of 1991 and the time for disinvestment was extended up to 31st March, 1993. During the assessment year 1986-87 with which the Court was concerned, the law was that the charitable trust could hold investments contrary to the provisions of section 11 (5) of the Act, but, was under an obligation to disinvest on or before 31st March, 1993, and, thereafter, hold the investments in the modes permitted by law. During the assessment year 1986-87, the assessee held investments contrary to section 11(5) of the Act, but by virtue of section 13(1)(d), proviso (iia) of the Act, it had time till 31st March, 1993, to disinvest. The assessee, therefore, could not have been de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grounds of hardship, injustice or absurdity. At page 81, he points out: "...considerations of hardship, injustice or absurdity as avoiding a particular construction is a rule which must be applied with great care. The argument be inconvenient" said Lord Moulton, 'is one which requires to be used with great caution'. Explaining why great caution is necessary, Lord Moulton further observed: 'There is a danger that it may degenerate into a mere judicial criticism of the propriety of the Acts of Legislature. We have to interpret statutes according to the language used therein, and though occasionally the respective consequences of two rival interpretations may guide us in our choice between them, it can only be where, taking the Act a whole and viewing it in connection with existing state of the law at the time of the passing of the Act, we can satisfy ourselves that the words cannot have been used in the sense to which the argument points'. According to Brett L.J" 'the inconvenience' necessitating a departure from the ordinary sense of the words should not only be great but should also be what he calls an 'absurd inconvenience'. Moreover, individual cases of hardship or injustice and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that is required to be looked into" assists the Revenue more than the assessee because, in the present case, this is exactly what the Assessing Officer has done. Another observation of the Hon'ble Court that a person, "who has complied with the law as it exists, cannot be penalised by reason of the amendment to the law effected subsequently, unless such intention is expressly stated and the imposition of such penalty is not contrary to any of the provisions of the Constitution" also makes it abundantly clear that even a vested right can be impaired or abrogated if intention to that effect is expressly stated in the statute. In the present case, sub-clause (iiia) expressly states that the cost of acquisition of bonus shares shall be taken to be nil while computing the capital gains in assessment year 1996-97. Thus, the aforesaid judgment cited by the learned Counsel for the assessee helps the Revenue more than the assessee. 38. There is no doubt that sub-clause (iiia), as enacted, looks backward and takes into consideration a past event that is the allotment of bonus shares made before 1-4-1995 for the purposes of computing capital gains in assessment year 1996-97 as a result of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 in order to overcome certain difficulties and complexities arising out of the judicial decisions. We, therefore, hold that the computation of capital gains as done by the Assessing Officer and upheld by the CIT(A) on the basis of sub-clause (iiia) is in order. Consequently first ground of appeal is dismissed. Ground No.2: Non-adjudication of additional ground by CIT(A). 41. Facts as they transpire from the order of the CIT(A) are that the assessee sought admission of additional ground before the CIT(A) claiming that the Assessing Officer wrongly took the figure of sale price of 1400 shares of ITC Classic Finance at Rs. 3,19,754 in place of Rs. 2,41,606 in computing the long-term capital gain which resulted in an unintended addition of Rs. 78,148. Instead of admitting and adjudicating upon the said additional ground, the CIT(A) held that the assessee was free to approach the Assessing Officer for rectification of the mistake. 42. The learned counsel for the assessee submitted that the aforesaid additional ground was taken before the CIT(A) to seek correction of error committed by the Assessing Officer in taking the sale price of 1400 shares of ITC Classic Finance at Rs. 3,1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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