Law:

Section:

Section 55(2) of the income-tax act, 1961 [as it stood prior to 1-4-1978]-Capital gains-Cost of acquisition-Assessee-company purchased in 1948, 2,000 shares of a company and was allotted in 1951 equal number of bonus shares-It sold in 1959 entire block of original shares and claimed resultant capital loss which was allowed in assessment year 1960-61-It was again allotted in 1967, 2,000 bonus shares out of which it sold 1,600 bonus shares and claimed deduction of their cost in computing taxable capital gains in assessment year 1972-73-Whether impugned deduction allowable notwith- standing fact that assessee had already sold all original shares-Held, on facts, yes Facts The assessee-company had purchased, in 1948, 2,000 shares of H. Ltd. at Rs. 103 per share. In 1951, it was allotted 2,000 bonus shares in the proportion of one bonus share for each ordinary share. It sold on 7-2-1959 2,000 original shares at Rs. 104 per share. For the assessment year 1960-61, it claimed and was allowed in its assessment a capital loss of Rs. 42,000 by substituting their market price as on 11-1954 at Rs. 125 per share for the cost price of Rs. 103 per share. In 1967, the assessee was again allotted 2,000 bonus shares (in the ratio of 1 : 1) by virtue of its holding of 2,000 bonus shares issued in 1951. During the accounting year relevant for the assessment year 1972-73, it sold 1,600 bonus shares (out of the second lot of 2,000 bonus shares issued in 1967) for Rs. 1,60,200. The assessee, accordingly, claimed a deduction of Rs. 41,200 as the cost of 1,600 shares from the sale price. The basis for computing the said deductible cost was as follows : the value of the bonus shares was at Rs. 103 which depreciated initially by the issue of the first block of 2,000 bonus shares to round about Rs. 52 per share and again to its one-half at Rs. 25.75 (which was taken by the assessee as the cost of acquisition per share of the shares sold) by further issue of 2,000 bonus shares on the bonus shares held by it. The ITO, however, disallowed the assessee's claim, holding that since the entire cost of the original shares had been considered in computing the assessee's capital loss arising out of…

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