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Section 12B of the Indian Income-Tax Act, 1922 [Corresponding to section 45 of the Income-tax Act, 1961] - Capital gain - Chargeable as CASE REVIEW Emerald & Co. Ltd. v. CIT [1956] 29 ITR 814 dissented Swan Brewery Co. Ltd. v. King [1914] A.C. 231 and Osborne v. Steel Barrel Co. Ltd.[1942] 24 Tax Cas 293 - followed and relied upon. JUDGMENT Ramaswami, CJ.-In this case the assessee is a public limited company holding investments of shares and also dealing in shares. On January i, 1948, that is, the first day of the accounting period, the assessee was holding 1,10,747 shares of the Rohtas Industries Limited at a book value of Rs. 15,57,902. The details of the shares are as follows: Book value Rs. (1) Old issues 17259 shares brought forward from 1945 3,10,951 (2) Bonus shares 31909 shares received in 1945 3,19,090 (3) New issues 59079 shares brought forward from 1945 8,88,561 (4) New purchases 2500 shares brought forward from 1947 39.300 Total shares 1,10,747 valued at ... Rs. 15,57,902 It appears that in 1944 the assessee was holding 31,909 ordinary shares of the old issues of the Rohtas Industries Limited. In that year the Rohtas Industries Limited allotted one bonus share for each ordinary share held by the shareholders. The assessee accordingly received 31,909 bonus shares. These shares were of the face value of Rs. 3,19,090 at the rate of Rs. 10 per share. The assessee, therefore, debited the share account by Rs. 3,19,090 with a corresponding entry in the capital reserve account for the same amount. The entire lot of 1,10,747 shares was sold by the assessee on January 29, 1948, to Messrs. Dalmia Cement & Paper Marketing Limited for a consideration of Rs. 15,50,458. The sale price was deducted from the book value of Rs. 15,57,902 and the assessee claimed a loss of Rs. 7,444 on the sale of the shares. The claim was rejected by the Income-tax Officer on the ground that the cost of the bonus shares should be computed at an " average basis " in view of the principle laid down by the Bombay High Court in Emerald and Co. Ltd.'s case (supra). The Income-tax Officer computed the net profit of the assessee to be Rs. 2,39,317 which was liable to be taxed under…

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