Law: Income Tax Act, 1922

Section: 12(g)(2)(ii)

Law: Income Tax Ordinance, 1979

Section: 26,27

Law: Constitution of Pakistan, 1973

Section: 185(3)

(a) Income Tax Act (XI of 1922)------Ss. 12(g)(2)(ii)---Constitution of Pakistan (1973), Art.185(3)---Leave to appeal was granted to consider the question whether High Court was justified in answering the question in the negative which was "whether in the facts and in the circumstances of the case Tribunal was justified in holding that for computation of capital gain the cost of bonus shares should be taken on its face value and not average cost of all shares including bonus shares". (b) Income Tax Ordinance (XXXI of 1979)--- ----Ss.26 & 27---Bonus shares---Method of computing cost of bonus shares--¬Only reasonable and rational method to calculate the cost of the bonus shares is the cost of shares held by the shareholder on the basis of which bonus shares have been a1lotted,be spread over on all such shares taken together if they rank pari passu and then average price per share be calculated on that basis. Capital Gain-tax is charged under sections 26 and 27 of the Income Tax Ordinance, 1979. It charges profit or gain arising from transfer of capital asset which is deemed to be income of the income year in which the transfer took place. In order to assess the profit or gains arising from such transaction two prices viz. cost price which the assessee had to pay for acquiring the capital asset and the price which he has received on transfer of such capital asset have to be taken into consideration. A shareholder has not to pay any amount for the bonus shares. The dividend which on distribution may have come to' the hands of the shareholder or the bonus share is converted as a stock capital of the company in which a share holder has no interest. Thus, the bonus share at the time of allotment does not cost anything to the shareholder. However, it has a value in the market but in order to calculate its value neither it can be termed as nil nor at the market value. The only reasonable and rational method to calculate the cost of the bonus shares is that the cost of the share held by the share-holder on the basis of which bonus shares have been allotted be spread over on all such shares taken together if they rank pari passu and then average price per share be…

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