Law: Income Tax Act, 1961

Section: 256

Income-tax----Capital gains---Computation of capital gains---Cost of acquisition of capital asset---Shares---Bonus shares---Original shares acquired before 1-1-1964 and bonus shares issued after 1-1-1964---Sale of shares ---Assessee opting to value original shares at their fair market value as on 1-1-1964--¬Cost adopted by assessee to be taken into account and both original and bonus shares to be clubbed together and their average both original and bonus shares to be clubbed together and their average value taken as cost. of shares---Indian Income Tax Act, 1961, Ss.45 & 55. In a case where the assessee acquired original shares before January 1, 1964, and bonus shares after January 1, 1964, while ascertaining the value of bonus shares, the value of the shares as opted by the assessee as on January 1, 1964, has to be taken into account according to the provisions of section 55(2)(i) of the Income Tax Act, 1961, and both the original shares and the bonus shares should be clubbed together and the average value of each share should be found by dividing the total number of shares by the original cost opted as on January 1, 1964. The assessee has been given the privilege of adopting the fair market value as on January 1, 1964, when the shares were obtained earlier to that date. This privilege given by the statute cannot be taken away, simply because the Department has got to value the bonus shares, which were acquired subsequent to January 1, 1964. The assessee held 382 shares in a company. He had been holding these shares even prior to January 1, 1964. On February 9, 1975, he received bonus shares in the ratio of 1:1 in respect of these 382 shares. Thus, as on February 9, 1975, he was holding 764 shares. During the accounting year relevant to the assessment year 1978-79, the assessee sold 167 original shares and 382 bonus shares for a total consideration of Rs.60,340 (the original shares were sold for Rs.20,113 and the bonus shares were sold for Rs.40,227). In the return of income filed, the assessee showed a loss of Rs.32,204. This loss had resulted by reason of adoption of the actual cost of the original shares at Rs.258.50 per share being the fair market value…

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