Law: Income Tax Act, 1961

Section: 45&55(2)

Income-tax----Capital gains---Cost of acquisition---Shares and securities---Bonus shares---Sale of original shares as well as bonus shares---Computation of capital gains---Valuation of bonus shares---Original shares obtained before 1-1-1954---Assessee opting for fair market value of shares as on 1-1-1954--¬Bonus shares could not be valued separately---Bonus shares and original shares should be clubbed together and average value of each share should be found by dividing fair market value of original shares as on 1-1-1954 by total number of shares---Indian Income Tax Act, 1961, Ss.45 & 55(2). In a case where the original shares were obtained before January 1, 1954, and the bonus shares were obtained after January 1, 1954, and where the assessee exercised his option as per the provisions of section 55(2) of the Income Tax Act, 1961, to adopt the fair market value as prevalent on January 1, 1954, while ascertaining the cost of acquisition of the bonus shares, it is not possible to adopt one value for the original shares, viz., the value as on January 1, 1954, and another value for the bonus shares, which was prevalent after January 1, 1954. Once the value of the original shares is determined in accordance with the statutory provisions, thereafter the said value is unalterable. The said value should be adopted for the proposes of dividing the same by bonus shares as well as the original shares. Any alteration to the above method would be hit by the provisions contained in section 55(2). While ascertaining the value of bonus shares the value of the shares as opted by the assessee as on January 1, 1954, as per the provisions of section 55(2) has to be taken into account 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 fair market value opted on January 1, 1954, by the total number of shares. CIT v. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC); Shekhawati General Traders Ltd. v. ITO (1971) 82 ITR 788 (SC): CIT v. Prema Ramanujam (1991) 192 ITR 692 (Mad.); CIT v. G. N. Venkatapathy (1997) 225 ITR 952 (Mad.) and CIT v. T. V. S. & Sons Ltd. (1983) 143 ITR 644…

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