Law: Income Tax Act, 1961

Section: 45,256

Income-tax---Capital gains---Computation of capital gains---Transfer of shares---Bonus shares---Cost of bonus shares---Cost of original shares to be spread over cost of bonus shares---Indian Income Tax Act, 1961, S.45. The assessee during the accounting year relevant to the assessment year transferred some shares and showed a loss in the return of income. The Income-tax Officer arrived at the value of bonus shares on the basis that the average of both the original and bonus shares should be taken together. The Tribunal held that the cost of bonus shares should be 50 per cent. of the original shares. On a reference: Held, that the cost of bonus shares should-be arrived at by spreading over the cost of original shares over the-bonus shares. CIT v. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC) and CIT v. Venkatapathy (G.N.) (1997) 225 ITR 952 (Mad.) ref. JUDGMENT N.V. BALASUBRAMANIAN, J.---The Appellate Tribunal under section 256(1) of the Income Tax Act, 1961, (hereinafter referred to as "the Act"), has referred the following question of law ,for our opinion for the assessment year. 1979-80: "Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the cost of the bonus shares should be taken at 50 per cent. of the cost of the original shares for purposes of computing capital gains?" Mr. P.P.S. Janarthana Raja undertakes to file Vakalath for the respondent. In the assessment made for the assessment year 1979-80, the Income-tax Officer adopted the capital gains on transfer of the assessee's shares in Coimbatore Pioneer Mills Limited at Rs.40 as against the assessee's claim of loss of Rs.2,540 and 1/5th of the share in the estate of G.R. Varatharajan at Rs.137 as against the loss of Rs.22,361 shown by the assessee. The Income-tax Officer arrived at the value of bonus shares on the basis that the average of both the original and the bonus shares should be taken together. The Commissioner of Income-tax (Appeals) followed an order of the Appellate Tribunal in.the case of G.N. Venkatapathy v. ITO (I. T. A. No. 106/Mds of 1982, dated November 25, 1982), and held that the capital gains can be worked out on the…

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