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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether, on amalgamation, the assessee was entitled to substitute the fair market value of the shares as on 1 January 1964 for computing capital gains on sale of shares received in the amalgamated company; (ii) Whether the assessee could separately deduct the cost of bonus shares in addition to the cost of acquisition of the original shares.
Issue (i): Whether, on amalgamation, the assessee was entitled to substitute the fair market value of the shares as on 1 January 1964 for computing capital gains on sale of shares received in the amalgamated company.
Analysis: The statutory scheme treating amalgamation as a non-transfer, clubbing the holding period of the amalgamating and amalgamated company shares, and deeming the cost of the amalgamated shares to be the cost of the amalgamating shares, was held to preserve the assessee's right under the cost-option provision. The deeming fiction under the amalgamation provisions did not convert the shares in the amalgamated company into an entirely new asset so as to deny the option to adopt fair market value on the relevant base date.
Conclusion: Yes. The assessee was entitled to substitute the fair market value as on 1 January 1964, and the answer was against the Revenue.
Issue (ii): Whether the assessee could separately deduct the cost of bonus shares in addition to the cost of acquisition of the original shares.
Analysis: Once the fair market value of the share block was fixed on the statutory base date, that figure was treated as final for the entire block. Subsequent bonus shares did not create a separate deductible cost in addition to the cost already determined for the original shares. The authorities relied on the principle that bonus issues do not alter the original cost of acquisition when the entire block is sold.
Conclusion: No. The assessee was not entitled to a separate deduction for the cost of bonus shares, and the answer was against the assessee.
Final Conclusion: The legal effect is that the assessee succeeded on the base-date valuation question arising from amalgamation, but failed on the separate deduction claimed for bonus shares, leaving the computation of capital gains to be adjusted accordingly.
Ratio Decidendi: In an amalgamation, the cost of the shares in the amalgamated company is deemed to be the cost of the shares in the amalgamating company, but that deeming provision does not extinguish the assessee's statutory right to adopt the fair market value on the relevant base date where otherwise available; bonus shares issued later do not justify a separate additional cost deduction when the block of shares is sold.
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