Bonus share cost apportionment must be done separately for capital gains, and a computational error is rectifiable.

A computational error in apportioning the cost of acquisition between original and bonus shares constitutes a mistake apparent from the record and is rectifiable under section 254(2) of the Income-tax Act, 1961. The Tribunal correctly corrected its earlier capital gains computation where it had treated the entire purchase price of the original shares as the cost of the whole lot sold. The original cost had to be spread over the holding so that the cost attributable to bonus shares could be determined separately, and the fact that original, right and bonus shares were sold together did not change that requirement. No question of law arose from the rectification.

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Issues: (i) Whether the Appellate Tribunal was justified in rectifying its earlier order under section 254(2) of the Income-tax Act, 1961 on the ground of a mistake apparent from the record. (ii) Whether, for computation of capital gains, the cost of bonus shares had to be determined separately even where original shares, right shares and bonus shares were sold together.

Issue (i): Whether the Appellate Tribunal was justified in rectifying its earlier order under section 254(2) of the Income-tax Act, 1961 on the ground of a mistake apparent from the record.

Analysis: The Tribunal had initially applied the principle concerning allocation of the original cost over the original and bonus shares, but while computing capital gains it had treated the entire purchase price of the original shares as the cost of the whole lot sold. The later rectification corrected that computational error by deducting not merely the original purchase price but also the value attributable to the bonus shares as determined under the applicable principle.

Conclusion: The rectification was valid and was based on a mistake apparent from the record.

Issue (ii): Whether, for computation of capital gains, the cost of bonus shares had to be determined separately even where original shares, right shares and bonus shares were sold together.

Analysis: The governing principle required the original cost to be spread over the entire holding so that the value attributable to bonus shares could be identified for capital gains purposes. The fact that all the shares were sold in a single transaction did not alter the need to ascertain the separate cost component of the bonus shares.

Conclusion: The cost of the bonus shares had to be determined separately for computing capital gains.

Final Conclusion: No question of law arose from the Tribunal's rectification and the reference was rejected.

Ratio Decidendi: A computational error in applying the correct method for apportioning the cost of acquisition between original and bonus shares constitutes a mistake apparent from the record and is rectifiable under section 254(2) of the Income-tax Act, 1961.

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