1989 (9) TMI 15 - HC - Income Tax

Bonus shares issuance date determines capital gain classification

The court determined that bonus shares are considered acquired and held by the shareholder from the date of their issue, not from the date of acquisition ... Bonus Shares, Capital Gains, Short-term Capital Gains Issues involved: Determination of the holding period for bonus shares and classification of capital gains as short-term or long-term.Issue 1 - Holding period for bonus shares:The case involved the receipt and subsequent sale of 120 bonus shares of Century Mills Ltd. The question was whether these bonus shares should be considered held by the assessee from the date of acquisition of the original shares or from the date of issuance of the bonus shares. The Income-tax Officer treated the capital gain from the sale of these shares as short-term. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal upheld this decision based on the Gujarat High Court ruling in CIT v. Chunilal Khushaldas [1974] 93 ITR 369. The Tribunal held that bonus shares are considered acquired and held by the shareholder from the date of their issue, not from the date of acquisition of the original shares. The assessee argued citing the Delhi High Court observation in Escorts Farms (Ramgarh) Ltd. v. CIT [1983] 143 ITR 749, which stated that bonus shares are treated the same as other shares once issued, especially if they rank pari passu with the original shares. The High Court, concurring with the Gujarat High Court decision, concluded that a bonus share cannot be considered acquired or held by the assessee before the date of issuance.Issue 2 - Classification of capital gains:The second issue was whether the capital gains of Rs. 84,492 from the sale of the 120 bonus shares should be classified as short-term or long-term. The High Court determined that since the bonus shares were held by the assessee from the date of issuance, the capital gain was considered a short-term capital gain. Therefore, the capital gain arising from the sale of the bonus shares was classified as a short-term capital gain. The judgment did not award any costs in this matter.