Dispute Over Share Acquisition Cost: Legal Analysis

The case involved a dispute over the cost of acquisition of shares for computing capital gains under the Income-tax Act, 1961. The Income-tax Officer calculated the cost at Rs. 4.80 per share, while the Appellate Assistant Commissioner determined it to be Rs. 10 per share. The Tribunal upheld the AAC's decision, emphasizing that the cost of acquisition is the price paid at the time of purchase. The High Court affirmed the Tribunal's decision, ruling in favor of the assessee and ordering each party to bear its own costs.

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Issues involved:
Interpretation of cost of acquisition u/s 48 of the Income-tax Act, 1961 for computing capital gains arising from the sale of shares.

Summary:

The case involved a limited company owning shares in M/s. Coles Cranes of India Ltd. The dispute was regarding the cost of acquisition of shares for computing capital gains. The Income-tax Officer (ITO) calculated the cost of acquisition at Rs. 4.80 per share, while the Appellate Assistant Commissioner (AAC) held it should be Rs. 10 per share. The Tribunal upheld the AAC's decision, emphasizing that the cost of acquisition refers to the price paid at the time of purchase. The Tribunal referred to sections 45, 48, and 55(2) of the Income-tax Act, 1961, which dictate the computation of capital gains and cost of acquisition.

The Tribunal rejected the department's argument that the cost of bonus shares should be spread over both original and bonus shares collectively. It was held that the cost of acquisition should be the actual cost at which the shares were acquired. The Tribunal cited the Supreme Court's decision in Shekhawati General Traders Ltd. v. ITO, emphasizing that the cost of acquisition is the price paid at the time of acquisition, not the value on a subsequent date. The Tribunal's decision was in line with the principle that subsequent events need not be considered while computing capital gains.

The High Court, concurring with the Tribunal's decision, answered the question in favor of the assessee. The Court highlighted previous decisions supporting the interpretation that cost of acquisition is the amount paid at the time of acquisition. Each party was ordered to bear its own costs.

Judge Sabyasachi Mukharji agreed with the decision.

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