Supreme Court rules on bonus share valuation method, overturns High Court decision

The Supreme Court ruled in favor of the Commissioner of Income-tax, Central, Calcutta, against the companies involved in the valuation of bonus shares for the assessment years ending March 31, 1950, and 1951. The Court endorsed spreading the cost of original shares over all shares, old and new, to calculate profit or loss on shares involving bonus shares. The High Court's decision was overturned, and the cases were remanded to the Income-tax Appellate Tribunal for resolution using the approved valuation method. The appeals were allowed with costs, resolving the dispute over bonus share valuation.

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Issues:
1. Valuation of bonus shares in assessment years ending March 31, 1950, and 1951.
2. Correct method of calculating profit or loss on shares involving bonus shares.

Analysis:
In the judgment delivered by the Supreme Court, the appeals by the Commissioner of Income-tax, Central, Calcutta, against Messrs. Gold Mohore Investment Co. Ltd. revolved around the valuation of bonus shares in the assessment years ending March 31, 1950, and 1951. The first issue involved the method of valuation of bonus shares by the assessee-company, which was disputed by the Income-tax Officer. The second issue pertained to the correct calculation method of profit or loss on shares involving bonus shares, as determined by the Income-tax Officer and upheld by the Tribunal.

The first case involved the Howrah Mills Co. Ltd. shares, where the assessee-company had received bonus shares in June 1948. The company sold the original shares and calculated a loss based on its method of valuation, which was not accepted by the Income-tax Officer. The Tribunal sided with the Income-tax Officer's method of calculation, leading to the appeal to the Supreme Court.

In the second case concerning Fort Gloster Jute Company Ltd. shares, the assessee-company received bonus shares in the year of account and sold a portion of these shares. The Income-tax Officer spread out the cost of original shares over both the old and new shares to calculate the profit, a method confirmed by the Tribunal and the Appellate Assistant Commissioner.

The Supreme Court analyzed various methods of calculating profit or loss on shares involving bonus shares, referencing past judgments and conflicting decisions. The court ultimately endorsed the method of spreading the cost of original shares over all shares, old and new, to find the average price per share. This method was deemed correct when bonus shares rank pari passu, as established in previous court rulings.

The High Court's judgment in favor of the assessee-company was overturned by the Supreme Court, which discharged the answers recorded by the High Court and directed the cases to be disposed of by the Income-tax Appellate Tribunal using the approved method of calculating profit and loss on shares involving bonus shares. The appeals were allowed with costs, settling the dispute over the valuation of bonus shares in the assessment years in question.

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