Bonus share valuation must follow apportionment of original cost across the full holding, not face value treatment.

Where bonus shares are issued free of cost, the original cost of the shareholding must be spread over both the original and bonus shares. The bonus shares cannot be treated as separately acquired at face value for computing loss on sale of the original shares, and the closing stock of bonus shares cannot be valued at face value. The correct method is apportionment of the original cost across the total shares after the bonus issue, and profit or loss must be computed on that basis.

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Issues: Whether bonus shares received free of cost could be taken at their face value as cost for the purpose of computing loss on sale of the original shares, and whether the closing stock of the bonus shares could be valued at face value.

Analysis: The shares had been acquired as part of a single holding, and the original cost of the holding had to be spread over both the old and the bonus shares. The proper method was to apportion the cost of the original shares over the total number of shares after the bonus issue, rather than treating the bonus shares as independently acquired at their face value. The same method governed the valuation of the closing stock and the computation of profit or loss.

Conclusion: The assessee could not add the face value of the bonus shares to the cost of the holding, and the closing stock could not be valued at that face value. The Tribunal's method of spreading the original cost over the old and bonus shares was correct, and the question was answered against the assessee.

Final Conclusion: The appeal was allowed, and the assessment was to proceed on the basis that the original cost had to be apportioned over both the original and bonus shares.

Ratio Decidendi: Where bonus shares are issued free of cost, the original cost of acquisition of the holding must be apportioned over the total shares held, and valuation for computing profit or loss must follow that apportionment rather than face value.

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