Bonus shares are usually capital assets, and dealer status alone does not make them stock-in-trade.

Bonus shares are ordinarily capital in the shareholder's hands, and a dealer in shares does not automatically treat them as stock-in-trade; their character depends on intention and conduct. In the income-tax reference discussed here, the sale proceeds of bonus shares formed part of business income because the Tribunal's factual findings supported that treatment, and those findings could not be assailed in the manner attempted once not challenged under the relevant reference procedure. The principle stated is that bonus shares retain capital character unless clear material shows conversion into trading stock, and unchallenged Tribunal findings of fact are binding in the High Court reference.

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Issues: Whether the sale proceeds of bonus shares received in respect of shares forming part of the assessees' stock-in-trade were liable to be included in the assessees' total income as profits of the share dealing business.

Analysis: Bonus shares issued by a company in exercise of powers under its articles are ordinarily capital and not income in the hands of the shareholder. The mere fact that the shareholder is a dealer in shares does not make such bonus shares part of the stock-in-trade automatically. There is no presumption that every acquisition by a dealer is for business purposes, and whether the asset was treated as trading stock depends on intention and conduct. In a reference under the Income-tax Act, the High Court must accept the Tribunal's findings of fact, and it was not open to challenge those findings in the manner attempted here after the failure to question them under section 66(1).

Conclusion: The sale proceeds of the bonus shares were taxable as business income; the question was answered in the affirmative against the assessees and in favour of the Revenue.

Ratio Decidendi: Bonus shares issued as capital retain their capital character in the shareholder's hands unless there is clear material showing that they were converted into stock-in-trade; in income-tax references, unchallenged findings of fact recorded by the Tribunal cannot be assailed on the ground of insufficiency of evidence.

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