Bonus share valuation must reflect original share cost, and an earlier deduction allowance does not change capital gains computation.

For capital gains on the sale of bonus shares, the valuation must be made by reference to the cost of the original shares, following the Supreme Court principle in Dalmia Investment Co. Ltd. The fact that the original shares had been sold earlier and their cost allowed in a prior assessment year does not alter the basis for computing the gain on the bonus shares. If the earlier allowance was considered wrong, the Department's remedy lay in revision or reassessment, not in changing the valuation method for the present computation. The capital gains computation was therefore required to be redone on that basis.

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Issues: Whether, in computing capital gains on sale of bonus shares, the cost of the original shares had to be taken into account notwithstanding that the cost of those original shares had been allowed as a deduction in an earlier assessment year.

Analysis: The valuation of the bonus shares had to be made in accordance with the principle laid down by the Supreme Court in Dalmia Investment Co. Ltd., which required regard to be had to the cost of the original shares when bonus shares were issued. The fact that the original shares had already been sold and their cost allowed in an earlier year was held to be irrelevant to the present computation. If the Department considered the earlier allowance erroneous, it could have proceeded under the revision or reassessment provisions, but that could not alter the correct basis for valuing the bonus shares in the present appeal.

Conclusion: The cost of the original shares had to be considered in valuing the bonus shares, and the assessee succeeded.

Final Conclusion: The capital gains computation was required to be redone on the basis of the Supreme Court rule governing bonus share valuation, and the assessee's appeal was allowed.

Ratio Decidendi: For computing capital gains on bonus shares, the valuation must reflect the cost of the original shares in accordance with the governing Supreme Court principle, and an earlier allowance of that cost in a different assessment year does not change that basis.

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