1968 (1) TMI 24 - HC - Income Tax

Allocation of Share Costs in Bonus Issue | Judicial Ruling on Share Valuation

The High Court of Madras held that the cost of ordinary shares should be spread over the bonus shares, irrespective of the petitioner's status as a dealer ... Where bonus shares were issued in respect of ordinary shares held in a company by an assessee who was a dealer in shares, their real cost could not be taken to be nil, or their face value. The majority judgment in this case stated that the bonus shares should be valued by spreading the cost of the ordinary shares over the old shares and the new issues taken together if they rank pari passu, and if they do not, the price may have to be adjusted either in proportion of the face value they bear, or on equitable considerations based on the market price before and after issue. In our opinion, makes no difference it is an investor or dealer. The High Court of Madras ruled on the valuation of bonus shares in a case where the petitioner purchased 4,000 shares for Rs. 15,09,376 and received 8,000 bonus shares. The petitioner valued the bonus shares at Rs. 8,00,000, resulting in a capital loss. The department valued the bonus shares at nil, resulting in a capital gain. The court held that the cost of ordinary shares should be spread over the bonus shares, regardless of the petitioner being a dealer or an investor. The petition was dismissed with costs.