Bonus shares cost computation follows the average cost method, not face value, when no separate acquisition cost exists.

In computing capital gains on the sale of bonus shares, the face value of the bonus shares cannot be treated as their actual cost where no separate payment was made for acquisition. The applicable valuation principle requires the cost of the original shares to be spread over both the original and bonus shares, and the average cost method must be applied. On that basis, the assessee could not claim deduction of the bonus shares' face value as cost, and capital gains had to be computed in accordance with the Supreme Court's average cost rule.

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Issues: Whether, for computing capital gains on sale of bonus shares, the assessee could deduct the face value of the bonus shares as their actual cost.

Analysis: The question was held to be governed by the method of valuation laid down by the Supreme Court for bonus shares. The relevant principle required the cost of the original shares to be spread over the original and bonus shares collectively and the average cost to be taken, rather than treating the face value of bonus shares as the assessee's actual cost. Since the bonus shares were acquired without any separate payment, the computation of capital gains could not proceed on the basis claimed by the assessee.

Conclusion: The assessee was not entitled to deduct the face value of the bonus shares as their actual cost; capital gains had to be computed in accordance with the Supreme Court's average cost method, against the assessee.

Ratio Decidendi: In computing capital gains on the sale of bonus shares, where no separate cost is incurred for their acquisition, the actual cost must be determined by spreading the cost of the original shares over the original and bonus shares collectively according to the average cost method.

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