TaxTMI 
TaxTMI 
1987 (12) TMI 89
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....al gains as Rs. 4,67,441, as against the assessee's figure of Rs. 54,599. 3. The Income-tax Officer found that during the previous year the assessee sold 1,83,154 shares in Madura Coats Ltd. for Rs. 12,82,078 at Rs. 7 per share, as fixed by the Controller of Capital Issues, and that after deducting the expenses the net sale consideration amounted to Rs. 12,63,763. He further found that the shares sold by the assessee were originally part of the following shares : "Old Madura Mills Co. Ltd. Shares Old A & F Harvey Ltd. shares 3,000 shares held prior to 1-1-1964 22,700 shares held prior to 1-1-1964. 638 bonus shares issued in 1966 (out 11,350 shares (bonus shares ) issued in 1966 of 3,000 bonus shares received in 1966). 6,000 shares (bonus shares) issued in 1969. 7,883 shares purchased in March 1972. Total shares : 9,638. ....
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....e assessee in Madura Mills Co. Ltd and in A & F Harvey Ltd. as on 1-1-1964 and recomputed the cost of acquisition of the assessee's holdings at Rs. 7,96,322. He did not take any separate cost for the bonus shares in the two companies, but held that the cost of these bonus was deemed to be included in the fair market value as on 1-1-1964 i.e., the average value for both the original shares and the bonus shares. On this basis, he arrived at the long-term capital gain at Rs. 4,67,441 by deducting a sum of Rs. 7,96,322 as the cost acquisition from the net sale consideration of Rs. 12,63,763. 5. The assessee preferred as appeal objection to this determination of long-term capital gain by the Income-tax Officer at Rs. 4,67,441 and contended that it should be determined at Rs. 54,599 only. The Commissioner of Income-tax (Appeal) set out in detail the assessee's working as well as the Income-tax Officer's working of the cost of acquisition of the shares in question, as well as the computation of long-term capital gain by them and the assessee's contention in extenso in paragraphs 4 to 9 of his order 6. The commissioner (Appeal) held that he agreed with the computation of cost of acqu....
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....et value of the 22,700 equity shares of A & F Harvey Ltd. as on 1-1-1964 at Rs. 6,95,982 and directed that this figure be substituted for the assessee's figure of Rs. 8,15.384 and for the Income-tax Officer's figure Rs. 5,55,696. 8. In paragraph 14 of his order, the Commissioner agreed with computation of the cost of acquisition the bonus shares in A & F Harvey Ltd the commissioner held that the total cost acquisition worked out by the assessee at Rs. 12,09,164 should be reduce by the sum of Rs. 1,19 402 and that this was the only change to made in the assessee's computation. 9. In paragraph 15 of the commissioner held that the long-term capital gain should be taken at Rs. 1,74,001 in the place of the assessee's figure of Rs 54,599 and directed the Income-tax Officer to substitute the capital gain of Rs. 4,67,441 adopted by him in this assessment order with the figure of Rs. 1,74,001. He further referred to the observation of the Income-tax Officer that none of the decision of the Supreme Court and High Court relied on by the assessee was on all fours with fact of the instant case and held that he did not agree with this statements of the Income-tax Officer he further held th....
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....res. The contention of assessee is that the cost of bonus shares having been arrived at by distributing the original cost of acquisition of primary shares the option to value of the primary shares as on 1-1-1964 cannot affect the bonus shares on the other hand, the case of revenue is that once the primary shares are valued as on 1-1-1964 at the option of the assessee the bonus shares also should be assessee, the bonus shares also should be valued on the same basis by distributing that value. The learned members felt that since this issue is the substantial one which recurs often, they considered that this matter should also be decide by a special Bench of Tribunal. It is in these circumstances that they have formulated the following two question of reference to Special Bench : "1. Whether, on the facts and in the circumstances of the cases, the assessee is entitled to the option u/s 55(2) to substitute the market value as on 1-1-1964 for the cost of acquisition in respect of share held in the amalgamated company in pursuance of the amalgamation made after 1-1-1964 ? 2. Whether, on the facts and in the circumstances of the case, the value of bonus shares must be taken as the a....
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....icularly in view of the decision of the Appellate Tribunal, Bombay Bench-A in Madura Coats Ltd.'s case which was in favour of revenue. He pointed out that this decision of Tribunal involved the identical question relating to the long-term capital gain arising on the sale of the shares of Madura Coats Ltd. held by another shareholder, namely J. P. Coats Ltd., which is an English company. He further submitted that the decision on the additional ground did not require any further investigation in to fresh facts or additional evidence, but could dispose of on the materials already on the record of the case. He also submitted that it is because of this additional ground only, the Division Bench felt that matter has to be decide by a Special Bench. He therefore argued that the additional ground has already been admitted by the Division Bench when it refereed this case to Special Bench. 18. Shri K. P. Ramamani, the learned counsel for the assessee opposed these contentions and argued that the additional grounds sought to reopen settled position on fact on the basis of which the assessment has so far proceeded up to second appellate stage. He pointed out that the departmental authoritie....
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....ed by the assessee on the sale of shares in Madura Coats Ltd., as could be seen from para 4 of the appellate order of the Commissioner (Appeals) and that in determining this question the department and the assessee are entitled to raise all points bearing on this main issue, as both of them have come up on appeal to the Tribunal objecting to the decision of the CIT (Appeals). He argued that the department's objection in the additional ground of appeal could not be thrown out for the simple reason that it was not raised by them earlier either in the course of the assessment proceedings or before the CIT (Appeals). However, Shri Mohanty fairly stated that the additional ground was not happily worded, but that should knot stand in the way of the department being allowed to raise this objection when all the facts and evidence relating to the question were already on record. 21. We have already set out the additional ground filed by the department in paragraph 12 supra. As rightly stated by the learned departmental representative, the said additional ground is not happily worded. At the same time, it raises an important question of law as to the right of the assessee to substitute th....
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....putation of an item of an income or class or classes of income which go to make the whole and, when the whole has been arrived at, there is an assessment. In, my opinion the view taken by the Income-tax Commissioner upon this point is the correct one." It is trite law an inter se adjustment of incomes computed under the different heads without an upward revision of total income or total tax does not amount to an enhancement of assessment. In this regard, the following extract from the judgment of the Madras High Court in Gowri Tile Works v. CIT (1957) 31 ITR 250 at 255 is illuminating : "The assessee preferred an appeal to the Appellate Asstt. Commissioner before whom be contended that the sum of Rs. 20,723 could not be included in the firm's income under section 10(2)(vii) because admittedly the sale took place after the cessation of the business and there was no business carried on by the assessee during the year in which the assets were sold. On the terms of section 10(2)(vii) this contention had to be upheld and it was so done. The Assistant Appellate Commissioner however rejected the claim of the assessee that the sale effected by the Commissioner came within the third p....
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....sion of Supreme Court as an authoritative on the scope of the Tribunal's appellate jurisdiction generally. and, more particularly, as an enunciation of the power of the Tribunal to entertain a new plea put forward by the respondent to an appeal. The Supreme Court happened to render their decision while construing s. 33(4) of the Indian IT Act, 1922. But the principal of the decision, in our opinion, governs the ambit of the tribunal's jurisdiction even under the corresponding provisions of s. 251(1) of the present IT Act, 1961. Both provisions, in terms enjoin that the Tribunal, after hearing the parties to the appeal, "shall pass such orders thereon as it think fit". It was while construing these words and particular the expression 'thereon', that the Supreme Court rendered their opinion that the Tribunal's was not powerless to dispose of an appeal on the basis of new point raise by the respondent to the appeal". Again, at page 23, after quoting from the earlier decision of the Madras High Court in CIT v. Madras Industrial Investment Corpn. Ltd. [1980] 124 ITR 454, their lordship further held as follows : We do not regard the last observation as a fetter on the Tribunal's ju....
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....rt pointed out that the Tribunal did not have to go in for fresh facts while entertaining the department's new plea in the said case and deciding it and that the Appellate Tribunal did so by applying the relevant statutory provisions to the facts already on record. 24. Their Lordships of the Madras High Court again reiterated this legal position in CIT v. Indian Express (Madurai) (P.) Ltd. (1983) 140 ITR 705, wherein their Lordships held that the assessee was not precluded from raising a new contention and that the Tribunal was not precluded in examining and determining that contention merely on the score that it had not been put forward at the earliest stages of the proceedings in assessment and in the first appeal. The facts of this case discussed at page 710 would show that when the appeal was taken up for hearing by the Tribunal, the assessee filed an application to raise an additional ground of appeal, where it raised a plea that the sums of Rs. 4,56,810.14 and Rs. 55,657.69 which were provisions made in the relevant year towards gratuity liability should be deducted in the computation of its assessable business profits of the year. On behalf of the department, a preliminar....
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....ere the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act. That was the view taken by this court in CIT v. Ogale Glass Works Ltd. and in Zoraster & Co. v. CIT. and we agree with it. As the question on which the parties were at issue, which was referred to the Court under section 66(1), and decided by it under section 66(5) is whether the sum of Rs. 9,26,532 is liable to be included in the taxable income of the respondents, the ground on which the respondents contested their liability before the High Court was one which was within the scope of the question, and the High Court rightly entertained it". 26. In the light of the aforesaid decisions of the Supreme Court and Madras High Court, we are of the view that the issue raise by the revenue by way of one additional grounds of appeal on the facts of present case is only one aspect or fact of the question raise in the appeals, n....
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....dinary and natural meaning only. He submitted that section 55(2) of the Act defined cost of acquisition in relation to a capital asset with reference to certain specific modes of acquisition by an assessee and therefore the said provision of law would not be applicable to the facts of the present case, as the assessee become the owner of the shares sold by him, only on 1-7-1974. He contended that the decision of the Bombay Bench of the appellate Tribunal in the case of Madura Coats Ltd. would directly apply to the facts of the presents case, that in the said decision at page 388 the Appellate Tribunal had considered the effect of sec. 55(2) and held that the said provision would not apply to cases as the present one, as it was a special provision applicable to special circumstances specified therein. Shri Mohanty argued that if at all sec. 55(2) could apply, only sec. 55(2)(i) would be applicable, but this clause could not apply to the assessee's case as he became the owner of these shares in the amalgamated company on 1-7-1974 only. He therefore submitted that the option of substituting the fair market value of the shares as on 1-1-1964 as its cost of acquisition for the purpose o....
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....e assessee. He therefore submitted that the decision of Commissioner (Appeals) allowing further relief to the assessee, instead of enhancing the assessment, was clearly erroneous, both in law and on facts, and therefore the same should be set aside. 30. Shri K. R. Ramamani, the learned counsel for the assessee, took us through the provisions contained in section 2(42A), section 45, section 47, section 48, sec, 49(2) and section 55(2) of the Income-tax Act to explain the scheme of taxation of capital gains arising on the sale of shares of amalgamated companies and submitted that the said scheme provides for determination of the cost of acquisition of a capital asset with reference to change of ownership of the asset and also with reference to change of asset of the same owner. He pointed out that where there was a change of ownership of asset, sec. 49(1) provided that the cost of acquisition of the asset in the hand of the assessee shall be with reference to the cost of acquisition to the previous owner. Shri Ramamani submitted that sec. 49 (2) provided for the change in front of the asset of the same owner as in the case of shares of an amalgamated company. It further provided t....
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....ction 2(1A) the of the Income-tax Act, by the finance (No. 2) Act of 1967 (20 of 1967) with effect from 1st April, 1967, i.e. for and from the assessment year 1967-68. The learned counsel then drew our attention to the following passage at page 179 of Vol. I of law of Income-tax by A. C. Sampath Iyengar, 7th Edition : "The above sub-section inserted for the purpose of facilitating the merger of uneconomic company unit with other financially sound Indian companies in the interest of increased efficiency and productivity, as the law as it existed prior to the introduction of this sub-section discouraged amalgamation." He next referred us to the memorandum explaining the provisions of the finance. He particularly relied on the on para 36, the relevant portion of which is quoted below: "36. Under the present law, certain tax liabilities are attracted in the case of a company merging with another company under scheme of amalgamation and, also in the case shareholders of the 'amalgamating company' (i.e. the company which merges in the another company), who received in shares in the 'amalgamating company' (i.e. the Company in which the enterprise of the other company is merged), ....
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....g the place of the old property given up in connection with the exchange." This passage was quoted with approval by the Madras High Court in their judgment in the case of Madurai Mills Co. Ltd v. CIT [1969] 74 ITR 623, wherein the provision of section 12B(3) of the Old Indian Income-tax Act, 1922, which correspond to section 49, section 55(2)i) and (3) of the present Income-tax Act of 1961, were considered by the Madras High Court. While accepting the assessee's connection that the distribution of assets in liquidation by a voluntary liquidator cannot be brought to tax a capital gains, their Lordship pointed out that section 12B (3) postulated a special method of reckoning, notwithstanding the statutory formula of the computation generally prescribed in sub-section (2) of section 12B. After referring to the arguments of the revenue, their Lordship held as follows at page 637 of the reports : "In order to avoid such an anomaly and to effect plausible reconciliation of the position and particular to harmonise the intention of the Legislature, after reading section 12B as whole, it is but necessary that in order to secure synchrony, symmetry and harmony, it is essential that the....
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.... to the assessee as the cost of acquisition to the assessee. Shri Ramamani then submitted that the statutory right of substitution of the fair market value of the share held by the assessee as on 1-1-1964 provided by sec. 55(2)(i) of the Act could not be defined to the assessee by limiting the scope and ambit of section 49(2) of the Act. 33. The learned counsel argued that the expression "cost of acquisition" is a compendious expression use in the context of taxation of capital gain which included the concept of valuation, as could be seen in its definition in section 55(2) of the Act. He, therefore, argued that this general expression is used not in any restricted sense of the cost of an asset with reference to the actual out going out of the pocket of shareholder. In this connection the learned counsel submitted that the interpretation sought to be placed by the revenue would be contrary to law and unjust, as could be seen by comparing two shareholder, one who sell his shares one day before the date of amalgamation, and another who sell his shares one day after the date of amalgamation. The learned counsel submitted that the revenue's interpretation would put the second shareh....
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.... submitted that there was no case for any enhancement at the assessee was entitled to a further reduction if he succeed in his appeal and that therefore there was no merit in the revenue's additional grounds of appeal. He also argued that the department cannot seek a direction from the Tribunal for setting aside the order of the CIT (Appeals) as there was nothing erroneous in his order on this aspect of the case and that the Tribunal could not do indirectly what it cannot do directly, namely enhancing the assessment, as contended by the revenue in the additional grounds. He therefore submitted that the additional ground field by the revenue deserved to be rejected. 36. Shri Mohanty, the learned departmental representative, in his reply submitted that the option given in section 55(2)(i) was a concession and that therefore the said provision of law should construed strictly. He argued that there was nothing unreasonable in the denial of the option to the present assessee, as person holding the original shares and person holding shares in an amalgamated company fall in two different well-defined classification and therefore the denial of option to the person holding shares in amal....
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....he winding up of the first-mentioned company;" Next we would like to refer to section 2(42A) with its Explanation (i)(c) : "(42A) "short-term capital asset" means a capital asset by an assessee for not more than thirty-six months immediately preceding the date of its transfer. Explanation : (i) In determining the period for which any capital asset is held by the assessee- ** ** ** (c) in the case of capital asset being a share or shares in an Indian Company, which becomes the property of the assessee in consideration of a transfer referred to in clause (vii) of section 47. There shall be included the period for which the share or shares in the amalgamating company were held by the assessee." Section 45(1) of the Act reads as follows : "45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in section 53,54 54B, 54D, 54F, be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place." Section 47(vii) in so far as it is relevant for our purpose is set out below : "Transaction not regarded....
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....g these amendments brought out by the parliament from 1-4-1967, shows that the intention of the parliaments is to postpones the taxable event in respect of the shareholding of a shareholder in an amalgamating company, as could be seen from section 47(vii) of the Act. There is no dispute that the transfer of the Madura Mills Ltd.'s shares and the shares in A & F Harvey Ltd. by the assessee in exchange for the shares in the amalgamated company, namely Madura Coats Ltd. on 1-7-1974 was exempted under the provisions of the section 47(vii) of the Act. Thus, the taxable event now is the sale of the shares of the amalgamated company by the assessee during the previous year, which is sought to be taxed as long-term capital gain under section 45(1) of the Act. 40. We have already extracted section 2(42A), Explanation (i)(c), which define a short-term capital asset. According to clause (c) of this Explanation, in order to determine the nature of shares held by an assessee in an amalgamated company as to whether they are short-term capital asset or not, it is necessary to take into account and include the period for which the assessee held the shares in the amalgamating company also. In ot....
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.... Act. Normally the cost of the acquisition of a capital asset would be the amounts for which an assessee or purchase a capital asset, but in the present case the assessee had acquired the shares in amalgamated company in exchange for the shares in the two amalgamating companies on 1-7-1974. In such cases we have to necessarily go to section 49(2) of the Act, which specifically provides for the determination of the cost of acquisition of shares in an amalgamated company. The argument on behalf of the revenue is that according to the function created by section. 49(2), the cost of acquisition of the shares of Madura Coats Ltd. would be the cost of acquisition of the shares of the amalgamating companies. In other words, the cost of the amalgamated company shares would be the actual cost of the original 3,000 shares in Madura Mills Co. Ltd. and 22,700 shares in A & F Harvey Ltd. which the assessee held even prior to 1-1-1964 and nothing more. The revenue further elucidates their point by pointing out that for receiving the bonus shares in the amalgamating companies subsequent to 1-1-1964 the assessee had to pay nothing and therefore only the cost of original shares in the amalgamating ....
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....; ------------ According to the revenue, it is only this amount of Rs. 4,94,532 which represented the cost of acquisition of the shares of the amalgamated according to function created in section 49(2) of the Act and that the assessee would not be entitled to any further amount as the cost of acquisition of the shares by exercising his option under section 55(2)(i) of the Act. The contention of the revenue is that the function in sec. 49(2) is limited in its scope and ambit and it cannot extend so far as to confer the benefit of the substitution of the fair market value of the shares held by the assessee as on 1-1-1964 in the amalgamating companies under sec. 55(2)(i) of the Act. The assessee's contention is to be the contrary which we have already set out above in great detail. 43. We are unable to accept these contention of the revenue as they contrary to the accepted principals of interpretation of statutes. In the case of M. K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143, their Lordship of the Supreme Court quoted with approval the observation of Lord Asquit....
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...., were held by the assessee prior to 1-1-1964 having been acquired by him prior to that date. The definition of 'cost of acquisition' in sec. 55(2)(i) of the Act is for the purpose of sec. 48 and 49 of the Act, as the opening words of the said provision of law disclose. There is nothing in sec. 55(2) which states that the said definition of 'cost of acquisition' would not be available to case falling within the scope of sec. 49(2) of the Act. In our view, the provisions of sec. 48, and 49(2) and sec. 55(2)(i) should be read together, in order to determine the cost acquisition of shares held by the assessee in the amalgamated company. In other words, sec. 55(2)(i) should be read into sec 49(2) of the Act. If so read, we are unable to see any impediment in the way of the assessee, which would deny him the right substitution of the fair market value of the shares as on 1-1-1964 at his option. This option is given to the assessee by the statue in order to neutralize the effect of inflection so as to arrive at the real capital gain derived by an assessee on the transfer of a capital asset which he might have acquired years ago at a nominal price and the value of which would have increas....
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.... but not more than 15 years 50% More than 15 years but not more than 20 years 55% Over 20 years 60% If the stand of the department is accepted, then it would mean that the period of holding would be only the dates from which the shares of the amalgamated company come into the possession of the assessee to the date of sale. The cost to be taken will be that of the original share. The difference between this and the sale ....
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....hares which the sub-divided shares were derived, the assessee was precluded from exercising the option given under (i) of sub-sec. (2) of section 55 of the Act. After examining the relevant provisions of the Act, their Lordship held as follows at page 197 of the reports : "In this regard, it must be noticed that perusal of opening part of sub-sec. (2) shows that deals with cost of acquisition in relation to 'a capital asset'. Clause (i) provides that where 'the capital asset' which, in our view, must mean capital asset referred to the opening portion of sub-sec. (2), namely, any capital asset whose cost of acquisition has to be determine for the purposes of sec. 48 and 49, become of the assessee before 1st January, 1954, 'the cost of acquisition' thereof the asset to the assessee or the fair market value of the said asset as on 1st January, 1954, at the option of the assessee." Rejecting the contention of the revenue that the option under sec. 55(2)(i) was not available to case covered by sec. 55(2)(v) of the Act, their Lordship held at page 198 of the reports, as follows : "It was submitted by Mr. Joshi, in this connection, that the option available under clause (i) afore....
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....inal shares held by the assessee, from which the sub-divided shares were derived. We are, however, not required to decide this question as we have already set out." We may mention here that in this decision their Lordship have also followed the decision of the Supreme Court in Shekhawati General Traders Ltd.'s case while answering the third question we agree with the learn counsel for the assessee, Shri K. R. Ramamani, that this decision of the Bombay High Court fully support contention of the assessee in the present case, as it was decision rendered on an interpretation of the previous contain in sec. 48 and 55(2)(i) of the Act and not merely on section 55(2)(v) of the Act as contained by the Revenue to distinguish the said decision before the Bombay Bench of the Appellate Tribunal in case of Madura Coats Ltd. We also agree with the learned causal that this decision of the Bombay Bench of the Tribunal in Madura Coats Ltd.'s. case would not stand the way of our accepting the assessee's case in the present appeals. 45. We would like to refer to the decision of the Bombay High Court in the case of Trikamlal Maneklal, which was relied on the learned by the departmental represent....
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....n is neutralise the effect of inflation over the years, as a result of which value of the capital asset would have appreciated over the long period of years from its original cost of so that only the real capital gain to an assessee on its transfer, is brought to charge in his hands. 47. We are unable agree with the learn departmental representative in his submission that, whereas the benefit of option is given to cases covered by sec. 49(1) of the Act, as expressly provided in sec. 55(2)(ii) of the Act, there no such express provisions conferring such right of option to cases covered by section 49(2) of the Act and therefore the assess is not entitled to this right of option. This argument of the revenue overlook that the cases falling under the provision of sec. 49(2) of the Act it self and would be comprehended by section 55(2)(i) of the Act itself and that both these provisions would have to be read together, as held by us. 48. Hence, on reading of the provisions of the sections 2(42A), Explanation (i)(c), section 49(2) sec. 55(2)(i) of the Act together and applying the said provisions to the fact of the present case, we hold that the assessee is entitled to statutory rig....
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....counsel for the assessee in support of their arguments, would not apply to the facts of the present case : (1) Shekhawati General Traders Ltd.'s case. (2) W. H. Brady & Co. Ltd. v. CIT [1979] 119 ITR 359 (Bom.). (3) Escorts Farms (Ramgarh) Ltd. v. CIT [1983] 143 ITR 749 (Delhi). The learned departmental representative submitted that the first case was a case essentially on the applicability of section 147(a) of the Act for the purpose of reopening the assessment to bring to charge the income that had escaped assessment by way of capital gains and therefore would not apply to the present case. In the other two decisions, though the principal of averaging by spreading out the cost of original shares over the original shares and the bonus shares was upheld, the said decisions would be of no avail to the assessee in the present case, as held by the Madras High Court in the case of T. V. S. & Sons Ltd. where the assessee transfers all his shareholdings en bloc, as such an exercise would be purely an academic one. He therefore submitted that the department was entitled to succeed on this point in view of the decision of the Madras High Court in the case of T. V. S. Sons Ltd. ....
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....) of the Act was unalterable or immutable and therefore the assessee was entitled to have the actual cost of acquisition of the original shares or their fair market value as on 1-1-1964, whichever advantageous to him at his option, as provided in section 55(2)(i) of the Act. 54. Regarding bonus shares, the learned counsel submitted that they had a cost of acquisition of their own, as has been laid down by the Supreme Court in Dalmia Investment Co. Ltd.'s case. He submitted that it is too late in the day for any one of contend that the cost of acquisition of the bonus shares is nil, as such a contention put forward by the parties has been unanimously rejected by the Supreme Court not only in Dalmia Investment Co. Ltd.'s but in later decision also, including the decision in Shekhawati General Traders Ltd.'s case. The learned counsel submitted that the answer to the question as to what is the cost of acquisition of the bonus shares is directly provided in a number of decisions of the Calcutta High Court based on the decisions of the Supreme Court. The first decision relied on by him was in Sutlej Cotton Mills Ltd. v. CIT [1979] 119 ITR 666 (Cal.). In this case it was decided that i....
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....passu with the original shares. Their Lordships also held that in this connection the method normally followed by the assessee in valuing the bonus shares is not relevant and that it was not also relevant that some of the original shares have been sold. The learned counsel relied on the following passage at page 534 of the reports in his favour : "Now we are here concerned with firstly, the bonus shares which ranked pari passu, secondly, we are not concerned with the value of the old shares. Some of the original shares were sold before the year in question. We are also concerned with the profit resulting from the sale of bonus shares. This is important because it is not a question of considering what is the profit embedded in the unsold stock either of shares or of stock-in-trade. It is a case of sale of an asset of a particular year. Therefore, it is not, in our opinion, very relevant to consider in what manner these stocks had been valued year, but, as the Supreme Court noted, what is the cost of acquisition of the particular asset which is sold and whose profit is due to be considered. Now, the cost of acquisition of the bonus shares, in our opinion, is clearly laid down by t....
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....ould not be taken into consideration. If the contention of the revenue were to be accepted the acquisition of the bonus shares subsequent to January 1, 1954, will have to be taken into account which on the language of the statute is nor possible to do.". 58. Basing himself on the aforesaid decision Supreme Court in Shekhawati General Traders Ltd.'s case and the decisions of the Calcutta High Court referred to above, Shri Swaminathan contended that the case of T. V. S. & Sons Ltd. has not been correctly decided by Madras High Court, as it is contrary to the ratio of the decision of the Supreme Court in Shekhawati General Traders Ltd.'s case. The learned counsel submitted that their Lordships of the Madras High Court have not even adverted to this decision of the Supreme Court in their judgment, even though it has been cited before their Lordships, and also referred to and relied on by the Appellate Tribunal in their appellate order in the said case. The learned counsel submitted that as the decision of the Madras High Court in T. V. S. & Sons Ltd.'s case turned on entirely different facts, it was distinguishable on facts from the present case, wherein we are concerned with the va....
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....ity shareholder who transfers such shares after the expiry of 30 days from the date of their issue will (for the purpose of computing any capital gains arising on such transfer) be taken to be their fair market value as on the 31st day from the date on which the said shares were issued to him :" The learned counsel submitted that the above passages indicated that the statute itself considered the cost of acquisition of bonus shares as nil. 60. Shri Padmanabhan next relied on the decision of the Madras High Court in CIT v. Athi V. Ramachandra Chettiar [1964] 52 ITR 96. We do not consider it necessary to refer to this decision in detail, as it was rendered before the decision of the Supreme Court in Dalmia Investment Co. Ltd.'s case. 61. Shri K. R. Ramamani, the learned counsel for the assessee in these two appeals, submitted that the decision of the Supreme Court in Shekhawati General Traders Ltd.'s case recognises the following three principles : (i) The issuance of bonus or right shares after 1-1-1954 has to be ignored while determining the fair market value of the original shares as on 1-1-1954. (ii) The principle of determining the cost of acquisition of block of ....
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....atutory cost to be taken at the option of the assessee as on 1-1-1964 in respect of one block of shares. The learned counsel contended that the case of T. V. S. & Sons Ltd. has overlooked these principles laid down by the Supreme Court in Shekhawati General Traders Ltd.'s case and therefore the said decision of Madras High Court would not apply to the case of the present assessee. The learned counsel argued that even on the case of T. V. S. & Sons Ltd. there was a block of 1447 shares, which had to be valued as on 1-1-1954 as they were held prior to that date. Apparently, this fact had slipped the attention of all parties and the court, as the said case would also be governed by the decision of the Supreme Court in Shekhawati General Trader Ltd.'s case. Shri Ramamani submitted that the decision of the Madras High Court in T. V. S & Son's Ltd.'s was in consistent with the provisions of the statute contained in section 55(2)(i) of the Income-tax Act and was further opposed to the decision of the Supreme Court in Shekhawati General Traders Ltd.'s case. Therefore, this decision should be confined to its facts and it should not be extended to cases of assessees like the present one. The....
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.... the case of the revenue that bonus shares have no value, but that it was raising a dispute only about the method of computing such value of bonus shares. He about the method of computing such value of bonus shares. He pointed out that in CIT v. General Investment Co. Ltd. [1981] 131 ITR 366 (Cal.), it has been held that there was no distinction between the case of a dealer in shares and the case of an investor and that the cost would be the same. He pointed out that, that was also a case of determining the cost of acquisition of bonus shares and the Calcutta high Court held that the correct method of valuing bonus shares was to take the cost of the original shares, spread it over the original shares and bounce shares collectively and find out the average price of the shares. The learned departmental representative submitted that the Delhi High Court has also taken a similar view in Escorts Farms (Ramgarh) Ltd.'s case. He also pointed out that the same view has been taken by the Special Bench of the Tribunal in Rohiniben Trust v. ITO (1985) 13 ITD 830 (BOM.). He argued that the cost of acquisition of the bonus shares was embedded in the cost of acquisition of the original shares an....
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....; ----------- Total Rs.1,53,128 ----------- There is no dispute about the figures set out above. The dispute is only about the principle for allowing this amount of Rs. 1,53,128 as a separate deduction in addition to the cost of acquisition or the fair market value of the original shares in these two companies. 66. In T. V. S & Ltd.'s case, their Lordships of the Madras....
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....nable to accept the plea of the learned counsel based on the rule of sub silentio quoted from Salmond on Jurisprudence. In Indian Express (Madurai) (P.) Ltd.'s case, at p. 715, their Lordships of the Madras High Court have held, dealing with the revenue's contention about the ratio decidendi of the Supreme Court in Mahalakshmi Textile Mills Ltd.'s case as follows : "We are prepared to agree with Mr. Rangaswami in thinking that the passage relied on by him constitutes the decision of the Supreme Court in that case. If it were the decision of any other court, we might even be inclined to regard this passage alone as the binding part of the decision. However we cannot make any distinction between a ratio, on the one hand, and the dicta, on the other, in the Supreme Court decision. Where the particular determinations by the Supreme Court not only dispose of the case, but also decides a principles of law, the actual ratio in the case is a precedent which is binding on all the courts in the land, including the High Court. But equally binding are the dicta of the Supreme Court, even though such dicta cannot be strictly regarded as forming the ratio of the court's decision in a given ca....
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....It is not for us to speculate as to why there is no reference to the said decision of the Supreme Court, or whether it was considered by their Lordships or not. We would, as a quasi-judicial Tribunal functioning within the territorial jurisdiction of the Madras High Court, respectfully follow the said decision of Madras High Court which is binding on us and hold that the said decision is applicable to the facts of the present case. In view of this, we do not consider it necessary to examine in detail the other decisions of Bombay, Calcutta and Delhi High Courts, which were relied on by the learned counsel as in favour of the assessee's case. We would, therefore, decide this issue in favour of the revenue and against assessee and hold that the assessee and hold that the assessee is not entitled to deduct the sum of Rs. 1,53,128 as the cost of bonus shares, in addition the cost of acquisition of the original shares in the two amalgamating companies. 68. The next issue in the departmental appeal relates to the rate of capitalisation to be adopted in valuing the original 22,700 shares held by the assessee in A & F Harvey Ltd. as on 1-1-1964 in the event of the option for adopting th....
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....s connection, the learned counsel relied on para 5 at page 24 of the assessee's paper book of the order of the Appellate Tribunal, Madras Bench-B in the case of Textile Paper Tube Co. Ltd. [IT Appeal Nos. 129 and 379 (Mad.) of 1985, dated 14-8-1987] wherein the Appellate Tribunal had upheld the decision of the CIT (Appeals) in the following words : "The next question to be decided is as to the percentage rate at which the capitalisation should be made. While the Revenue claims that the capitalisation should be at 9 per cent, the assessee claims that it should be at 6 per cent. The Commissioner of Income-tax (A) had given valid reasons as to why 6 per cent is appropriate in this case. He has stated that the rates of interest prevailing in the Indian money market during 1960's were very low. The 'bank rate' was only 4.5 per cent on 3-1-1963 and only 5 per cent on 26-9-1964. He also relied on the Circular issued by the Central Board of Direct Taxes No. 6(WT) /60 in connection with the valuation of the shares of investment companies wherein Board have considered that the capitalisation of the yield @ 6 per cent for the purpose of the valuation of shares to be correct. We find the re....
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....ties below in support of the is method of valuation adopted by the Revenue. 72. In our view, this issue has to be decided in favour of the assessee and against the revenue, in view of the following decision of the Supreme Court in Smt. Kusumben D. Mahadevia's case at 46, and 47, wherein their Lordships of the Supreme Court have held as follows : "The revenue, of course, did not plead for exclusive adoption of the break-up method and wanted the mean of the values arrived at by applying the break-up method and the profit-earning method to be taken as representing the valuation of the shares, but we do not see on what principle can a combination of the two methods be justified. There is no authority either in any judicial decision or in any standard text book on valuation of shares which recognises the validity of a combination of the two methods, though it may sound acceptable as a compromise formula. In fact, Adamson has criticised this combination of the two methods as unscientific in his book on 'The valuation of company shares and business' (fourth edition), at page 55, where he has said : 'The mere averaging of two results obtained by quite different base of approach ca....
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....assessee in 1972 in A & F Harvey Ltd., about which there is no dispute 1,39,792 --------- Total cost of acquisition of the shares transferred 10,56,036 Net sale consideration received by the assessee 12....
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....he assessee and the departmental representative. As a layman, I thought there should be no difficulty in accepting the assessee's contention in this case to permit him to substitute for the cost of the shares of Madura Mills and A & F Harvey Ltd., the fair market value thereof as on 1-1-1964, whichever is beneficial to him. What has weighed with me in saying so is the clear and explicit language of section 49 and the mandate contained in that section. Section 49 is enacted with a view to determining the cost of acquisition of certain capital assets acquired in certain modes. It speaks of assets on the total or the partial partition of a Hindu undivided family, or assets received under a gift or a will or by succession, inheritance or devolution or distribution of assets on the dissolution of a firm, body of individuals or other association of persons, distribution of assets on the liquidation of a company as also transfers to a revocable or irrevocable trust. In all these cases and in other cases, which I have left here from mention, the cost of acquisition of the assets to the assessee shall be deemed to be the cost at which the previous owner of the property acquired it, as incre....
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....umstances mentioned in section 49 was continuous, the cost of acquisition to the previous owner should be taken as the cost of acquisition by the assessee also. For example, a property taken under a gift while it cost nothing to the donee, it did cost some thing to the donor. It was because of the gift made by the donor to the donee, that the donee became the owner of the property. Though there is a change of ownership, as a consequence of a gift, the law presumes that the donor and the donee in so far as determining the cost of acquisition is concerned, should be regarded as one and the same. Therefore, the cost of acquisition to the donor is directed to be adopted as the cost of acquisition to the donee. That was why a provision was made in section 49, for adopting of cost of acquisition of the previous owner including the cost of improvement as the cost of acquisition to the assessee in cases, where the assessee acquired the assets by the modes specified therein. 4. My learned brother has already and conspicuously referred to the object with which sub-section (2) of section 49 was enacted and the kinds of disabilities that the insertion of the section has sought to alleviate.....
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....re given to the previous owners should as of right, if only to avoid discrimination be made available to an assessee referred to both in section 49(1) and 49(2) alike. Once the occasion to exercise this right arises, namely, the sale of the shares of the amalgamated company, the provisions of section 55 will come into play. It is this section that provides as to what is the meaning of the expression 'cost of acquisition' for the purposes of levy of capital gains tax. It specifically provides that the meaning of the 'cost of acquisition' is for the purposes of sections 48, 49 and 50 of the Income-tax Act. Sub-section (2) of section 55 again specifically provides that, "for the purposes of sections 48 and 49, cost acquisition in relation to a capital asset shall be determined in the manner provided thereafter". Clause (i) of the section provides that where the capital asset became the property of the assessee before 1st day of January, 1964, means the cost of acquisition to the assessee for the fair market value of the asset on 1st day January, 1964, at the option the assessee". That means, if the capital asset became the property of the assessee before 1-1-1964, the cost of acquisit....