TaxTMI 
TaxTMI 
1987 (12) TMI 89
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....he 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. Total shares : 41,933 ....
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....n 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 acquisition of the shares as worked out by the assessee as far as the sh....
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.... 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 that the ratio of the decisions states by the assessee separately applies to f....
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....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 average of the value taken by substituting the market value as on 1-1-1964 u/s 55(2) in respe....
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....as 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 authorities, namely, the Income-tax Officer, the Inspecting Asstt. Commissioner and the commissioner (Appeals) have all pr....
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....f 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 the fair market value of the shares as on 1-1-1964 as his cost of acquisition in computing the long-term capital gains d....
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....ived 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 proviso to section 12B (1) and on this ground he computed the capital gains on the entire sum of Rs. 81,863 representing the en....
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.... 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 jurisdiction to admit a new plea. For, the power to the listen to a new contention and decide the appeal on that basis has been spelled out by....
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....ing 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 preliminary objection was raised at the hearing to the effect that the Tribunal should not entertain this new plea by the assessee, since it has not been ....
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.... 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, namely what is the true amount of capital gain to be taxed in the hands of assessee having regard to all relevant statutory provisions on the sale of t....
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....tain 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 of sec. 48 and 49 of Act was not available to the assessee in the present case. Shri Mohanty submitted that this aspect of the matter was over looked by the ....
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....as 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 that in the case of amalgamation, the cost of acquisition of shares in amalgamated company should be the cost of acquisition in amalgamating company, by which pr....
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....7-68. 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), in lieu of their shareholdings in the amalgamating company. Some these tax liabilities discourage amalgamations. For the purpose of facilitating the merger of uneconomi....
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....lls 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 first truncation between voluntary liquidator and the contributory should be excluded from the spare of taxation, so that sub-section (3) of section 12B can work it self out with prejud....
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....e 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 shareholder in to hardship for which there is no clear expression use by the Legislature in section 55(2)(i) of the Act. 34. Shri Ramamani next submitted with the reference to the facts of the pr....
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....ional 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 amalgamated company after 1-1-1964 was quit reasonable. Shri Mohanty connected that the intention of the parliament deny this concession in quit evident and eloquent by its absence in section 55(2), a....
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.... 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 as transfer. 47. Nothing contained in section 45 shall apply to the following transfers : ** ** ** (vii) any transfer of the shareholder, in the scheme of amalgamation, of a capital asset being a share or shares held by hi....
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....he 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 other words, mandate of this Explanation is that the period for which an assessee hold shares in an amalgamating company as well as the period for which he held the original shares in the amalgamating company, should be taken together to determine the period of hi....
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....ting 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 companies would represent the true cost of acquisition of the shares in the amalgamated company, as the deemed by section 49(2) of the Act. The revenue therefore contends that the long-term capital gains computed by the Income-tax Officer and the CIT (Appeals) err....
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....ection 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 Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 which is quoted bellow from pages 146, 147 of the reports : "As observed by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council, 'if you are bidden to treat a....
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....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 increased over the years. This would be clear when we take into account the amendments brought about in sec. 55(2)(i) of the Act with reference to the date of substitution which was originally 1-1-1954, which was latter on amended as 1-1-1964 by the Finance (No. 2) Act of 1977 with effect from ....
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....re 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 price will be the capital gain. The percentage deduction, however, will not be allowed for the period, from the date of acquisition of the original share to the date of sale of the amalgamated company, but only to that percentage admissible from the date of acquisition of the amalgamated share to the date of....
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....t 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) aforesaid only regarding the very capital asset which had been transferred only the assessee and not regarding the cost of acquisition of the capital asset from which the said capital asset transferred might have been derived in any of the manners set out in clause (v). In our view, this submission of Mr. Joshi is not sust....
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.... 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 representative to contend that the function in section 49(2) confined to the cost of acquisition only and nothing more. We have pursed this decision and we are unable to appreciate how this decision support the contention of the revenue. On the other hand, the following observation in paragraph 17 at page 254 of the reports support th....
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....al 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 right of exercising his option to substitute the fair market value of the shares in Madura Mills Ltd. A & F Harvey Ltd., as on 1-1-1964 and that the departmental authorities, including the Commissioner of Income-tax (Appeals), rightly took the fair market value of these shares as on 1-1-1964 for the purpose of computing the long term capita....
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....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. 51. Shri S. Swaminathan, the learned counsel appearing for one group of Interveners, submitted that on the facts of the present case the decision of the Madras High Court in T. V. S. & Sons Ltd.'s case would not apply and that the decision of the Supreme Court in the Shekhawati General Traders Ltd.'s case, as the original shares of the two amalgama....
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....quisition 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 in determining the cost of acquisition of the original shares, on which bonus shares have been issued, it can either be the actual cost of acquisition or at the choice of the assessee, the market value thereof on the 1st January, 1954, that when an assessee elects to adopt the market value as on 1-1-1954, for the purpose of computation of capital gain or loss in....
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....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 the Supreme Court in the principle enunciated, as we have mentioned before." The learned counsel submitted that there was a useful discussion elucidating the nature of the bonus shares in CIT v. Chunilal Khushaldas [1974] 93 ITR 369 (Guj.). 57. Referring to the decision of the Supreme Court in Shekhawati General Traders Ltd.'s case, the learned counsel referred us t....
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....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 valuation of original shares held before 1-1-1964 and of bonus shares issued subsequent to 1-1-1964. The learned counsel, therefore, submitted that the CIT (Appeals) was right in accepting the assessee's contentions in the present case and in allowing separately the cost of acquisition of the bonus shares of the two amalgamating companies separately as a deduction, apart from ....
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.... 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 shares has been recognised. (iii) The decision of the Supreme Court in Dalmia Investment Company's case would be inapplicable to a case where statutory cost of acquisition has to be considered. The learned counsel submitted that on the authority of this decision of the authority of this decision of the Supreme Court in Shekhawati General Traders Ltd.'s case, there are two blocks of shares i....
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....el 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 learned counsel also argued that on the authority of this decision of the Madras High Court in T. V. S & Sons Ltd.'s case alone the revenue was not entitled to succeed in the present appeals, if all the other decision cited at the Bar on behalf of the assessees are the ignored. He submitted that this decision of the Madras High Court would be apply only to a case of actual cost of acquisition and ....
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....estor 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 and therefore the assesses would not be entitled to any separate deduction on account of the cost of acquisition of the bonus shares, in addition to the cost of acquisition of the original shares as claimed by him. Shri Mohanty next submitted that the decision of the Madras High Court in the case of T. V. S & Sons Ltd. relied on by him was rightly decided and there was no mistake in it. Finally, he submitted....
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....sp; 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 High Court have held the question of determining the cost of acquisition of bonus shares would arise only in a case where the bonus shares are sold and capital gains have to be determined in respect of sale of the bonus shares alone that, however, when the entire shareholding, including the original shares and bonus shares are compulsorily acquired, the question of determining the cost of acquisition of the bonus shares s....
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....hat 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 case. While, therefore, we regard the passage relied on by Mr. Rangaswami as a ratio of the case, we cannot afford to disregard the passage which we have earlier quoted from the same Supreme Court judgment on the score that the observations therein contained are merely dicta and not the real ratio in the case. We regard the decision in the Mahalakshmi Textile Mills' case (1967) 66 ITR 710 (SC) as made up of two parts. In one par....
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....se. 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 the fair market value as on 1-1-1984 being available. Shri Mohanty, the learned departmental representative, submitted that the cost of acquisition that is to be determined under the Income-tax Act, would be beneficial to the assessee, but the same would be adverse to the assessee under the Wealth-tax Act. He submitted that the rate of 9 per cent which was adopted by the Income-tax Officer for capitalisation, was based on the circul....
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....ation 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 reasons given by the Commissioner of Income-tax for coming to the conclusion that the proper rate of capitalisation for purpose of value will be 6 per cent and not 9 per cent are adequate and reasonable. We, accordingly direct the Income-tax Officers to recompute value of the shares as on 1-1-1964 on yield basis by capitalising the yield at 6 per cent" He therefore submitted that the order of the CIT (Appeals) on this point should be u....
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....d 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 can hardly be said to represent any logical approach, whatever its merit as a compromise. Despite its evident popularity in any quarters. it has not been given judicial recognition in decisions involving the fixation of a value by the court.' The combination of the two methods advocated on behalf of the revenue has, thus no sanction of any judicial or other authority and cannot be accepted as a valid principle of valuation of shares. We therefore ....
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....- Total cost of acquisition of the shares transferred 10,56,036 Net sale consideration received by the assessee 12,63,763 Less : Total cost of acquisition of shares worked out above 10,56,036 ....
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.... 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 increased by the cost of any improvement of the asset incurred or borne by the previous owner or the assessee, as the case may be. The Explanation added to this section explains the expression 'previous owner of the property' as the 'last previous owner of the capital asset'. It is to be remembered that the acquisition of the assets under hose modes of acquisition, had not cost the assessee anything in terms of money, although those assets have got value in money's worth. 2. The levy of capi....
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....e 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. It is to promote the amalgamations of uneconomic units with economically sound units without having to pay any capital gains tax as a consequence of amalgamation. Although amalgamation of two companies does amount to a transfer, that transfer was sought to be excluded from the purview of capital gains tax only to encourage amalgamation of companies as mentioned above, but the shares allotted in the amalgamated company, as a consequence of amalgamation continue to be the assets of the assessee....
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....hat 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 acquisition has to be taken at the option of the assessee, either as the cost of the acquisition of the asset to the assessee or the fair market value as on 1-1-1964. In this case, by the reason of section 49(2) of the Income-tax Act, the cost of acquisition of the shares in the amalgamated company is to be deemed to be the cost of acquisition of the shares in the amalgamating company. These shares in the amalgamating company were available even prior to 1-1-1964. Therefore, it becomes abundantly clea....