2011 (1) TMI 896

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....rn of income for the assessment year 1990-91 declaring a total income of Rs. 3,22,760. The Assessing Officer issued a notice under section 148 of the Income-tax Act, 1961 (for short, "the Act") on August 1, 1995, calling upon the assessee to show cause as to why the sale proceeds of bonus shares should not be brought to capital gains tax. The appellant filed a revised return on October 27, 1995, again declaring the same total income.   3. The appellant had transferred the shares owned by it in M/s. Parkside Explosives and Industries Ltd. While computing the cost of acquisition of 85,076 shares of the said company, originally 42,538 shares were acquired for a price and another 42,538 shares were acquired subsequently as bonus shares.....

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....d Holdings Ltd.   5,60,704 Cost of 17522 equity shares at 1-4-74 market value   3,46,060 (C)   2,14,644 Total (A + B + C)   15,36,288 48(2) Basic deduction 10,000   30 per cent. of balance 4,57,886 4,67,886     10,68,402" 5. The assessing authority, however, applied the ratio laid down in the  decision of this court in CIT v. T. V. S. and Sons Ltd. reported in [1983] 143 ITR 644 (Mad) and worked out the capital gains as under :     Rs. Rs. "(i) Sale price of 85076 equity shares of Parkside Explosives and Industries Ltd. 29,77,660   Less : Cost of 85076 equity shares consisting of 42538 original shares + 42....

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....elied upon the subsequent Division Bench decision of this court reported as CIT v. R.Ramachandran [2001] 249 ITR 511 (Mad) and contended that having regard to the said Division Bench decision, wherein the T. V. S. and Sons's [1983] 143 ITR 644 (Mad) has also been referred to, the method adopted by the appellant for working out the capital gains in respect of the disposal of shares held by it, both original as well as bonus, alone should have been accepted and, therefore, the orders of the Tribunal as well as that of the lower authority should be set aside.   9. As against the above submissions, Mr. Naresh Kumar, learned senior standing counsel for the respondent, by drawing our attention to the principles in regard to the valuation ....

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....and 649, which reads as under :   "It must be clear, as a principle of elementary arithmetic, that by getting at the average cost of bonus shares which are included in the total holdings consisting of original shares and bonus shares, the average cost of original shares must inevitably get reduced protanto. To take a very simple illustration, if a shareholder holds a single share which he has purchased at Rs. 100 and subsequently a bonus share is issued to him, then, on the theory of averaging and of obtaining the notional cost of the bonus shares, the purchase cost of Rs. 100 for the single original share must be divided by two, one for the original share and the other for the bonus share. The result of this averaging is that the c....