TaxTMI 
TaxTMI 
2008 (4) TMI 37
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commissioner concerned Director of Income-tax (International Taxation) Bangalore Present for the Department Ms. Anita Sumanth, Advocate Mr. Satish Aggarwal, C.A. Mr. Shailesh Kumar, Addl. DIT (Int. Tax) Present for the Applicant Mr. Yeshwant .U. Chavan, Addl. Director of Income-tax (International Taxation), Bangalore RULING (By Hon'ble Chairman) 1. The applicant hereafter referred to as K-L IG is a company incorporated under the laws of Federal Republic of Germany and is therefore a foreign company. The applicant acquired a 26 per cent stake in an Indian company, namely, M/s Stump, Schuele and Somappa Pvt. Ltd., Bangalore ("SSS Ltd.") during the financial year 1964-65. It appears that these shares were allotted to K-L ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....On hearing the applicant and the Departmental Representative, the objection raised by the Revenue was over-ruled and the application was allowed under 245R(2) for the purpose of hearing on merits. In the said order, the Authority observed thus: "What we are called upon to decide is the principle and the basis on which the cost of acquisition of bonus shares has to be computed. We are of the view that the answer to the question raised does not involve any exercise as to the valuation and determination of fair market value of the property." Question No.(i): 3. Coming to the merits, we have, no doubt, that in view of the clear language of the relevant provisions contained in section 55(2) of the Income-tax Act, 1961, the deemed cost of acquisition can be taken to be the fair market value of the asset on the 1st April, 1981. Let us look at the relevant provisions: Section 48 provides for computation of capital gains. The key factors to be taken into account while computing the capital gain are (i) the full value of consideration for transfer (ii) the cost of acquisition of the capital asset and the cost of improvement; and (iii) the expenditure incurred in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f April, 1981 10}} 16, means the cost of the capital asset to the previous owner or the fair market value of the asset on the {{1st day of April, 1981}} 10, at the option of the assessee; 4. There are four categories of capital assets enumerated in clauses (a), (aa), (ab) and (b) of sub-section (2) of section 55. Clause (b) is a residuary provision governing "any other capital asset". We are concerned here with the capital asset falling within the scope of sub-clause (aa) and category (B) thereof. The bonus shares allotted without payment of consideration is an additional financial asset that falls within Part (B) of clause (aa) and therefore in the normal course, the cost of acquisition shall be taken to be 'nil' in view of what is laid down in sub-clause (iiia). But, in relation to clause (aa) asset, that principle of computation stands excluded by the phrase "subject to the provisions of sub-clause (i) and (ii) of clause (b)". The said expression "subject to….." is significant and it points to the applicable provision for the purpose of ascertaining the cost of acquisition of an asset falling under clause (aa). In other words, the ru....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) and does not extend to the assets covered by the provisions of s.55(2)(a), i.e., tenancy rights, stage carriage permits and loom hours, and goodwill, etc. The scope of s.55(2)(aa) extends to, inter alia, bonus shares as well as the same are 'allotted without any payment and on the basis of holding of any other financial asset' and are specifically covered by s.55(2)(aa)(iiia). The provisions of the statute are unambiguous. Accordingly, to the extent bonus shares were issued to the assessee prior to 1st April, 1981, the option is with the assessee to take its cost of acquisition as its FMV as on 1st April, 1981." The reasoning appeals to us and we share the same view as that expressed by the learned Members of the Tribunal. 6. Accordingly, we answer the 1st question in affirmative and give the ruling that the fair market value prevailing on 1st April, 1981 ought to be taken as the cost of acquisition in the case of bonus shares held by the applicant on 1-4-1981. Question No.(ii) 7. It is obvious that the Order passed by the ITO under Section 195(2) read with Section 154 of the Income Tax Act amounts to tentative fixation of tax liability and ....