1967 (7) TMI 9

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....me-tax Act, 1922 (hereinafter referred to as "the Act"). By the said order the Income-tax Officer held that Rs. 35,476 should be deemed as having been distributed as dividends by the respondent and the proportionate share thereof of each shareholder should be included in the total income of such shareholder for the purpose of assessing his total income. The balance-sheet of the respondent disclosed past losses amounting to Rs. 45,692 which had been brought forward. The Income-tax Officer held that such losses resulted from the failure of the respondent in not properly accounting for some bonus shares received by it. The Income-tax Officer recomputed the losses of the respondent in earlier years by valuing the bonus shares received by the re....

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....ribunal further held that the Appellate Assistant Commissioner should not have taken into consideration the actual tax liability of Rs. 17,829. The Appellate Tribunal observed that the Appellate Assistant Commissioner was wrong in taking into consideration the subscribed and the paid up capital for the purpose of comparing it with the profits made in the year of account. Under section 66(1) of the Act the Appellate Tribunal drew up a statement of the case and referred the following questions of law for the opinion of the High Court : "(1) Whether, on the facts and in the circumstances of the case, the profits made by the applicant in the year of account did not attract the application of section 23A(1) ? (2) Whether, on the facts and ....

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....half of the appellant is well-founded and must be accepted as correct. In Commissioner of Income-tax v. Dalmia Investment Co. Ltd. it was held by this court that when bonus shares are issued in respect of ordinary shares held in a company by an assessee, their real cost to the assessee cannot be taken to be nil or their face value. The proper method of valuation is to spread the cost of the old shares over the old shares and the new issue (viz., the bonus shares) taken together if they rank pari passu, and if they do not, the price may have to be adjusted either in proportion of the face value they bear (if there is no other circumstance to differentiate them) or on equitable considerations based on the market price before and after issue. ....