TaxTMI 
TaxTMI 
2017 (11) TMI 190
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....n respect of bonus shares and shares received from overseas investors, which were acquired by them through foreign remittances. 4. Without prejudice, assuming without admitting that the shares received from overseas investors without making any payments, do not qualify as foreign exchange asset, the AO/CIT(A) ought to have allowed deduction for the cost of acquisition in the hands of the original buyer. 5. Alleging that the issue of bonus shares is a manipulation to evade tax. 6. Imputing interest u/s 234B of INR 2,10,27,420. 7. Initiating penalty proceedings u/s 274 r.w.s 271 of the Act. The Appellant also submits that each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant". 2. Brief facts of the case are that the assessee, an individual and an NRI, filed his return of income for the A.Y 2012-13 on 28.07.2012, admitting a total income of Rs. 61,49,07,607 comprising of Long Term Capital Gain (LTCG) of Rs. 55,59,33,503, income from other sources of Rs. 5,81,76,495 and income from house property of Rs. 7,97,609. The case was selected for scrutiny under CASS and a notice u/s 143(2) was served on the assessee o....
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.... 12 Taxmann.com 311 (Mum), and Smt. Deivanayagam Maruthi vs. DCIT (I.T) (2012) 20 Taxmann.com 660 (Chennai). The AO however, was not convinced with the reply of the assessee and observed that in the case of Sanjaya Gala, the Tribunal at Mumbai relied upon the decision of the Hon'ble Supreme Court in the case of Dalmiya Investment Co. Ltd (Supra) but the facts of the case in the case of Sanjay Gala are distinguishable from the facts in the case of Dalmiya Investment Co. Ltd. He observed that the assessee has acquired the shares to the tune of 37,58,133 shares without investing any convertible foreign exchange and therefore, he is not entitled to the concessional rate u/s 115E of the Act. He also considered that M/s. AppLabs Technologies Private Ltd is an Indian company and the promoters of the company are only two persons i.e. the assessee and his father. He observed that the assessee was allotted bonus shares in order to avoid tax as the management of the company is in the hands of the assessee and his family only. He also observed that the assessee's father, who is a resident of India, had transferred some of the shares to his grandson and daughter-in-law, who thereafter sold ....
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....cquisition of bonus shares, if they rank pari passu, with the existing shares, has to be apportioned amongst the original shares and the bonus shares equally. He submitted that this issue has also been clarified by the Finance Bill of 1995 reported in 212 ITR page 88 wherein clause iii(a) has been introduced to section 55(2)(aa) of the Act to provide that the cost of bonus shares will be taken as "Nil" for computation of capital gain on sale of bonus shares. The assessee also relied upon the budget speech of the Finance Minister explaining the reason for introduction of cl.(iii)(a) to section 55 of the Act wherein the Hon'ble Finance Minister stated that the calculation of capital gains on sale of bonus shares has led to several disputes, and in order to simplify the position and avoid disputes, he proposed that the cost of bonus shares for calculation shall be taken at "Nil". He submitted that this amendment being clarificatory in nature, is applicable with retrospective effect. The learned Counsel for the assessee has also drawn our attention to the findings of the Tribunal in the case of Sanjay Gala (Supra) wherein it was held that where the assessee has acquired the origina....
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.... (Ahd.)Para 8. 8. The learned DR, on the other hand, supported the orders of the authorities below. 9. Having regard to the rival contentions and the material on record, the undisputed facts are that the assessee has acquired the original shares from M/s. AppLabs Technologies Private Ltd by inward remittance of foreign exchange, while some other shares were acquired by overseas investors also by inward remittance of foreign exchange. It is also not in dispute that the Company, AppLabs Technologies Pvt Ltd had allotted bonus shares in the ratio of 1:9 to all the shareholders including the assessee and the overseas investors and that due to non fulfilment of certain conditions, the overseas investors had to transfer their shares along with the bonus shares to the assessee without any cost. It is also undisputed that the assessee has transferred maximum number of original shares to various parties over a period of six years and the assessee has sold the bonus shares and shares transferred by overseas investors during the relevant financial year and offered to tax the capital gains arising therefrom. The dispute is only with regard to the rate of tax on such capital gains. To decide ....
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....su and we shall deal with that case separately. When the shares rank pari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus shares, in two 50 nP. coins. The total value remains the same, but the evidence of that value is not in one certificate but in two" Thus, it is clear that where the original shares are purchased/acquired in foreign exchange, then the same shall also be attributed to the bonus shares which have been allotted subsequently. The Coordinate Bench of this Tribunal in the case of Sajnay Gala and Smt. Deivanayagam Maruthi (cited Supra) also followed the above decision to hold that the bonus shares issued on original shares by investing convertible foreign exchange are also foreign exchange asset u/s 115E of the Act. Therefore, in our opinion, the bonus shares acquire the nature of the original shares, though the cost of acquisition shall be "nil" u/s 55(2)(aa) of the I.T. Act. The clause (iii)(a) thereunder which has been inserted by the Finance Act of 1995 to clarify that where the bonus shares have been allotted, the cost of acquisition can be taken at Rs. Nil. From the computation....