TaxTMI 
TaxTMI 
2024 (6) TMI 807
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....0 of the Income-tax Act, 1961 ("the Act") vide DIN & Order No: ITBA/NFAC/S/250/2023- 24/1056728180(1), ("the impugned Order") is exfacie unjust, arbitrary, and based on conjectures and surmises and circumvents the grounds and the precise submissions of the Appellant. 4. That the impugned Order, while not disputing any of the facts in the case of the Appellant all of which were submitted during the regular assessment proceedings and in fact endorsing those by tabulating in the impugned Order the manner in which the bonus shares became the property of the Appellant prior to 01.04.2001, ought not have recorded that there is "in detection of undisclosed long term capital gains", more so, when the same is pursuant to an incorrect reading of express legal provisions. 5. That the impugned Order is erroneous in as much as it has failed to read that the provisions of Section 55(2) (aa) with all its sub-clauses have been made subject to the provisions of Section 55(2)(b)(i) of the Act, and thus proceeded to assign a nil cost to bonus shares which became the property of the Appellant before 01.04.2001 and thus denying what the law has granted to the Appellant. 6. Th....
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....ins on such transfer of Wipro shares is summarized hereunder: Particular Section Reference Total sale consideration Total Cost of acquisition Long term capital gain and loss 180,13,600 Wipro shares-FMV as at 01.04.2001 is applied for cost of acquisition 55(2)(b)(i) 5,85,30,33,205 24,10,94,02,240 (18,25,63,69,035) 418,70,169 Wipro shares -FMV as at 31.01.2018 is applied for "cost of acquisition" 55(2)(ac) 13,60,45,81,507 12,93,57,88,713 66,87,92,794 13,17,309 Wipro shares original cost of acquisition is applied 55(2)(ac) 42,8024,010 47,92,84,626 (5,12,60,616) Total - 612,01,078 Wipro shares 19,88,56,38,722 37,52,44,75,579 17,63,88,36,857 Thus, a long term capital loss of Rs. 17,63,88,36,857/- from sale of Wipro shares was computed in the prescribed manner as per Section 48 of the Act, forming part of the returned long term capital loss. 3.1 Out of the total 1,80,13,600 Wipro shares that became the property of the assessee prior to 01.04.2001, the original number of Wipro shares acquired by the assessee were 2,81,450 and shares allotted to-the assessee as bonus shares were 1,77,32,150. Further, al....
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.....4 The Ld. AO proceeded to direct the computation by averaging the FMV of Rs. 1338.40 (the statutory cost per share) in the ratio of 1:63, being the ratio of the number of original shares to the number of bonus shares, placing reliance on the judgment of the Hon'ble Supreme Court in Escorts Farms (Ramgarh) Ltd vs CIT [19961 222 ITR 509 (SC) and other judgements in concluding. 3.5 The Ld. AO concluded the regular assessment proceedings on 29-09-2022 by passing the Assessment Order resulting in assessing a total income of Rs. 744,96,55,656/- and thereby disallowing the claim of carried forward loss. The ld. AO raised a demand of Rs. 125,87,94,625/- as amount payable by the assessee. 3.6 Aggrieved by the assessment order, assessee went in appeal before NFAC to grant relief. 4. NFAC observed that the cost of bonus shares shall be taken to be "Nil" and the entire sale consideration received on the transfer of bonus shares shall be treated as capital gain. Further, it was observed that there are four categories of capital assets enumerated in clauses (a), (aa), (ab) and (b) of sub-section (2) of section 55 of the Act. Clause (b) is a residuary provision governing "any other ....
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....is to be implied. One can only look fairly at the language used. Thus, while section 55(2)(aa)(iiia) of the Act clearly provides valuation of bonus shares, one can never look beyond for its interpretation. 4.4 This argument is buttressed by the CBDT Circular No. 06/2014, which has clarified that bonus units at the time of issue would not be subjected to additional income tax under section 115R of the Act [relating to tax on distributed income to unit holders], since issue of bonus units was not akin to distribution of income by way of dividend. This was inferred from the provisions of section 55(2) of the Act, which prescribes that cost of acquisition of bonus units would be 'Nil' for the purpose of computation of capital gains. 4.5 Further, NFAC relied on the judgement of Hon'ble Madras High Court in the case of H.F. Craig Harvey reported in (2000) 112 Taxman 633 (Mad.), wherein held as follows: "21. Insofar as the question referred at the instance of the assessee is concerned, we are of the view that once the fair market value of the shares as on 1-1-1964, is determined, it remains an unalterable figure and any issue of bonus shares subsequent to that date is wholl....
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....certain the value of bonus shares separately and the cost of all shares being a known figure, it would be deducted to compute the capital gains. The view arrived at by the Tribunal is in consonance with various decisions, cited supra. Accordingly, we find no infirmity in the order of the Tribunal in holding that the assessee is not entitled to deduct the sum of Rs. 1,53, 128 as cost of bonus shares in addition to the cost of acquisition of original shares in the two amalgamated companies." 4.6 Further, NFAC relied on the judgement in the case of Shashi Parvatha Reddy, (2017) 87 taxmann.com 227 (Hyderabad-Trib) wherein the Tribunal held as follows: '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 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 a....
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....immediate detriment to the shareholder in respect of his original holding. The Income tax Officer, in this case, has shown that in 1945 when the price of shares became stable it was Rs. 9 per share, while the value of the shares before the issue of bonus s res was Rs. 18 per share. In other words, by the issue of bonus shares pro ra , which ranked pari passu with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares. This will ordinarily be the case but not when the shares do not rank pari passu and we shall deal with that case separately. When the shares rankspari 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 Sanjay Gala and Smt. Deivanayagam Maruthi (cited supra)....
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....us on or after 01.04.2001 but before 01.02.2018 or on after 01.02.2018 4,18,70,169 13,17,309 55(2)(ac) higher of (i) &(ii) (i) =cost of acquisition (ii)=Lower of FMV ON 30.01.2018 and Sale consideration original of cost of acquisition Higher of (i) & (ii) (i) = Nil (ii) = Lower of Rs 308.95 and Rs 324.92 actual cost to the assessee 308.95 363.84 12,93,57,88,713 47,92,84, 626 6,12,01,078 37,52,44,75,578 5.1 He submitted that Section 55(2) of the Act provides the meaning of the expression of acquisition" for capital assets through four clauses. It is apparent that out of the four, only clauses (aa) and (ac) are made subject to, inter-alia, sub-clause (i) of clause (b). In this regard, it is to be noted that the cost of acquisition of bonus shares was sought to be dealt with by the Parliament for the first time ....
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....ovisions of Section 55(2)(b)(i) shall prevail over the provisions contained in Section 55(2)(aa)(B)(iiia). That is to say, the latter was and continues to be subject to the former, i.e. S.55(2)(b)(i). In this regard, the interpretation of the expression "subject to" has been dealt with by the Hon'ble Supreme Court in South India Corporation (P) Ltd. v. Secretary, Board of Revenue, Trivandrum, AIR 1964 SC 207 in the following words - The expression "subject to" conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. " 5.6 He further submitted that the Hon'ble Supreme Court in K. T. Plantation (P) Ltd. vs. State of Karnataka, (2011) 9 SCC 1, has reaffirmed the same as under words: "Section 107 itself has been made "subject to" Section 110 of the Act. The words subject to' conveys the idea of a provision yielding place to another provision or other provisions to which it is made subject. In Black Law Dictionary, 5th Edn. At p. 1278, the expression "subject to" has been defined as under: "Liable, subordinate, subservient, inferior, obedient to; governed or effected by; provided that; ....
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....o be taken in respect of original shares only, the assessee will be at a clear disadvantage in the sense that post bonus issue market value of 10,000 shares will only be Rs. whereas pre bonus issue, the market value of those 10,000 shares would have been Rs. That clearly is incongruous, and quite appropriately not supported by the scheme of computation of capital gains under scheme of the Act. " 5.9 He submitted that through this illustration, the Tribunal concluded as under:- "In any event, for the reasons set out above, even from the point of view of plain logic and reasoning, the option of FMV cannot be restricted only to the original shares and must also extend to the bonus shares. The provisions of the statute are quite clear, unambiguous and hardly capable of being interpreted in any other manner. To sum up, the legal position is like this. So far as bonus shares allotted before 1st April, 1981 are concerned, and even after the insertion of s. 55(2)(aa)(iiia), for the purpose of computing capital gains on transfer of the said bonus shares, the assessee has an option to take their fair market value as on 1st April, 1981 as the cost acquisition. " 5.10 The ld. A.....
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....Jain v. CIT (2018) (407 ITR 254). g) Hon'ble Bombay High Court's judgement in Motor Union Insurance Co. Ltd. v. CIT 91945) (13 ITR 272) h) Hon'ble Calcutta High Court's order dated 19.7.1982 in Mrs. A. Ghosh vs. CIT (1983) 141 ITR 45 (Cal.) i) ITAT Mumbai's decision in the case of Heinrich de Fries GmbH Vs. JCIT Special Range 12 (2005) 96 TTJ 864 j) ITAT Mumbai's decision in the case of Alcan Inc Vs. DCIT (IT) Range 1(1) Mumbai (2008) 110 ITD 15 k) ITAT Mumbai's decision in the case of DDIT 3(1) Vs. H&R Johnson (Overseas) Ltd. (ITA No.1314/Mum/2013) 6. The ld. D.R. relied on the order of lower authorities. 7. We have heard the rival submissions and perused the materials available on record. Now the issue before us is with regard to whether provisions of section 55(2(aa)(B)(iiia) of the Act is directly applied or it is to be applied subject to the provisions of sub-clause (i) & (ii) of clause (b) of Section 55(2) of the Act. For clarify, we reproduce section 55(2) of the Act in its entirety. "55(2) [For the purposes of sections 48 and 49, "cost of acquisition",-- [(a) in relation to a capital asset, being goodwill of a busi....
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....ed stock exchange in India under a scheme for [demutualization or] corporatization approved by the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Bord of India Act, 1992 (15 of 1992), shall be the cost of acquisition of his original membership of the exchange;] [Provided that the cost of a capital asset, being trading or clearing rights of the recognized stock exchange acquired by a shareholder who has been allotted equity share or shares under such scheme of demutualization or corporatization, shall be deemed to be nil;] [(ac) subject to the provisions of sub-clauses (i) ad (ii) of clause (b), in relation to a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust referred to in section 112A, acquired before the 1st day of February, 2018, shall be higher of - i. the cost of acquisition of such asset; and ii. lower of - A. the fair market value of such asset; and B. the full value of consideration received or accruing as a result of the transfer of the capital asset. Explanation - For the purposes o....
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....t day of April, [2001]], 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, [2001]], at the option of the assessee; Following proviso and the Explanation thereto shall be inserted after sub-clause (ii) of clause (b) of sub-section (2) of section 55 by the Finance Act, 2020 w.e.f. 1.4.2021: Provided: that in case of a capital asset referred to in sub-clauses (i) and (ii), being land or building or both, the fair market value of such asset on the 1st day of April, 2001 for the purposes of the said sub-clauses shall not exceed the stamp duty value, wherever available, of such asset as on the 1st day of April, 2001. Explanation - For the purposes of this proviso, "stamp duty value" means the value adopted or assessed or assessable by any authority of the Central Government or a State Government for the purpose of payment of stamp duty in respect of an immovable property. (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on it liquidation and the assessee has been assessed to income-tax under the ....
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....res to be adopted for determining the capital gains on bonus shares till assessment year 1995-96 while, under the amended law effective from the assessment year 1996-97, the cost of acquisition of bonus shares is statutory required, under sub-clause (iiia), to be taken to be "Nil", if they had been allotted to an assessee without payment. Thus, there is a great shift in the statutory mode for the computation of capital gains in respect of bonus shares w.e.f. assessment year 1996-97. The cost of class of onus shares has to be statutory taken to be "Nil" if the conditions of sub clause (iiia) are fulfilled in case involving computation of capital gain w.e.f. assessment year 1996-97. 7.2 Sub-clause (iiia) has been made specifically applicable with effect from the assessment year 1996-97 which means that the computation of capital gains in respect of securities including bonus shares transferred on or after 1-4-1995 (i.e., during the previous year relevant to the assessment year 1996-97) will have to be made in accordance with the provisions of the said sub-clause. Therefore, the crucial factor for applicability of sub-clause (iiia) is not as to when the bonus shares were received b....
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....e cost of acquisition of any additional financial asset as bonus shares or security or otherwise which is 'allotted to the assessee without any payment and on the basis of holding any other financial asset' shall be taken to be nil. The fact that the bonus shares were allotted to the assessee without payment. It is also not in dispute that the bonus shares were allotted to the assessee on the basis of his holding the original shares. The assessee also admits that bonus shares giving rise to the capital gains were transferred during the previous year 2019-20 relevant to the assessment year 2020-21. 7.4 The issue that arises for consideration is whether, on the facts and in the circumstances of the case, it can be said that bonus shares were 'allotted to the assessee without payment' and on the basis of his holding the original shares so as to bring the case of the assessee within the ambit of sub-clause (iiia). At the outset, it may be mentioned that it has never been the case of the assessee, at any stage of the proceedings either before the authorities below or before us, that he has made any payment to the company for allotment of bonus shares. He has also not led ....
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....ed into share capital. Neither the shareholders to whom the shares are allotted have to pay anything nor does anything go out of the coffers of the company upon allotment of bonus shares. Allotment of bonus shares is not dependent on payment by a shareholder to the company but accrues to him, as of right and by way of bonus, on the basis of his shareholding as and when the company decides to issue the bonus shares. Bonus shares are treated in commercial world as free distribution of shares on the basis of the shares already held. On perusal of "British Master Tx Guide" (1988-89) under the head "Bonus and Rights Issues" at p. 598, as quoted, with approval, in Escorts Farms (Ramgarh) Ltd. v. CIT (1996) 222 ITR 509 (SC), in which it is stated that "Bonus issue are free distribution of shares (e.g. two new shares for each share already held)". Thus, the issue as also the allotment of bonus shares does neither give rise to any obligation on the part of the shareholder to make payment therefor nor is any payment made by the shareholder to the company against such allotment. These aspects are inbuilt in the very nature of bonus issues. In the Departmental Circular also, the position is st....
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...., the High Court is not supposed to legislate indirectly. The court has to read the statute, as it is when the statute is capable of conveying clear and unambiguous simple grammatical meaning.' We are therefore unable to agree with the submission of the Ld. Counsel for the assessee that sub-clause (iiia) would apply in those cases only where bonus shares are 'allotted on or after 1-4-1995' as such a construction requires for its support, addition of words or rejection of words which is not permissible in the face of clear provisions of sub-clause (iiia). In taking this view, we are supported by several judicial authorities, some of which are cited below. 7.8.1 In A. V. Fernandez v. State of Kerala 1957 AIR SC 657, the Hon'ble Supreme Court observed: "As Lord Cairns said many years ago in Partington v. The Attorney General [(1869) 4 H.L 100, 122] :- "As I understand the principle of all fiscal legislation it is this : if the person sought to be taxed comes within the letter of the law he must be taxed, however great the hardship may appear to the judicial mind to be. On the other hand, if the Crown, seeking to recover the tax, cannot bring the subject wit....
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....]. The intention of the legislature is primarily to be gathered from the language used, which means that attention should be paid to what has been said as also to what has not been said. As a consequence, a construction which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. As observed in Crawford v. Spooner (1846) 7 Moo PCC 1: 4 MIA 179, courts cannot aid the legislatures defective phrasing of an Act, we cannot add or mend, and by construction make up deficiencies which are left there. [See State Of Gujarat v. Dilipbhai Nathjibhai Patel [1998] 3 SCC 234: 1998 SCC (Cri) 737: JT (1998) 2 SC 253]. It is contrary to all rules of construction to read words into an Act unless it is absolutely necessary to do so. (See Stock v. Frank Jones (Tipton) Ltd [1978) 1 ALL ER 948: (1978) 1 WLR 231 (HL). Rules of interpretation do not permit courts to do so, unless the provision as it stands is meaningless or of a doubtful- meaning Courts are not entitled to read words into an Act of Parliament unless clear reason for it is to be found within the four corners of the Act itself. (Per Lord Loreburn, LC in Vickers Son....
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....omputation of capital gain as a result of judicial decisions. The aforesaid amendment, therefore, is required to be construed in a manner so as to promote the purpose and object of the amendment. The Legislature wants to adopt a simple method for computation of capital gains with effect from the assessment year 1996-97 by providing that the cost of acquisition shall be taken to be nil in cases falling under sub-clause (iiia). Sub-clause (iiia) has been made specifically applicable with effect from the assessment year 1996-97 requiring thereby that income from capital gains would be computed, with effect from assessment year 1996-97, by taking the cost of acquisition of bonus shares to be nil. 7.10 Further, as rightly pointed by the ld. D.R., while taking aid of the maxim "Generaliaspecialiabus non derogant", the Hon'ble Apex Court in the case of Commissioner of Income Tax, Patiala v. Shahzada Nand and Sons and Ors 1966 AIR 1342, has observed as under: "8. ...Another rule of construction which is relevant to the present enquiry is expressed in the maxim generaliaspecialiabus non derogant, which means that when there is a conflict between a general and a special provi....