TaxTMI 
TaxTMI 
2003 (11) TMI 290
X X X X Extracts X X X X
X X X X Extracts X X X X
....ining the addl. Ground of appeal with regard to the sale price of 1400 shares of ITC Classic Finance which was wrongly taken at page-2 of the assessment order at Rs. 3,19,754 in place of Rs, 2,41,606 as per statement filed by the appellant. The observation of the CIT(Appeals) in this respect reading as "It is a subsequent observation which is not very apparent from the assessment order filed by the appellant before me" is irrelevant and misleading. This mistake is apparent with reference to the sale figure shown in the statement filed by the appellant with the return and the figure adopted by the Assessing Officer in the Asst. order." "(b) That in any case the unintended addition of Rs. 78,148 by wrongly taking the sale price of ITC Classic Finance shares at Rs. 3,19,754 is wrong and unjustified and the CIT(A) should have deleted such addition." "3. That the appellant craves leave to alter, amend, modify any of the grounds and/or tale additional ground/s before or at the time of this appeal." Ground No.1: Cost of Acquisition of Bonus Shares for Computing the Capital Gains 2. Briefly stated, the facts of the case, as relevant to the first ground of appeal, are that the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; -------------- 3. The Assessing Officer, however, assessed the entire sale value of the aforesaid shares, i.e., Rs. 2,89,560 as long term capital gain liable to tax in the hands of the assessee by taking the cost of acquisition as NIL in terms of the following provisions of sub-clause (iiia) of clause (aa) of sub-section (2) of section 55 of the Income-tax Act, 1961 which has been inserted by the Finance Act, 1995 with effect from the assessment year 1996-97 ['sub-clause (iiia)' in short]. "Meaning of "adjusted", "cost of improvement" and "cost of acquisition". 55. (1) (2) For the purposes of sections 48 and 49, "cost of acquisition", - (a) (aa) in a case where, by virtue of holding a capital asset, being a share or any other security, within the meaning of clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) (hereinafter in this clause referred to as the financial asset), the assessee- (A) becomes entitled to subscribe to any additional financial asset; or (B) is allotted any financial asset without any payment, then, subject to the provisions of sub-clauses (l) and (ii) of clause (b),- (i) (ii) (iii) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of shares, original as well as bonus, stood determined when the assessee received the bonus shares on the basis of the law then prevailing. It is on the basis of the cost so determined that the assessee had paid the tax on capital gains upon sale of original shares in assessment year 1995-96 which, he contended, could not be disturbed now as it would cause double taxation. Three, the determination of cost of acquisition of bonus shares in terms of the law then prevailing, which the Department also accepted while determining the capital gain in assessment year 1995-96, had the effect of vesting a right in the assessee that the remaining half of the cost would be allowed to him against the sale of bonus shares. He further contended that a right which stood vested in him before sub-clause (iiia) came into force could not be taken away as the said sub-clause has not been given retrospective effect to cover the transactions concluded before 1-4-1995. He has placed reliance on the decision in CIT v. Kumudam Endowments [2000] 242 ITR 159 (Mad.). 6. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below. 7. We have heard the parties....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... effect from assessment year 1996-97. Thus, under the pre-amended law, it was section 48 that required the cost of acquisition of bonus shares to be adopted for determining the capital gain on bonus shares till assessment year 1995-96 while, under the amended law effective from assessment year 1996-97 the cost of acquisition of bonus shares is statutorily 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 paradigm shift in the statutory mode for the computation of capital gains in respect of bonus shares with effect from assessment year 1996-97. The cost of acquisition of bonus shares has to be statutorily taken to be nil if the conditions of sub-clause (iiia) are fulfilled in cases involving computation of capital gains with effect from assessment year 1996-97. 9. 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s to what was the law in force in assessment year 1996-97 and whether the impugned assessment is in conformity with that law. Both the parties agree that sub-clause (iiia) was undoubtedly in force in assessment year 1996-97. Sub-clause (iiia) mandates that, for the purposes of sections 48 and 49, the 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 and received by him on 17-11-1994 is not in dispute. 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 (i.e., on or after 1-4-1995 but on or before 31-3-1996) relevant to the assessment year under appeal. 11. 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'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nto line with the true excess of assets over liabilities. The necessary money is already available with the company in the form of free reserves. It is this money which is converted into bonus shares with the result that the undistributed profits lying with the company in the form of free reserves get permanently ploughed back into the business and converted 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. Please see "British Master Tax 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 he....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The plain and natural meaning of the term "allotted" (a past tense) as occurring in sub-clause (iiia) is that the factum of allotment of bonus shares should have taken place in the past. The said term is neither restricted nor qualified nor followed by any date and hence we are inclined to insert or read any date after the aforesaid term, as contended by the assessee. We do not think that the plain words of sub-clause (iiia) are capable of any such interpretation as suggested by the learned counsel for the assessee. In CESC Ltd. v. Dy. CIT(No.2) [2003] 263 ITR 402(Cal.), p.416, the Hon'ble jurisdictional High Court has held: "In, the absence of any restrictions provided within the scheme of Chapter XV, the court is not supposed to read something, which is otherwise not permissible. While interpreting a provision, 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....injustice do not and cannot have any bearing for rejecting the natural construction." 20. In Shiv Shakti Co-op. Housing Society v. Swaraj Developers [2003] 6 SCC 659, pp. 669-70, the Hon'ble Supreme Court held: "19. It is a well-settled principle in law that the court cannot read anything into a statutory provision which is plain and unambiguous. A statute is an edict of the legislature. The language employed in a statute is the determinative factor of legislative intent. Words and phrases are symbols that stimulate mental references to referents. The object of interpreting a statute is to ascertain the intention of the legislature enacting it. 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 def....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the date of allotment of such an asset. 30.4 These amendments will take effect from 1st April, 1996 and will, accordingly, apply to the securities transferred on or after 1st April, 1995: 22. The Board's Circular highlights that sub-clause (iiia) has been inserted with effect from 1-4-1996 in order to overcome certain difficulties and the problem of complexity in working out the cost of bonus shares and consequential computation 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. 23. This brings us to the next submission of the learned counsel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it by the rule against retrospectivity. In our view, the Assessing Officer, in the present case, has not applied the law retrospectively but only prospectively, i.e., in assessment year 1996-97 after the law had come into force and in respect of the assessment year for which it was made specifically applicable. In view of the above, the question of applying the rule against retrospectivity does not arise in the present case. 25. Besides, the rule against retrospectivity, one of the rules of interpretation of statutes, cannot hold the ground and defeat the express provisions of sub-clause (iiia) when it is being prospectively applied after it has come into force and in accordance with the provisions contained therein. As already observed above, the provisions of sub-clause (iiia) are clear and unambiguous and hence any other rule of construction including the rule against retrospectivity cannot be imported to alter the plain meaning of the said provisions. In Pandian Chemicals Ltd. v. CIT [2003] 262 ITR 278, p. 281 (SC), the Hon'ble Supreme Court has held that there was no scope for importing any rule of interpretation when the words used in the provision were unequivocal. The Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te action i.e., acquisition of the asset being transferred should also take place within the same assessment year. Thus, the other part of the action requisite for computation of capital gains (i.e., acquisition) is necessarily drawn from a time antecedent to the transfer of the asset. Both the requisite actions may not necessarily take place within the same assessment year. However, the law to be applied is the one in force in the assessment year in which capital gain and tax thereon is required to be computed. Can it then be said that sub-clause (iiia) becomes retrospective only because a part of the requisites (i.e., allotment of bonus shares without payment) for its action (i.e., computation of capital gains) is drawn from a time antecedent to its passing? In our view, the answer is no. And, in this view we are supported by innumerable judicial authorities, some of which are cited below. 28. In Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [2000] 5 SCC 694 the Hon'ble Supreme Court has quoted, with approval, the following passage from the "Principles of statutory Interpretation" (by Hon'ble Justice G.P. Singh, 7th Edn., 1999, at p.369): "The rule against retrospective co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lder of the inam has made an alienation. The words "has made" in sub-section (2)(a)(i) take in all alienations past and future and not only future alienations or alienations made after the section came into force. If there has been any alienation at any time the first ground exists and the inam may be resumed under section 44-B. The word "has failed- in sub-section (2)(a)(ii) and the words "has ceased- and "has become" in sub-section (2)(a)(iii) similarly authorise resumption of the inam if the other grounds exist though they may have arisen earlier. Section 44-B(2) is in its direct operation prospective as it authorises only future resumption after it came into force. It is not properly called retrospective "because a part of the requisites for its action is drawn from a time antecedent to its passing." 31. In Kapur Chand Jain's case, the Apex Court observed: "Mr. Iyengar argues that section 9(1)(ii) applies prospectively and the conduct of the tenant prior to the enactment of section 14-A cannot be taken into account. In our opinion, the conduct of the tenant prior to the coming into force of the new section can be taken into account. No doubt a statute must be applied pros....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssion being a new one it can only be prospective in operation and cannot be extended to employees who have already retired. It is true that it is prospective in operation in the sense that the extra benefit can be claimed only after August 29,1984, that is the date of issue of the government order. But it certainly looks backward and takes into consideration the past event that is the period of service under the Central Government for purposes of computing qualifying service because such additional service can only be the service rendered prior to the date of issue of the government order. By doing so that government order will not become an order having retrospective effect. It still continues to be prospective in operation. Whoever has rendered service during any past period would be entitled to claim the additional financial benefit of that service if he is alive on September 29,1984 under the government order but with effect from August 29,1984." 36. The learned Counsel for the assessee has placed heavy reliance on the judgment in CIT v. Kumudam Endowments [2000] 242 ITR 159 (Mad.). In Kumudam Endowments case, the opening sentence of the judgment states that the Revenue, in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... part of the requisites for its action is drawn from a time antecedent to its passing". A little later, it is explained that, while Parliament has competence to make the provisions of an Act of Parliament retrospective, "...no rule of construction is more firmly established than this - that a retrospective operation is not to be given to a statute so as to impair an existing right or obligation otherwise than as regards a matter of procedure, unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in a language which is fairly capable of either interpretation, it ought to be construed as prospective only'. Maxwell on the Interpretation of Statutes (12th Edition) contains a passage to like effect at pages 215 to 219. We may also refer to a passage from the Principles of Interpretation of Statues by G.P. Singh (Fourth Edition) where the learned author warns against a departure from the ordinary meaning of the words used in a statute merely on grounds of hardship, injustice or absurdity. At page 81, he points out: "...considerations of hardship, injustice or absurdity as avoiding a particular construction is a rule wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessment is concerned, and it is the eligibility of the assessee with reference to the law applicable in that year that is required to be looked into." "The Tribunal has rightly stated in para 3 of its order, while rejecting the Revenue's application for reference that it had recorded a categorical finding that till 31st March, 1993, it could not be said that the trust had invested its funds contrary to the provisions of section 11 (5) of the Act, since the legislature had allowed time till 31st March, 1993, to reinvest such investments in accordance with the provisions of section 11 (5) of the Act by inserting the proviso (iia)." 37. As evident from the above, the facts before the Hon'ble Madras High Court in the aforesaid case were materially different from those in the assessee's case before us. However, the observation of the Hon'ble Court that "it is the-assessment year with which the assessment is concerned, and it is the eligibility of the assessee with reference to the law applicable in that year that is required to be looked into" assists the Revenue more than the assessee because, in the present case, this is exactly what the Assessing Officer has done. Another obs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tive amendments through sub-clause (iiia) has put the assessee in a disadvantageous position inasmuch as he was not allowed the full cost of acquisition against original shares while computing the capital gains thereon in assessment year 1995-96 on the premises that he would be allowed the remaining cost of acquisition against the sale of bonus shares. This may be so as it is not possible for the Legislature to envisage all the situations that may arise in future. We cannot, however, fill the legislative gaps. 40. We are, therefore, unable to agree with the learned Counsel for the assessee that sub-clause (iiia) should be interpreted in a manner that excludes its applicability to the cases where the bonus shares were allotted before 1-4-1995 as such a construction would be contrary to the plain and unambiguous words of sub-clause (iiia) as also to the expressed object of the statute which seeks to provide for a simple method of computation of capital gains in the case of bonus shares w.e.f. assessment year 1996-97 in order to overcome certain difficulties and complexities arising out of the judicial decisions. We, therefore, hold that the computation of capital gains as done by ....