C.I.T.AMRITSAR vs. M/S GAJA NAND DALMIA & SONS

ITR/125/1990HC Punjab & HaryanaPHHC01021552199007 May 2007Author: MR. JUSTICE M.M. KUMAR,MR. JUSTICE RAJESH BINDAL2 pages
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What did the High Court hold?

The High Court held that the Income-tax Appellate Tribunal was correct in its determination of the cost of bonus shares. The Court relied on the Supreme Court's judgment in Escorts Farms (Ramgarh) Ltd. v. Commissioner of Income-Tax, (1996) 222 ITR 509, which affirmed the principle that the cost of acquisition of original shares should be spread over original and bonus shares, and then averaged. This principle was also followed in subsequent cases like Master Sumanth Ramanujam and another v. Commissioner of Income Tax, (2001) 248 ITR 818. Therefore, the Tribunal's approach of averaging the cost of original and bonus shares by dividing the total cost by the total number of shares was upheld. The question of law was answered against the revenue and in favour of the assessee. The reference was disposed of accordingly.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Amritsar Bench, passed an order in I.T.A. No.204 (ASR)/1987 on June 30, 1989, for the assessment year 1982-83. The Commissioner of Income-tax, Amritsar (the revenue), challenged this order. The core of the dispute concerns the method of determining the cost of bonus shares for calculating capital gains. The ITAT had previously ruled on this matter, and the revenue sought to contest it. The High Court of Punjab and Haryana was asked to provide its opinion on a question of law referred by the ITAT.

What were the issues?

1. Whether, on the facts, the Income-tax Appellate Tribunal has been right in law in holding that the cost of bonus shares was to be taken on the basis of the average of the cost of original shares and bonus shares by dividing the actual cost of original acquisition and the cost of subsequent acquisition by the total number of shares held (original, bonus, and right shares) for working out the capital gain under Section 55 of the Income-tax Act, 1961? Assessee's Contention: The assessee relied on the principles laid down by the Supreme Court in Commissioner of Income Tax, Bihar v. Dalmia Investment Co. Ltd., (1964) 52 ITR 567, and the Delhi High Court in Escorts Farms (Ramgarh) Ltd. v. Commissioner of Income Tax, New Delhi, (1983) 143 ITR 749. These judgments supported the method of spreading the cost of original shares over both original and bonus shares. Revenue's Contention: The revenue challenged the ITAT's order, implying disagreement with the method of calculating the cost of bonus shares as determined by the Tribunal.

Which sections of the Income-tax Act were involved?

Section 55

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-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

**** Date of Decision:07.05.2007 The Commissioner of Income-tax, Amritsar .....Petitioner Vs. M/s Gaja Nand Dalmia & Sons, 12, Lawrence Road, Amritsar .....Respondent CORAM:- HON'BLE MR. JUSTICE M.M.KUMAR HON'BLE MR. JUSTICE RAJESH BINDAL Present:- Mr. Sanjiv Bansal, Advocate for the petitioner- revenue. Ms. Radhika Suri, Advocate for the respondent. **** Rajesh Bindal, J. The following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (for short, `the Tribunal') arising out of order passed by it in I.T.A. No.204 (ASR)/1987 dated 30.6.1989, for the assessment year 1982-83:- “Whether on the facts, the Income-tax Appellate Tribunal has been right in law in holding that the cost of bonus shares was to be taken on the basis of average of cost of original shares and bonus shares by dividing the actual cost of original acquisition and the cost of subsequent acquisition by total number of shares held by the purchase of original shares,

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