N.L. Dash, J.M. - (1.) THIS appeal has been filed by the revenue and there are eight grounds of appeal as follows: (i) "For that learned Commissioner (Appeals) was wrong in holding that excess of sale proceeds over purchase price or adjusted purchase price of shares was taxable capital gains under section 45 of the Income Tax Act, 1961". (ii) "For that learned Commissioner (Appeals) was wrong in holding that sale of bonus shares resulted into taxable capital gains under section 45 of the Income Tax Act". (iii) "For that learned Commissioner (Appeals) was wrong in confirming disallowance of service charges of Rs. 1,58,600". (iv) "For that learned Commissioner (Appeals) was wrong in confirming disallowance of travelling expenses of Rs. 55,044". (v) "For that learned Commissioner (Appeals) was wrong in confirming levy of interest under sections 234A, 234B and 234C of the Income Tax Act". (vi) "For that learned Commissioner (Appeals) was wrong in not admitting additional grounds and confirming the assessment order and demand notice which were not in accordance with the law". (vii) "For that learned assessing officer may be directed to allow refund of tax paid with interest thereon". (viii) "For that the appellant seeks kind permission to raise new contention and grounds of appeal".
(2.) So far as the first and second grounds of appeal are concerned, the learned authorised representative emphatically stated that in order to attract capital gains, the precondition is cost of acquisition and cost of improvement. In order to substantiate his case, he cited certain case-laws in favour of the same which are analysed here as under one by one : CIT v. Home Industries & Co. (1977) 107 ITR 609 (Bom) This case-law relates to attractability of capital gains on self-generated goodwill and the Honble Bombay High Court has held that in case of the same, there was no transfer or sale of goodwill so as to attract section 12B(1) of the 1922 Act. (ii) Evans Fraser & Co. Ltd. v. CIT (1982) 137 ITR 493 (Bom) In this case, the Honble Bombay High Court has held the income chargeable to capital gains, tax is to be computed by deducting from the full value of the consideration "the cost of acquisition of the capital assets and the cost of any improvement thereto", since the cost of improvement of goodwill cannot be ascertained, gains arising on its transfer would not be liable to tax under section 12B. (iii) CIT v. Octavious Steel & Co. Ltd. (1996) 221 ITR 810 (Cal) In this case the Hon'ble Calcutta High Court has held that the cost of acquisition of an asset, be it a capital asset or any other asset must be understood in its commonsense that is, it must represent the expenditure incurred in acquiring the asset. The learned authorised representative drew our attention to the specific simplified procedure for computation of capital gains on transfer of bonus shares containing in the Finance Bill, 1995 and published in 212 ITR 357 (statute portion). On perusal of the same, it will be clarified that the cost of bonus share will be taken as nil for computation of capital gains on sale of bonus shares. For ready reference and better appraisal of the same, the said procedure is quoted as hereunder : "Simplified procedure for computation of capital gains on transfer of bonus shares Bonus shares are received by an existing shareholder without making any further payment. At present, cost of acquisition of these shares is taken on the basis of principles laid down by the Supreme Court in the case of CIT v. Dalmia Investment Company Ltd. (1964) 52 ITR 567 (SC). It has been held that the cost of a bonus share is to be determined by averaging the cost of the original shares and bonus shares. Computation of the cost of bonus shares on the principle of averaging, however, is not a simple job and has led to a number of difficulties. For the sake of clarity and simplicity, section 55 is being amended to provide that the cost of bonus shares will be taken as nil for computation of capital gain on sale of bonus shares. This would not affect the cost of original shares. This procedure will also be applicable to any other security where a bonus issue has been made. The period of holding of the bonus asset will be reckoned from the date of allotment of such asset. These amendments will take effect from 1-4-1996, and will, accordingly apply in relation to assessment year 1996-97 and subsequent years (Clauses 3 and 14)." The learned authorised representative further drew our attention to the case-laws in the case of CIT v. Pushparaj Singh (1998) 232 ITR 754 (MP), wherein at page 756, the Honble M.P. High Court has totally agreed with the Income Tax Appellate Tribunal that the cost of acquisition of shares was nil to the assessee and, therefore, no capital gain could be levied thereon. (iv) CIT v. Sakarlal Balabhai & Co. Ltd. (1996) 222 ITR 486 (SC)_ In this case, the Honble Apex Court has given direction to give reasoning regarding rejection of application under section 256(2) relating to attractability of capital gains on bonus shares. (v) Escorts Farms (Ramgarh) Ltd. v. CIT (1996) 222 ITR 509 (SC) In this case, the Honble Apex Court explained the procedure for computation of cost of bonus shares on the basis of spreading over of the cost of original shares and the Honble Apex Court has held that this method would apply to Dealers and Investors in shares. The Apex Court ultimately agreed with the High Court in this case that subsequent issue of bonus shares had the affect of altering the original costs of acquisition of shares. In reply to the learned authorised representative contention, the learned Departmental Representative cited certain case-laws, which are also analysed as hereunder : Learned Departmental Representative in the course of the hearing emphatically stated that CIT v. B. C. Srinivasa Setty (1981) 128 ITR 294 (SC) does not have relevance in the case, since it relates to goodwill and the learned authorised representative has been reiteratedly relied on the same while arguing his case. Learned Departmental Representatives citations : Escorts Farms (Ramgarh) Ltd.s case (supra). The learned Departmental Representative specifically drew our attention to page 522 of this case wherein the Honble Apex Court has held that "there is no dichotomy as to whether the shares are held by investors or dealers in shares. In both the cases, it is surplus receipt that is brought to tax either is capital gains or Profit & Loss as the case may be and in accordance with the relevant statutory provisions. (a) CIT v. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC) (b) CIT v. Dalmia Investment Co. Ltd. 74 ITR 62 (SC) (sic) In both these case-laws, the Honble Apex Court have held that in case of dealer in shares, who values his stock at cost, but bonus shares stood in ordinary share held by him pari passu with the original shares. The correct method of value the cost to the dealer of the bonus share is to take the cost of original shares, spread it over the original shares and the bonus shares collectively and find out the average price of all the shares. After hearing both the rival submissions and analysing the case-laws as above cited by both the sides, we are of the considered opinion that in respect of bonus shares, the cost of the same should be treated as nil in view of the clarification made in the Finance Bill, 1995 and in 212 ITR (statute portion) 357. Although the clarificatory amendment took effect from 1-4-1996 as per the said statute portion and it does not relate to the relevant year under consideration, i.e., for the assessment year 1992-93 to the instant case, yet considering the amendment to be clarificatory in nature and treating the same to be crystal clear legislative intention, it is deemed proper to treat the cost of bonus share as nil in the case of the assessee. In case of original shares, however, the cost of acquisition or the market price as on the date of transfer whichever is higher has to be treated as the cost of acquisition for the purpose of computation of capital gains tax.
(3.) THE 3rd ground of the assessee relates to confirmation of disallowance of service charges of Rs. 1,58,600. On a perusal of the assessment order alongwith the order of the Commissioner (Appeals) and after hearing the rival submissions on this point, I beg to differ from my brother-Member so far as allowability of service charges to Shri Sanjiv Taneja and Shri Vijay Kumar Surana is concerned. Despite the assessing officers query for filing details and asking for the I.T. File Nos., the same could not be furnished by the assessee in course of the hearing of the assessment proceedings. I totally agree with the contention of the assessee that business might have increased to a greater extent with the help of the services taken by Shri Taneja and Shri Surana. But under the provisions of the Income Tax Act, objective satisfaction of the assessing officer is the sine qua non of the principles of law. Since no documentary evidence in support of the services rendered by the persons concerned has been filed at the assessment stage, I totally agree with the learned Commissioner (Appeals) in confirming the disallowance.;