R. Jayasimha Babi, J. - (1.)DURING the assessment year 1973-74, the assessee sold 500 shares in Madras Motor and General Insurance Company Limited, of which, the assessee had acquired 25 shares prior to fanuary 1, 1954, and in respect of which the assessee was entitled to opt for treating the fair market value as on January 1, 1954, as the cost of acquisition under Section 55(2) of the Income-tax Act, 1961. The assessee exercised that option. The assessee had received bonus shares in the subsequent years which were relatable in part to the shares subsequently purchased by the assessee, and in part relatable to the shares held prior to January 1, 1954. It is not in dispute that 17 bonus shares received in subsequent years are1 relatable to the 25 shares held by the assessee prior to January 1, 1954.
(2.)WHILE computing the capital gains, the Income-tax Officer did not assign any value to the bonus shares. He, however, adopted the cost as given by the assessee for the other shares which was the statutory cost for 25 shares, and the cost of acquisition of the shares purchased in the subsequent years. That order having been confirmed by the Commissioner, the assessee appealed to the Tribunal which held that the bonus shares were required to be assigned a value by spreading the cost of acquisition over the original shares and the bonus shares, but in respect of the shares held prior to January 1, 1954, the cost of acquisition of shares could not be disturbed. The Tribunal also held that the actual cost of acquisition for the shares held subsequent to January 1,1954, should also be left undisturbed.
The Supreme Court in the case of Sbekhawati General Traders Ltd. v. ITO , has held that for the purpose of determining the fair market value of the shares held prior to January 1, 1954, by an assessee, the subsequent issue of bonus shares in respect of the shares so held is not to be taken into account. The court held that the fair market value of the shares held on January 1, 1954, cannot be reduced by spreading that value over the shares held as on that date, and the shares subsequently received as bonus shares.

In the case of Escorts Farms (Ramgarh) Ltd. v. CIT , it was held by the court that the bonus shares cannot be regarded as having no value, or given their face value while determining the capital gain. It was held that the value of the bonus shares has to be determined by spreading the cost of the old shares over the old shares and new shares. However, while so holding, the court distinguished the case before it from that of Shekhawati General Traders Ltd.'s case , as no question of considering the manner in which the statutory cost of acquisition of shares held prior to January 1, 1954, arose for consideration in the case of Escorts Farms '(Ramgarh) Ltd.'s case . The principle laid down, in the case of Shekhawati General Traders Ltd.'s case was left undisturbed.

This court in the case of CIT v. T. V. S. and Sons Ltd. [1983] 143 ITR 644, held that when all the shares, the original as also the bonus shares, are sold, there is no need for calculating the value of the bonus shares for determining the cost of acquisition. That was not a case where the assessee had held shares prior to January 1, 1954, in respect of which he had opted to have the statutory cost assigned in those shares.

It is clear that having regard to the law laid down in the case of She-khawati General Traders Ltd.'s case , that the value of the shares held prior to January 1, 1954, cannot be disturbed, the asses-see having opted to have the fair market value of that asset as on January 1, 1954, as the cost of acquisition. The value of the bonus shares subsequently received which are relatable to those shares cannot be regarded as being without any value. Their value has to be determined by spreading that statutory cost over the 17 shares. Thus, while the 25 shares acquired prior to January 1, 1954, are to be assigned the statutory cost as the cost of acquisition, the bonus shares acquired are also to be given a value by spreading that cost over the number of shares. In so far as the shares acquired subsequent to January 1, 1954, are concerned, the shares purchased, as also the bonus shares relatable thereto are to be valued by spreading the cost of acquisition of the shares purchased over the shares so purchased, as also the bonus shares relatable thereto. The Tribunal was not right in having left undisturbed the cost of acquisition of the shares purchased after January 1, 1954.

(3.)THE assessee through his counsel has placed before us a working of the values by applying the method set out in the preceding paragraph. THE difference in the amount of the capital gain worked out in that manner, and the capital gain as determined by the Income-tax Officer is only Rs. 155. In place of the amount determined by the Income-tax Officer, the amount of capital gain for the purpose of taxation shall be the sum of Rs. 66,301 and the tax liability of the assessee is to be calculated accordingly. We make this direction as the working placed before us has been accepted as correct by the Revenue.