Paripoornan, J. - (1.) The appellant, a private limited company, is an Assessee to Income-tax. It derives income from investment, agriculture and brick kiln business. It is an investor in shares. In the assessment years 1967-68 and 1968-69, the relevant previous years ending on 30th June 1966 and 30th June 1967, the assessee sold shares of Escorts Limited and declared the capital gains that accrued therefrom. The Income-tax Officer did not accept the cost of acquisition of the shares, as returned by the assessee and worked out the capital gains in a different manner. The computation made by the Income-tax Officer regarding the original shares was confirmed by the Appellate Assistant Commissioner and the Appellate Tribunal. In so doing, the Appellate Tribunal relied upon the decision of this Court in Commissioner of Income-tax, Bihar vs. Dalmia Investment Co. Ltd., (1964) 52 ITR 567. At the instance of the appellant-assessee, the Income-tax Appellate Tribunal referred the following two questions of law for both the Assessment Years under Section 256(1) of the Income-tax Act for the decision of the High Court of Delhi."1. Whether on the facts and in the circumstances of the case the Tribunal was justified in determining the cost of acquisition of the original shares, by spreading the original cost over the original and the bonus shares and then averaging the same and on that basis working out the capital gain at Rs. 32,1OO/- and Rs. 12,450/- for the assessment years 1967-68 and 1968-69, respectively 2. If the answer to question No. 1 is in the negative, whether the assessee was justified in taking the value of the shares at their original cost under Section 45 of the Income-tax Act, 1961 -
(2.) The question that arose for decision was, how the cost of the acquisition of the original shares should be determined for the purposes of capital gains tax. After referring to the relevant decisions, the High Court held that the valuation made by the revenue regarding the cost of the original shares is proper and valid in the facts and circumstances of the case. Question No. 1 was answered in the affirmative and in favour of the revenue. The High Court declined to answer question No. 2. It is the aforesaid decision of the High Court 23-4-1982, which the assessee has assailed in these appeals. The decision of the High Court is reported in (1983) 143 ITR 749 (Delhi).
(3.) We heard counsel. At out request, Dr. Gaurishanker, Senior Advocate also addressed us and brought to out notice certain decisions and passages from various text-books. The short question that arises for consideration is, how the cost of acquisition of the original shares is to be determined when bonus shares are issued subsequently It is common ground that the appellant admittedly purchased the original shares after 1954. Such shares were sold subsequently. Since the acquisition was after 1954, the option of taking the fair market value as on 1-1-1954, does not arise. According to the appellant, for determining the capital gains that accrued when the original shares were sold, the cost of acquisition should be taken at "actual cost". The subsequent issue of bonus shares is of no consequences and will not have the effect of altering the original cost of acquisition of the shares. The High Court declined to accept this plea. It was held that once the bonus shares are issued, it has impact on the original shares; it has the effect of altering the cost of original shares. It was so held by placing reliance on the decisions of this Court reported in C. I. T. vs. Dalmia Investment Co. Ltd., (52 ITR 567), C. I. T. vs. Gold Mohare, Investment Co. Ltd., 74 ITR 62, C. I. T. vs. Gold Company Ltd., (1970) 78 ITR 16, and distinguishing the cases of this Court reported in Emerald and Co. Ltd. vs. C. I. T., (1959) 36 ITR 257 and Shekhawati General Traders Ltd. vs. I. T. 0., 82 ITR 788.;