HIDAYATULLAH, C. - (1.) THE Judgment of the court was delivered by
(2.) . These are two appeals by the Commissioner ofIncome-tax, central, Calcutta, against Messrs. Gold Mohore InvestmentCo. Ltd. and arise out of Income-tax Reference 65/54, decided by theCalcutta High court on 27/08/1963. The point involved in the appealsis the valuation of bonus/shares in the assessment years ending 31/03/1950 and 1951, respectively. The previous years corresponding to theassessment years were the financial years ending 31/03/1949 and 1950,respectively. . The Assessee Company is a dealer in shares. Its method of valua.tion at the opening and closing of the stocks is to value shares at cost. In theAssessment year 1949-50 the Company held 2.500 shares of the facevalue of Rs.10.00 each in the Howrah Mills Co. Ltd. They had been purchas-ed at Rs. 85.00 per share and the total cost to the Assessee Company was Rs.2,12,500.00. In June, 1948, bonus shares were issued by the Howrah MillsCo. Ltd. in proportion of three shares for every two original shares. The bonusshares were to rant fan passu with the old shares. As a result, the AssesseeCompany obtained 3,750 shares of the face value of Rs. 10.00 each. On 2/08/1948, the Assessee Company sold the original shares for Rs. 72.087/8/-,i. e. at about Rs. 29.00 per share. On 18/03/1949, the Assessee Companysold 3,750 shares for Rs. 95,250.00, that is to say, at Rs. 25.00;- per share.The Assessee Company computed a loss of Rs. 84,041/12/. It calculatedthe loss in the following manner : JUDGEMENT_460_2_1969Html1.htm The bonus shares when they were issued were included in the tradingaccount. According to the Assessee Company the bonus shares had fetchedas profit Rs. 95,250.00 less the face value of the shares, Rs. 37,500.00. This462 profit was set off against the loss on the original shares Rs. 2,12,500.00 lessRs. 72,087/8/-, giving the overall loss of Rs. 84,041/12/-, as stated above. . The Income-tax Officer did not accept this mode of calculation.According to him the loss was Rs. 46,541-12-0 as follows JUDGEMENT_460_2_1969Html2.htm On appeal to the tribunal as to which method was correct, the Tribu-nal accepted the method of valuation of the Income-tax Officer.
(3.) . In the Assessment year 1950-51, the account year being 1949-50,the Assessee Company held 122 first preference shares of Fort Gloster JuteCompany Ltd. which had cost to the Assessee Company Rs. 22,883/12/-.In the year of account there was an issue of bonus shares (second preference)and the Assessee Company received 137 shares of the face value of Rs. 100.00 each.' The Assessee Company sold 125 shares (second preference) for Rs.14,500.00. It was therefore, left with 122 shares (first preference) and 12 shares(second preference). The Assessee Company returned a profit of Rs. 1,997.00as follows: JUDGEMENT_460_2_1969Html3.htm It will be seen that the cost of bonus shares was shown at the face valueof the shares plus minor charge of Rs.3.00. Rs. 13,703.00 were credited tocapital reserve. The Income-tax Officer spread out the cost of 122 1stpreference shares (Rs. 23.883/12/-) over the 122 shares (first preference) and137 shares (second preference). He worked out the average cost at463Rs. 92./3/6 per share and found the profit to be Rs. 2,973.00. His method ofcalculation was as follows : JUDGEMENT_460_2_1969Html4.htm The tribunal confirmed the assessment as made by the Incom-tax Officer.It may be pointed out that the Appellate Assistant Commissioner had in eachcase confirmed the order of the Income-tax Officer. . The Income-tax Appellate tribunal then made a reference i.o theHigh court and referred the following questions for the determinationof the High court :1949-50; "Whether in the facts and circumstances herein stated the assesseecarrying on share dealing business, can add Rs. 37,500.00 being theface value of bonus shares issued to it free of cost on the basis of itsold share-holding, as cost of its share-holding for the purpose of deter-mining loss in dealing in Howrah Mills Co. Ltd. shares ?"1950-51: "Whether in the facts and circumstances herein stated, the assesseecarrying on share dealing business, can add Rs. 13,700.00 being theface value of bonus shares issued to it free of cost on the basis of its oldshare-holdings, as cost of its share-holding for the purposes of determiningprofit in dealing in Fort GlosterJute Co. shares ?." The High court, by its judgment, dated 27/08/1963, following itsdecision in Income-tax reference No. 54/1960 (from which Civil Appeal No.1239 of 1967 is also being decided today), held in favour of the Assessee Com-pany. The High court purported to follow a decision of the Patna High courtreported in Dalmia Investment Company Lid. v. Commissioner of income-tax,Bihar .;