DIVAN, J. - (1.) IN this reference at the instance of the Revenue, the following question has been referred to us by the Tribunal : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that while calculating the annual letting value of the property in question in the occupation of the owner for the purpose of his residence, municipal taxes have to be deducted ?"
(2.) AT the time when the Revenue applied for reference to the High Court. the question for which the reference was sought were four in all. The other three questions which the Tribunal declined to refer to the High Court were : "(1) Whether, on the facts and in the circumstances of the case, the bonus shares in respect of ordinary shares held by the assessee in the company must be valued spreading the cost of the old shares over the old shares and the bonus shares taken together as both rank pari passu, as held by the Supreme Court in CIT vs. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC) ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the ratio the decision of the Supreme Court in Shekhawati General Traders ltd. vs. ITO 1972 CTR (SC) 120 : (1971) 82 ITR 788 (SC) applied to the facts of this case ? (3) Whether, on the facts and in the circumstances of the case, the loss computed by the AAC and confirmed by the Tribunal on the sale of bonus shares held by the assessee in the company was erroneous in law ?" The CIT has by the Income tax application, which we are now disposing of, that the three questions which were not referred by the Tribunal on the ground that they were questions of fact and application of law in the light of the facts of the particular case, particularly the law as explained by the Supreme Court in CIT vs. Dalmia Investment Co. Ltd. (supra) and Shekhawati General Traders Ltd. vs. ITO (supra), to direct the Tribunal to draw up a statement of the case and to raise and refer to this Court the three questions which the Tribunal declined to refer. Since both these matters arise out of one and the same order of the Tribunal, we will dispose of both the matters by this common judgment.
(3.) THE assessment year under consideration is 1965 66. The assessee is an individual and he derives income from property, business, dividend and directors' fees. During the year under reference the assessee claimed capital loss of Rs. 95,371 in respect of investment in shares. This loss, inter alia, included capital loss of Rs. 1,01,100 on sale of 700 shares of Raipur Manufacturing Co. Ltd. The ITO noticed that prior to January 1, 1954, the assessee was holding 260 shares in this company and he, therefore, accepted the contention of the assessee that he was entitled to substitute fair market value as on January 1, 1954, as the cost of acquisition of the said 620 shares. The ITO, however, observed that after January 1, 1954, the assessee receive 1,860 bonus shares in the ration of three bonus shares per every one share held by him. Thus, the total shares held by him before the beginning of the previous year relevant to the year under reference was 2,480 shares, that is, 620 original plus 1,860 bonus shares. The assessee contended before the ITO that for the purpose of the capital gains, the fair market value as on 1st Jan., 1954, of Rs. 670 per share should be substituted as cost under S. 55(2) of the IT Act, 1961. Ultimately, what the assessee was claiming was that the market value of 620 shares t Rs. 670 per share as on 1st Jan., 1954 was Rs. 4,15,400. The value of 80 bonus shares, according to the assessee, was nil and taking the sale price of 700 shares at Rs. 449 per share, that is, Rs. 3,14,300, the capital loss which was claimed in connection with these 700 shares was Rs. 1,01,100. The ITO rejected the claim of the assessee regarding the mode of calculating the capital loss and, according to the ITO, the fair market value of 700 shares taken together as on 1st Jan., 1954, at Rs. 167.50 per share came to Rs. 1,17,250 and he, therefore computed capital gain at Rs. 1,97,050. The assessee took the matter in appeal before the AAC who determined the capital loss at Rs. 1,01,900. The market value of 620 shares as on 1st Jan., 1954, was held to be Rs. 4,15,400. The AAC held that remaining 80 shares out of the 700 shares which were sold during the relevant year were bonus shares received by the assessee after 1st Jan., 1954. He ascertained that originally the assessee had acquired 248 shares at the cost of Rs. 24,800 and between the date of the original issue and January 1, 1954, 372 bonus shares were issue without he result that the 248 shares originally held by him had become 620 shares (248 plus 372). Therefore, the AAC took the cost of 80 bonus shares at Rs. 10 per share, that is, Rs 24,800 original cost of acquisition, spread over the total of 2,480 shares held on the first day of the previous year and he added the cost of these 80 bonus shares, that is, Rs. 800 to the market value of 620 shares as on 1st Jan., 1954. Thus, he calculated the total value of 700 shares (620 plus 80) at Rs. 4,16,200 and deducting the sale proceeds of Rs. 3,14,300 from this figure, he ascertained the capital loss at Rs. 1,01,900. The matter was carried in appeal before the Tribunal and the Tribunal, following the decision of the Supreme Court in Shekhawati General Traders Ltd. vs. ITO (supra), rejected the contention of the Revenue that the cost of acquisition on the basis of substituted value as on 1st Jan., 1954, under the provisions of s. 55(2) of the Act has to be calculated by averaging the value of original shares and bonus shares taken together, even thought he bonus shares were issued after January 1, 1954. The first three questions which all arose out of this part of the decision of the Tribunal were not referred to this High Court and the question is, whether we should issue any directions in the Income tax application regarding these three questions pertaining to the bonus issue. In CIT vs. Dalmia Investment Co. Ltd. (supra), the Supreme Court held that where bonus shares are issued in respect of ordinary shares held in a company by an assessee who is a dealer in shares, their real cost to the assessee cannot be taken to be nil or their face value. The majority of the learned judges constituting the Bench held that these shares have to be valued by spreading the cost of old shares over the old shares and the new issue (viz., the bonus shares) taken together if they rank pari passu, and if they do not, the price may have to be adjusted either in proportion to the face value they bear (if there is no other circumstances to differentiate them) or an equitable considerations based on the market price before and after issue. The Tribunal has found that the bonus share issued in this company were to rank parti passu and, thereof, the AAC and the Tribunal have accepted the contention of the assessee that the 80 bonus shares which were the balance of the 700 shares should be valued at Rs. 10 per share. Even the 629 shares were not the original shares. Those 620 shares consisted of 248 original shares and 372 bonus shares. Therefore, the original cost of acquisition of the old shares or the original 248 shares, namely, Rs. 24,800 had to be spread over the total number of shares as at the commencement of the previous year and it seems to us that all that the AAC and the Tribunal have done in this case is to apply the principle laid down by the Supreme Court in CIT vs. Dalmia Investment Co. Ltd. (supra) to the facts of this case and once it is found as a matter of fact, that the old shares and the new shares were to rank pari passu, the only way the cost of 80 bonus shares could have been ascertained was in the manner in which the AAC made his calculations. Under these circumstances it seems to us that the Tribunal was right in declining to refer the three questions arising out of the sale of the 700 shares and the valuation of the 80 bonus shares. We, therefore decline to issue any directions to the Tribunal regarding the three questions which were not referred and in respect of which Income tax Application No. 46 of 1975 has been made to this Court. Rule issued. The Income tax application of July 7, 1975, is, therefore discharged with no order as to costs.;