SENGUPTA, J. - (1.) IN this reference under S. 256 (1) of the Income -tax Act, 1961 ('the Act') for the asst. yr. 1981- 82, the following question of law has been referred to this Court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the price which the assessee paid in acquiring 9,600 equity shares of Ion Exchange (India) Ltd. on 17th July, 1964 would be the cost of acquisition under S. 48 of the IT Act, 1961, for the purpose of determining the capital gains arising to the assessee on sale of the said shares during the previous year relevant for the asst. yr. 1981-82?"
(2.) SHORTLY stated, the facts are that the assessee is a non-resident company. It acquired 1,50,000 shares of Ion Exchange (India) Ltd. of the face value of Rs. 10 each on 17th Aug., 1964, In acquiring the aforesaid shares the assessee paid Rs. 14 lakhs in cash in respect of 1,40,000 shares and the balance 10,000 shares were allotted to the assessee for consideration other than cash. Subsequently, between 6th Sep., 1971 and 28th Aug., 1979 the assessee received from the said company bonus shares aggregating in all to 2,34,000 shares on the following dates: The total holding of the aforesaid shares by the assessee thus came to 3,84,000 (1,50,000 plus 2,34,000) . In the asst. yr. 1981-82 for which the previous year was the calendar year 1980. The assessee sold 9,600 equity shares of the said company Ion Exchange (India) Ltd. out of those 1,50,000 shares which included 10,000 shares for which it did not pay any cash. The ITO in computing the capital gains arising on sale of these shares was of the view that the cost of acquistion of the shares sold was nil. The ITO by following the Supreme Court decision in the case of CIT vs. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC) worked out the cost of acquisition of the shares sold by spreading the initial cost Rs. 14 Lakhs over the total numbers of shares held by the assessee including bonus shares aggregating to 3,84,000 and thereby determined the cost of acquisition of the shares at Rs. 35,040 at the rate of Rs. 3.65 per share. The shares were sold for a consideration of Rs. 2,05,440. The ITO worked out the long-term capital gain at Rs. 1,67,200 by deducting Rs. 38,240, being the cost of acquisition of the shares together with the expenditure incurred on transfer of shares from the sale price of Rs. 2,05,440.
(3.) BEFORE the CIT (A) , the assessee disputed the cost of acquisition of the shares determined at Rs. 35,040. It was contended that the assessee had been allotted 10,000 equity shares in lieu of technical known-how supplied by the assessee and, therefore, the ITO was wrong in stating that the cost of acquisition of the shares was nil. It was further urged that the shares were acquired on 17th Aug., 1984 and the cost incurred by the assessee on that date in acquiring the shares should have been taken into account by the ITO. The CIT (A) held that the ITO was wrong in determining the cost of acquisition of the shares on the basis of averaging the cost of original shares and the bonus shares received thereon. He held that the price which the assessee paid for acquiring 9,600 equity shares on the date of acquisition would be the cost of acquisition for the purpose of computing the capital gains.;