- (1.) ON an application under S. 256(1) of the IT Act, 1961, the Tribunal has referred the following questions set out at p. 7 of the paper book. "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in applying the ratio of the judgment of the Supreme Court in CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) : TC 20R.148 in holding that the bonus shares were not capital assets under S. 2(14) and the sale thereof does not give rise to capital gains liable to tax under ss. 45 and 48 of the Act ? 2. Whether the Tribunal was right in its view that Srinivasa Setty's case has effected a change in the legal position hitherto obtaining since CIT vs. Dalmia Investment Co. Ltd. (1964) 52 ITR 567 (SC) : TC 2R.377 with regard to capital gains on sale of bonus shares and in that view exempting the surplus arising out of the sale of bonus shares from capital gains tax?"
(2.) THE assessee M/s. Harsh Chemicals Ltd. is a company. The relevant assessment year is 1992- 93. The assessee has 55,000 equity shares in M/s Russell Industries Ltd. The shares were purchased in the account year relevant to the asst. yr. 1994-95 (sic). In respect of those shares the assessee was allotted bonus shares on 27th May, 1991, in the ratio 1:1. Thus, the assessee obtained 55,000 bonus shares. All these shares were sold in two lots on 27th Aug., 1991, and 3rd Sept., 1991, for a total consideration of Rs. 3,91,82,000. A subsidiary part of the sale price was deposited in the units under the Capital Gains Scheme, 1983, in order to claim exemption of the entire capital gain under S. 54A. The AO has seen that the bonus shares were held by the assessee for a very short period, that is less than a year and, therefore, they give rise to short-term capital gains and the second reason for assessing the capital gain tax on bonus shares was that they have the average cost. Therefore, the case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) : TC 20R.148 has no application. In appeal before the CIT(A) the CIT(A) has upheld the view taken by the AO. In appeal before the Tribunal, the Tribunal has followed the decision of the apex Court in the case of CIT vs. B.C. Srinivasa (supra) and allowed the appeal of the assessee holding that in view of the decision of the apex Court in the case of Srinivasa Setty (supra) bonus house shares were not capital assets within the meaning of S. 2(14) of the said Act. Therefore, the sale thereof does not give rise to capital gains liable to tax under S. 45 of the Act.
(3.) NONE appeared for the assessee. Heard the learned counsel for the Revenue.;