Sabyasachi Mukharji, J. - (1.) This is a reference relating to two assessment years, viz., the assessment years 1968-69 and 1969-70. The assessee owned 20,200 shares in Jaipur Udyog Ltd., 12,900 shares in Orissa Cement Ltd. and 1,000 shares in Dubhar Mills Ltd. It appears, during the assessment year 1967-68, the assessee received 2,580 bonus shares from Orissa Cement Ltd. totalling 15,480 holding shares in that company. In the assessment year 1968-69, the assessee received 4,040 bonus shares in Jaipur Udyog Ltd. also and the shareholding in this company thus became 24,240. In the assessment year 1968-69, the assessee sold away the entire shareholdings in the Jaipur Udyog Ltd. and Orissa Cement Ltd., and claimed to have suffered a loss of Rs. 75,280 as compared to the reduced cost of the shares at which these were purchased by the assessee from time to time. In the assessment year 1969-70 the assessee also received 250 shares from Jaipur Udyog Ltd. which raised the assessee's holding in that company to 1,250 shares. These shares were also sold by the assessee in the same assessment year at a loss of Rs. 19,573 with reference to the cost price of the original shares. Before the ITO it was claimed that the loss suffered was higher inasmuch as the sale also included the bonus shares which had to be valued separately in view of the decision of the Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. The ITO, however, rejected this claim and determined the loss on the figure stated above.
(2.) There was an appeal before the AAC. He agreed with the ITO's findings in both these years.
(3.) Being aggrieved by the said order, the assessee went up in appeal before the Tribunal. There, the assessee repeated its claim and it was argued before the Tribunal that the sales included the bonus shares but this had to be separately valued in accordance with the principles laid down by the Supreme Court in the above-mentioned case, which value had to be added to the cost of the original shares and the resultant losses required to be allowed in the computation of the assessee's income. The Tribunal, after considering the rival contentions, held, inter alia, as follows : "In our opinion, the claim of the assessee cannot be accepted in view of the subsequent decision of the Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT . In this case, the question arose about the valuation of the assessee's rights to apply for certain new shares with an option of either taking the shares or renouncing them, wholly or partly, in favour of others. The assessee renounced her right to all the shares and realised Rs. 45,262. When this amount was sought to be taxed as a capital gain, it was claimed that on the issue of new shares, the value of the assessee's old shares depreciated. Since market quotation of the old shares fell as a result of this depreciation, she suffered capital loss in the old shares to the extent of Rs. 37,630, which she was entitled to set off against the capital gain of Rs. 45,262. It was held that she was entitled to deduct from the sum of Rs. 45,262, the loss suffered by way of depreciation in the old shares. The court made the following observations in this connection (at p. 655): 'The value of the right may be measured by setting off against the appreciation in the face value of the new shares the depreciation in the old shares and, consequently, to the extent of the depreciation in the value of her original shares, she must be deemed to have invested money in acquisition of this new right. A concomitant of the acquisition of the new right was the depreciation in the value of the old shares, and the depreciation may, in a commercial sense, be deemed to be the value of the right which she subsequently transferred.' It was also observed by the court that the above view of theirs found support from the principle laid down in the case of CIT v. Dalmia Investment Co. Ltd. In view of the above judgments of the Supreme Court it has to be held that with the issue of the bonus shares there was depreciation in the value of the assessee's original shares and, therefore, his claim that the value of the bonus shares should be separately added to the original cost of the original shares cannot be accepted. In our opinion, in the circumstances of the case, the lower authorities were justified in holding that the value of the entire holding of the assessee was equal to the cost of the original shares. This ground, therefore, fails in both the years.";