Sudhindra Mohan Guha, J. - (1.) The question posed before us in this reference is as follows : " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that in computing the income chargeable under the head 'Capital gains' arising from the sale of original 1,22,400 shares of M/s. Coles Cranes of India Ltd., the cost of acquisition of the shares to be deducted under Section 48 of the Income-tax Act, 1961, should be taken at Rs. 10 per share and not Rs. 4.80 per share as taken by the Income-tax Officer ? "
(2.) The assessee was a limited company and the reference related to the assessment year 1972-73. The assessee-company was the owner of 1,22,400 shares of the face value of Rs. 10 each in M/s. Coles Cranes of India Ltd. which was acquired on 17th October, 1960, for Rs. 12,24,000 at the rate of Rs. 10 per share. On these shares, 1,32,600 bonus shares of the face value of Rs. 10 each, which ranked pari passu with the original shares, were issued on 24th March, 1970, free of cost. On 29th October, 1971, the assessee sold out the entire original 1,22,400 shares and 2,600 bonus shares for a total consideration of Rs. 17,35,000 (i. e., at Rs. 13.88 per share) to an Indian company, M/s. Tractors India Ltd. The assessee-company showed the capital gain on the sale of these shares in the return as follows: JUDGEMENT_234_ITR131_1981Html1.htm
(3.) The ITO, however, while computing the capital gains held that the cost of acquisition of both the original and the bonus shares should be determined by spreading the cost of the original shares to both the original shares and the bonus shares together. The ITO, therefore, worked out the cost of acquisition of both the original shares and the bonus shares at Rs. 4'80 per share and worked out the capital gains, both long-term arising out of the sale of the original shares and short-term arising out of the sale of the bonus shares, at Rs. 9.08 (Rs. 13.88 minus Rs. 4.80) per share. In this way, the ITO determined the long-term capital gains at Rs. 11,11,392 and the short-term capital gains at Rs. 23,608.;