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Commissioner of Income-tax, Central, Calcutta Vs. Gold Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtSupreme Court of India
Decided On
Judge
Reported inAIR1969SC1183; [1970]78ITR16(SC)
ActsIncome-tax Act, 1922 - Section 66A(1)
AppellantCommissioner of Income-tax, Central, Calcutta
RespondentGold Co. Ltd.
Excerpt:
- [ m. hidayatullah, c.j.,; a.n. grover,; g.k. mathur,; j.c. shah and; v.r. ramasw, jj.] - income-tax act, 1922 - section 66a(1) -- the cost value of these shares was rs. 61, 200. on april 30, 1948, 100 bonus shares of the face value of rs. 100 each were issued. these bonus shares were to rank pari passu with the old shares. on january 10, 1949, the assessee-company sold the original shares for rs. 19, 600. the assessee-company calculated the loss valuing the bonus shares at their face value......the assessment year 1949-50. the account year opened with 100 shares of budge jute co. ltd. of the face value of rs. l00 each. the cost value of these shares was rs. 61, 200. on april 30, 1948, 100 bonus shares of the face value of rs. 100 each were issued. these bonus shares were to rank pari passu with the old shares. on january 10, 1949, the assessee-company sold the original shares for rs. 19, 600. the assessee-company calculated the loss valuing the bonus shares at their face value. the method of calculation is as followsdr. sold cropening stock 100 19-1-49 (100) rs. 19, 600sh. (old) rs. 61, 200 sh. (old)30-4-48 by crediting closing stock rs. 10, 000capital reserve a/c 100 bonus shwith the face valueof bonus shares loss to p & l a/c rs. 41, 600received free of cost(100) shares @.....
Judgment:

HIDAYATULLAH C. J.

This case arises from the judgment and order of the High Court of Calcutta dated August 27, 1963, in Income-tax Reference No. 66 of 1954. The case has been certified to this court under section 66A(1) of the Income-tax Act, 1922 The assessee-company is a dealer in shares. The company maintains its books on the cost basis and values the opening and closing stock at cost. The account year (financial year) involved in this appeal is the year ending March 31, 1949, corresponding to the assessment year 1949-50. The account year opened with 100 shares of Budge Jute Co. Ltd. of the face value of Rs. l00 each. The cost value of these shares was Rs. 61, 200. On April 30, 1948, 100 bonus shares of the face value of Rs. 100 each were issued. These bonus shares were to rank pari passu with the old shares. On January 10, 1949, the assessee-company sold the original shares for Rs. 19, 600. The assessee-company calculated the loss valuing the bonus shares at their face value. The method of calculation is as follows

Dr. Sold Cr

Opening stock 100 19-1-49 (100) Rs. 19, 600

sh. (old) Rs. 61, 200 sh. (old)

30-4-48 by crediting Closing Stock Rs. 10, 000

capital reserve a/c 100 bonus sh

with the face value

of bonus shares Loss to P & L a/c Rs. 41, 600

received free of cost

(100) shares @ Rs. 100

each Rs. 10, 000

Rs. 71, 200 Rs. 71, 200

The Income-tax Officer valued the shares as follows

Dr. Sold Cr

C.S. 100 sh. old 19-1-49 100 sh. old Rs. 19, 600

Rs. 61, 200 C.S. 100 sh. Bonus Rs. 30, 600

------------------ Loss to P & L a/c Rs. 11, 000

Rs. 61, 200 --------------------

------------------ Rs. 61, 200

The appeal to the Assistant Commissioner failed. On appeal to the Tribunal, the Tribunal spread the original cost of the 100 shares to the 200 shares (new and old) and held that the cost of the original shares was Rs. 30, 600 and calculated the loss accordingly. The Tribunal referred the following question to the High Court"Whether, in the facts and circumstances of the case herein stated, the assessee can add Rs. 10, 000, being the face value of bonus shares issued to it free of cost on the basis of its old holdings, as the cost of its shares of Budge Budge jute Co. Ltd. and, secondly, whether the closing stock of the bonus shares can be valued at the face value of these shares, namely, Rs. 10, 000 ?"

The High Court, following its own decision in Income-tax Reference No. 54 of 1950 decided on the same day, held in favour of the assessee. According to the High Court the bonus shares had to be taken to have cost according to their face value. The present appeal is filed against the decision of the High Court as stated above. In Commissioner of Income-tax v. Gold Mohore Investment Co. Ltd. (Civil Appeals Nos. 1236-1237 of 1967) we have today decided that the correct method is the one stated in the majority opinion in the Dalmia's case. In other words, the Tribunal's method was the correct method in the case. We, accordingly, answer the question that the Tribunal's method was the correct method of spreading the price of the old shares over the old and the new shares and calculating the profit or loss accordingly. Our detailed reasons are given in the Gold Mohore Investment Co. Ltd.'s case. The appeal will, therefore, be allowed with costs

Appeal allowed.


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