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Smt. Protima Roy Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 243 of 1977
Judge
Reported in(1982)27CTR(Cal)275,[1982]138ITR536(Cal)
ActsIncome Tax Act, 1961 - Sections 22, 23, 45, 48, 55 and 55(2)
AppellantSmt. Protima Roy
RespondentCommissioner of Income-tax
Appellant AdvocateS.C. Sen and ;S. Mukherjee, Advs.
Respondent AdvocateD. Pal, ;P.K. Pal and ;A.K. Roy Chowdhury, Advs.
Cases ReferredEisner v. Macomber
Excerpt:
- 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.....
Judgment:

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. : [1964]52ITR567(SC) . 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 : [1967]63ITR651(SC) . 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. : [1964]52ITR567(SC) . 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.'

4. In this connection, it may be appropriate to mention that there is no definite finding as to in which year the original shares were acquired. Be that as it may, it appears that the parties proceeded on the basis that these were acquired a few years before 1967-68, certainly after January 1, 1954 or even after January 1, 1964. In respect of the aforesaid finding for the assessment year 1968-69 the following question has been referred under Section 256(1) of the I.T. Act, 1961 :

'Whether, on the facts and in the circumstances of the case, the determination of the loss on the sale of shares in Jaipur Udyog Ltd. and in Orissa Cement Ltd. at Rs. 75,280 (instead of Rs. 1,49,269) was in accordance with law? '

5. Similarly, for the assessment year 1969-70 the following question has been referred to this court:

'Whether, on the facts and in the circumstances of the case, the determination of the loss on the sale of 1,250 shares of Dubhar Mills Ltd. (1,000 original shares plus 250 bonus shares) at Rs. 19,573 instead of Rs. 26,475 was in accordance with law ?'

6. There was another finding, that is to say, the assessee, besides others, owned four house properties, the details of which were given in the order of the ITO. In the assessment year 1968-69, the assessee realised a gross rent of Rs. 49,857 from those properties and the net assessable income was worked out at Rs. 32,972. On the 10th March, 1968, a firm in the name of Peekay Management was alleged to have been constituted in which there were the following partners :

'1. Smt. Pratima Roy (assessee's wife)

2. Shri P. K. Kundu (assessee's son-in-law)

3. Shri P. K. Kundu (father of the assessee's son-in-law)

4. Shri P. K. Kundu (minor son of assessee's son-in-law and his grandson admitted to the benefits of partnership)'

7. The object of constituting this firm, as mentioned in Clause (3) of the partnership deed dated 10th March, 1968, was to carry on the business in money-lending, share dealing and investment in shares and securities, dealing in property and property estate management, land and building development and builders and contractors, taking properties on lease and sub-letting the same and on such other lines of business as the parties might agree upon from time to time. On 11th March, 1968, that is to say, only the day after the constitution of the partnership, the assessee leased out the aforesaid four properties to the above firm at an annual rent of Rs. 17,940. The claim of the assessee before the ITO was that he was liable to be assessed on the lease rent of Rs. 17,940. The ITO, after pointing out the potentialities of the properties and after stating that the firm of Peekay Management consisted of the assessee's close relatives and also observing that the assessee was not in a position to give any satisfactory explanation why the properties were leased out at a lesser rent to the close relatives held that it was only to divert a portion of the assessee's income. In these circumstances, the ITO estimated the annual value of the property at Rs. 49,857 and determined the assessable income therefrom at Rs. 32,859.

8. There was an appeal before the AAC. He agreed with the finding. He also observed that if the reason was that the management of the properties was proving difficult in view of the assessee's insanity, it was negatived by the fact that the assessee's wife who later on became his guardian as per order of the court and was also present in the firm as one of the partners and if she could manage the properties on behalf of a firm, she could have as well managed those properties for the benefit of her husband, particularly when there was considerable difference between the lease rent and the rent actually received or realised from those properties. The ITO stated that she continued to manage single-handed the business of money-lending and the share dealings and had also income from other sources exceeding Rs. 1 lakh and it was fantastic to suggest that the management of the four houses was proving more onerous and had, therefore, to be entrusted to a separate entity for a nominal consideration. He, therefore, agreed with the findings of the ITO that the transaction was not genuine.

9. Before the Tribunal the contentions raised before the authorities below were again repeated. In this connection it would be appropriate to refer to the observations of the Tribunal at paras. 12 and 13 which are as follows :

'12. We have carefully considered the submissions placed before us on behalf of both the above parties. In our opinion, the orders of the lower authorities require to be upheld. As already pointed out above the firm of Peekay Management came into existence on 10-3-68 and the purpose which is clear to us was to take the properties of the assessee on lease which is also clear from the lease deed executed on 11-3-68, only a day thereafter. The partners in the firm are close relatives of the assessee including his wife. We entirely agree with the observations of the Appellate Asst. Commissioner that it could not be shown how the constitution of the firm and leasing out the properties to it could bring any efficiency in the management of those properties. The assessee's wife was managing and in fact did manage after she was appointed his guardian all his other activities including money-lending and share dealing business and it was really unthinkable that she was incapable of managing the four properties in question whose management was limited to the collection of rent only. Besides, as pointed out by the learned departmental representative, it is not understood how the admission of the minor to the benefits of the said partnership was necessary in the interest of the management of the properties. All these facts conclusively go to prove that the whole management was collusive and not genuine. Besides, there is another significant fact. The assessee had developed signs of lunacy as early as 1939. He became somewhat better but in 1952, his behaviour again became abnormal which was further aggravated after his only daughter left his house after marriage in 1957. Between 1963 to 1967 he became somewhat normal but in 1968 the abnormality increased which resulted into complete lunacy in January, 1969. It is also on record that he had given general power of attorney to his son-in-law as early as 1965 for management of all his affairs which shows that he was not of very sound mind at the time he entered into the disputed lease agreement. The purpose to mention these facts, which are borne out from the assessee's wife's petition filed in the court on 5-3-69, is only to show that the assessee apparently was not very capable, as at the relevant time he was not declared a complete lunatic by any competent court of law. However, merely because he had the legal power does not mean that the arrangement which he made was also genuine. We, therefore, hold that the assessee continued to receive the income from the rented out properties even after 11-3-68 and was the owner of the entire such income. The facade of leasing out the properties was not genuine and has to be disregarded.

13. We also agree with the other contention of the learned departmental representative that the assessee being the owner of the properties he had to be assessed on the bona fide annual value of the properties as determined under Section 23 of the Act, and this value could not have been ignored being the sum for which the property might reasonably be expected to let from year to year. We do not find anything on record to hold that such annual value was not the sum of Rs. 49,857 which admittedly was realised by the assessee in the assessment year 1968-69 and was held to be the annual value in that year. We, therefore, uphold the orders of the lower authorities on this point and dismiss the appeal.'

10. Upon these Under Section 256(2) of the I.T. Act, 1961, for the assessment year 1969-70, questions Nos. 2 and 3 have been referred to this court, which are as follows:

'2. Whether the finding of the Tribunal that the lease dated March 11, 1968, in favour of M/s. Peekay Managements were a facade and not genuine is vitiated by reason of its failure to consider the relevant and material facts on record and is based upon incorrect assumptions of facts and consideration of irrelevant materials and as such is perverse ?

3. Whether, in determining the real annual value Under Section 22 read with Section 23 of the Income-tax Act, 1961, the rent actually received by the assessee should have been taken into account and not the alleged rent which the properties might have fetched '

11. Now, so far as the first question is concerned, in this case, as we have mentioned before, we are concerned with the computation of capital gains and loss in respect of the shares in question. In order to appreciate this contention it will be proper to refer to the assessment order for the assessment years 1968-69 and 1969-70. The relevant order is as follows :

' For assessment year 1968-69 :

During this year the assessee had sold out 24,240 shares of Jaipur Udyog Ltd. (including 4,040 bonus shares) for Rs. 2,27,856 and 15,480 shares of Orissa Cement Ltd. (including 2,580 bonus shares) for Rs. 1,40,868. Thus, the total sale price of the shares amounted to Rs. 3,58,724. The assessee has calculated the cost of the shares at Rs. 5,17,993 and claimed loss of Rs. 1,49,269 in share dealing. But on scrutiny it was detected that the cost of the shares was calculated on an incorrect basis and as per correct basis the cost of the shares came to Rs. 4,44,004 and the assessee's representative, Sri R. C. Das, also accepted the determination of the cost of shares. Hence, the correct loss in share dealing comes to Rs. 75,280.

Rs.Cost price4,44,004Less : Sale price3,68,724

Share dealing loss75,280

Assessee has claimed loss of Rs. 37,877 though the actual loss as per books was only Rs. 30,975. Assessee has claimed loss at a higher figure, as it had valued the bonus shares on an incorrect basis. The authorised representative, Sri Das, admits that the basis of valuation of bonus shares was wrong, the capital loss on shares will be Rs. 30,975. Rs. 30,976.'

12. The Appellate Tribunal in its order has set out the facts which we have referred to hereinabove. The principle upon which capital gains or capital loss has to be computed is on the basis of the terms of the relevant section as explained by the Supreme Court. It appears that Under Section 45, the material part provided that any profits or gains arising from transfer of a capital asset effected in a previous year, save as otherwise provided in certain sections mentioned therein, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. Section 48 provided that the income chargeable under the head 'capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :--

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.

13. The term 'cost of acquisition' is defined in Sub-section (2) of Section 55. Where the capital asset became the property of the assessee by any of the modes specified in Section 49 and the, capital asset became the property of the previous owner before the 1st day of January, 1954, it means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee. This has been substituted later as on 1st January, 1964. We are not concerned with that aspect. Therefore, the difference between the amount obtained by sale or transfer and the difference between the cost of acquisition--the original cost--or the cost as substituted by Sub-section (2) of Section 55, in a case where such provision applied, would be liable to 'capital gains'. This is the meaning of the relevant section. Now, the question has arisen several times as to what would be the cost of acquisition because the assessee has not spent any amount for acquiring the bonus shares. The Supreme Court has more than once dealt with this question which we shall presently see. The principles that emerge from the Supreme Court decisions are where bonus shares are issued in respect of ordinary shares held in a company by an assessee who is a dealer in shares, their real cost to the assessee cannot be taken to bo nil or their face value. They had to be valued by spreading the cost of the old shares over the old shares and the new issue taken together if they rank pari passu, and if they do not, the price might have to be adjusted either in proportion to the face value they bore, if there was no other circumstance to differentiate them or on equitable considerations based on the market price before and after issue. But that is in respect of the cost of acquisition of the bonus shares. But the cost of acquisition of the original shares, that is to say, which is not bonus shares, is different.

14. This question came up for consideration before the Supreme Court in Emerald & Co. Ltd. v. CIT : [1959]36ITR257(SC) . The Supreme Court was dealing with the business of a dealer in shares and the question involved bonus shares. There, at the beginning of the accounting year the assessee held 100 shares in a company which it had purchased for the sum of Rs. 48,359 and 50 bonus shares of the face value of Rs. 250 each. During that year the assessee purchased 200 more shares of the company for Rs. 99,939 and later sold the 300 shares for a total sum of Rs. 1,20,550. At the end of the accounting year the bonus shares remained with the assessee. The assessee claimed a loss of Rs. 35,801 for that year by valuing the bonus shares at their face value whereas the 1TO arrived at a loss of Rs. 27,766 by the method of averaging the price of the shares. The Appellate Tribunal had adopted a third method by which the 50 bonus shares were completely ignored and the loss was arrived at by considering solely the purchase value of the 300 shares and the proceeds realised by their sale. On a reference, the High Court held that the method adopted by the Appellate Tribunal was erroneous and upheld the method of valuation adopted by the ITO. On appeal, the Supreme Court held that for the purpose of assessing the loss for the accounting year the question of proper method of valuing the bonus shares was not relevant as these were not sold and were still retained in the hands of the assessee. It was also held that the method of valuation adopted by the Appellate Tribunal was the correct method and the loss as calculated by the Tribunal was correct and according to the law in the facts of that case. As the facts were distinctly different from the facts in the instant reference, it is not necessary to deal with the said decision. Learned advocate for the Revenue drew our attention to certain arguments advanced on behalf of the assessee where the Supreme Court at p. 260 of the report observed as follows :

'According to Mr. Sachin Chowdhury, who argued the case with great force and ability, the issuance of fully paid bonus shares was nothing but the purchase of such shares by the shareholder, inasmuch as consideration therefor was to be found in the pro tanto diminution of the shareholder's interest in the reserves out of which the bonus shares were issued. The learned Solicitor-General in an equally able reply, relied upon a passage in Eisner v. Macomber [1920] 252 US 189, and contended that the issuance of the bonus shares added nothing to the interests of the shareholders, nor took away anything from the property of the said company. The property of the company was not diminished, nor was the interest of the shareholders increased, the proportional interest of each shareholder remaining the same. According to him, the only change was in the evidence which represented the interest, the new bonus shares together with the original shares representing the same proportional interest which the original shares had, before the issue of the bonus shares. He submitted that, in view of the fact that the bonus shares were still retained by the assessee-company, the profit and loss could be calculated on the basis of the cost of the other shares and their sale price, and the valuation of the bonus shares, whether at face value or at market value, or at nil or even at a notional value, did not outer into the question of the calculation of the loss in the transactions which were gone through with respect to shares actually bought and sold. He accordingly pressed us to leave the question--whether the issuance of the fully paid bonus shares involved an expenditure on behalf of the assessee-company--open for consideration till the bonus shares were actually sold. Till that time, he stated, the valuation in the account books of the company would be adjusted on debit and stock sides by equal entries, whatever they might be.

Mr. Sachin Chowdhury, however, pressed us very earnestly to answer this question, which had been considered by the High Court and answered against the assessee-company. While the question is an important one and may have to be decided in future, we are of the opinion that for the purpose of assessing the loss for the assessment year in question, it is not necessary to deal with this question at all, and that the matter can be adequately disposed of, in the manner in which the Tribunal handled it.'

15. But the Supreme Court found that it was not necessary for them to determine this question. As we have mentioned before the question of the cost of the bonus shares or the question of the cost of the original shares was not an issue before the Supreme Court. Therefore, the ratio of the decision of the Supreme Court will be of no assistance in this case. The question before us was again before the Supreme Court where the Supreme Court categorically laid down that where bonus shares were issued in respect of ordinary shares held in the company by an assessee who was a dealer in shares the real cost to the assessee could not be taken to be nil or their face value. They had to be valued by spreading the cost of the old shares with the new bonus shares if they ranked pari passu. We must bear in mind that this was also a question of valuation of bonus shares. Learned advocate for the Revenue drew our attention to the illustration at p. 582 to highlight the point that the issue of bonus shares decreased the cost of Acquisition of the original shares or at least the Supreme Court proceeded on that basis. It is not necessary for us to examine the illustration in detail. There the Supreme Court was not concerned with the question of the cost of acquisition of the original shares and how it should be taken into consideration in computing the capital gains. The principle regarding the valuation of bonus shares has been clearly laid down by the Supreme Court and that is binding on us. The illustration is not relevant for our present purpose.

16. The next decision of the Supreme Court to which our attention was drawn was the case of Miss Dhun Dadabhoy Kapadia v. CIT : [1967]63ITR651(SC) . There, however, the question was entirely different. The Tribunal has referred to it for a different purpose. But we may incidentally refer to the observations of the Supreme Court at pp. 655-656, where the Supreme Court reiterated that in working out the capital gain or loss, the principles that had to be applied were those which were a part of the commercial practice or which an ordinary man of business would resort to when making a computation for his business purpose. If that principle is applied then the section says that the cost of acquisition is to be taken into consideration. Then in the case of original shares the cost of acquisition must be what it costs to the assessee while acquiring the original shares except and to the extent modified in cases where Sub-section (2) of Section 55 would be applicable.

17. Reliance was also placed on the decision in the case of CIT v. Gold Mohore Investment Co. Ltd. : [1968]68ITR213(SC) . There, the balance-sheet of the assessee-company for the previous year ending on 31st March, 1950, disclosed past losses amounting to Rs. 45,692. The ITO held that such losses resulted from the failure of the assessee to properly account for some bonus shares received by it. It is important to bear in mind that there also the Supreme Court was concerned with the proper valuation of the bonus shares. The ITO valued the bonus share at nil and held that the losses amounted to Rs. 6,509 and thereafter applied Section 23A of the Indian I.T. Act, 1922, to the company and passed an order deeming a sum of Rs. 35,746 to have been declared as dividend. The Appellate Tribunal upheld the order of the ITO. On a reference, inter alia, of the question whether the profits made by the assessee attracted the application of Section 23A, the High Court answered the question in the negative. On appeal, the Supreme Court held that when bonus shares were issued in respect of the ordinary shares held in a company by an assessee, there the cost to the assessee could not be taken to be nil or their face value. The proper method of valuation was to spread the cost of the old shares over the old shares and, the new issues (viz., bonds shares) taken together if they ranked pan passu. The Supreme Court reiterated the same principle in the case of Dalmia Investment Co. : [1964]52ITR567(SC) , referred to hereinbefore. There also the Supreme Court was concerned with the cost of the bonus shares. In the case of CIT v. Gold Co. Ltd. : [1970]78ITR16(SC) , the Supreme Court held that where bonus shares were issued in respect of ordinary shares held by a dealer in shares who valued his stock at cost and the bonus shares ranked pari passu with the ordinary shares, the correct method of valuing was to spread the cost of the ordinary shares over the original shares and the bonus shares collectively and ascertain the average price of those shares. Learned advocate for the Revenue sought to urge that in the previous appeal actually the illustration indicated that the court had proceeded on the basis that the cost of the original shares would be depleted by the subsequent issue of the bonus shares. It would be improper on our part to read in the ratio of the Supreme Court decision from the said illustration as the question of the cost of original shares was not before the Supreme Court. The question had also been previously considered by the Supreme Court as mentioned hereinbefore in the case of CIT v. Gold Mohore Investment Co. Ltd. : [1969]74ITR62(SC) , where also the question of the cost of bonus shares came up for consideration and the Supreme Court reiterated that where bonus shares were issued in respect of ordinary shares held by a dealer in shares who valued his stock at cost and the bonus shares ranked pari passu with the ordinary shares, the correct method of valuing the cost to the dealer of the bonus shares was to take the cost of the original shares, spread it over the original shares and bonus shares collectively and find out the average price of all the shares. There again, as we have mentioned before, the Supreme Court was concerned with the question of the cost of bonus shares in computing the capital gains.

18. We are here concerned with the question as to how the cost of the original shares is to be computed in case bonus shares are issued. How the bonus share is to be computed is not the dispute before us. So far as this question is concerned, namely, how the cost of the original shares would be computed, in our opinion, it must be done with regard to the terms of the section, that is to say, the cost of acquisition of the original shares to the assessee as modified in cases, where applicable, by Sub-section (2) of Section 55. Subsequent deflation or inflation of the value of the shares by a subsequent event would not and cannot alter the original cost to the assessee. The frame of the section does not permit such a theory to attribute the cost to the assessee in respect of the original shares to fluctuate with the value of the shares subsequently by the happening of such an event like the issuing of the bonus shares or otherwise. But this principle, in our opinion, has been clearly enunciated by the Supreme Court in the case of Shekhawati General Traders Ltd. v. ITO : [1971]82ITR788(SC) , where the Supreme Court observed at p. 792 of the report as follows :

'The assessee had exercised the option of the fair market value of the assets. The shares which had been sold by it of both the companies had indisputably become its property before the 1st day of January, 1954. Therefore, all that had to be determined was the fair market value on the 1st day of January, 1954, of those shares. This was duly determined and it was not disputed that that determination was made according to the rates prevailing in the market on the aforesaid date by the Income-tax Officer when he made his assessment order on July 20, 1964. Once the market value of the shares was ascertained or determined on the date given in Clause (i) of Section 55(2) that would be the cost of acquisition in relation to capital assets. Up to this point there is no controversy between the Revenue and the assessee, but, on behalf of the Revenue, an almost startling, position has been advanced that while determining the fair market value on January 1, 1954, the issuance of bonus or right shares after that date on the basis of the holding of the assessee prior to January 1, 1954, should have been taken into account. In other words, as was explained in the letter of the Income-tax Officer dated January 4, 1967, while working out the capital gains, the cost had to be worked out by averaging the cost of the original shares amongst the original shares and the bonus shares taken together. Thus, according to the Revenue, after the issue of bonus shares the cost of the original holding had to be spread over all the shares inclusive of the bonus or the right shares acquired on the original holding. Support for this view appears to have been found in the decision of this court in Commissioner of Income-tax v. Dalmia Investment Co. Ltd. : [1964]52ITR567(SC) .'

19. The Supreme Court thereafter at p. 793 observed as follows :

'The High Court completely overlooked the fact that for the ascertainment of the fair market value of the shares in question on January 1, 1954, any event prior or subsequent to the said date was wholly extraneous and irrelevant and could not be taken into consideration. If the contention of the Revenue were to be accepted the acquisition of bonus shares subsequent to January 1, 1954, will have to be taken into account which on the language of the statute it is not possible to do.'

20. What the Supreme Court was saying, according to learned advocate for the Revenue, was only in the context of Section 55(2). We are unable to agree. What the Supreme Court was laying down about the language of the statute applied also to Section 45 as modified by Section 55(2) of the Act in cases where such section was applicable. This has also been reviewed by this court in the case of Sutlej Cotton Mills Ltd. v. CIT : [1979]119ITR666(Cal) , where the learned advocate for the assessee had contended before the court at p. 675 as follows :

'Mr. R.N. Bajoria, learned counsel for the assessee, contended, on the other hand, on the authority of Shekhawati General Traders Ltd. : [1971]82ITR788(SC) , that the cost of acquisition of the original shares was immutable. It can be either the actual cost of acquisition or at the choice of the assessee the market value thereof on the 1st January, 1954. The latter value would only he substituted as permitted by the statute and would be deemed to be the cost of acquisition. Once this election was made, subsequent issue of bonus shares would have no effect on the cost of acquisition of the original shares and the capital gains on the transfer of such original shares had to be calculated on such cost. He submitted that the decision of the Supreme Court in Dalmia investment Co. Ltd. : [1964]52ITR567(SC) , was applicable to the valuation of bonus shares only and not for computation of capital gains when original shares are transferred. He submitted further that in the said decision the computation of the Supreme Court was not for the purpose of calculation of capital gains but for the calculation of profits earned or loss suffered.'

21. In our opinion, this represents the correct position as enunciated by the Supreme Court, as mentioned hereinbefore. The Division Bench in that case also observed at. 677, that the learned advocate for the Revenue sought to draw a distinction to the effect that the original cost of acquisition would ordinarily be diluted by a subsequent issue of bonus shares, but if the assessee exercised its option and elected to treat the cost of acquisition of its original shares at the market value as on 1st January, 1954, then such subsequent issue of bonus shares would not affect the said opted cost. The court noted that this apparent distinction did not appeal to them. We arc in respectful agreement with this view of the court. In a recent unreported judgment of this court, to which I was a party, in Income-tax Reference No. 174 of 1976, CIT v. Steel Group Ltd., delivered on February 23, 1981 (since reported in : [1981]131ITR234(Cal) ), my Lord Mr. Justice Guha observed as follows (p. 238) :

'Thus, having regard to the principle enunciated by the Supreme Court that while computing the capital gains the assessee was concerned with the cost of acquisition, that is, the price which was paid by the assessee for acquiring the capital asset on the date it was acquired subject to such adjustments as laid down under Section 55, the assessee has no concern with what would be the value of that asset on some subsequent occasion, in other words, subsequent events need not be taken into consideration. The ratio of this decision is followed by Division Bench of this court in the case of Sutlej Cotton Mills Ltd. v. CIT : [1979]119ITR666(Cal) , though there may be some factual discrepancy, with which we are not concerned'. Mr. Balai Pal also referred to the decision of the Bombay High Court in the case of W.H. Brady & Co. Ltd. v. CIT : [1979]119ITR359(Bom) . But having regard to the ratio of the Supreme Court decision and the Calcutta High Court decision referred to above, this decision has got no application.'

22. Our attention was drawn to an unreported decision of mine in Income-tax Reference No. 272 of 1977 (CIT v. Kishore Trading Co. Ltd.--since reported in : [1982]138ITR527(Cal) ) judgment delivered on April 21, 1981, the precise question with which we are confronted in this case was not directly at issue. Therefore, it is not necessary for us to refer to the said decision in any detail. But there is no single judgment which militates against the view we are expressing herein. In that view of the matter and having regard to the fact that there is no other controversy before us, we are of the opinion that the Tribunal was in error in the view it took on this aspect of the matter. The question No. 1 for the assessment year 1968-69 must be answered in the negative and in favour of the assessee. Similarly, question No. 1 for the assessment year 1969-70 is in the negative and in favour of the assessee.

23. So far as questions Nos. 2 and 3 for the assessment year 1969-70 are concerned, we have set out the facts and the circumstances as mentioned hereinbefore. It is true that what is apparent has to be taken as real unless the contrary is shown and the onus is on the party which does not accept the apparent to be correct. But in this case we are not concerned with the theory of onus. It is also true that there is no direct evidence that the assessee did in fact have the beneficial enjoyment of the entire rent income after the alleged agreement with the partnership firm dated 11th March, 1968. But the Tribunal has taken into consideration all the relevant and material facts that the so-called partnership firm which is supposed to be managing the assessee's house properties consisted of the assessee's wife, assessee's son-in-law, father of the assessee's son-in-law and the minor son of the assessee's son-in-law, that is to say, the grandson of the assessee. This fact has to be taken in conjunction with the fact that the other properties of the assessee were being managed by the assessee's wife.

24. In the background of the facts of the case we cannot hold that the Tribunal has not considered all the aspects of the matter and if that is so, then it is not proper for this court to interfere with that finding of fact. In this connection reliance may be placed on the observation of the Supreme Court in the case of Bhaichand Amoluk & Co. v. CIT : [1962]44ITR511(SC) . In that view of the matter we are of the opinion that the Tribunal was right in the view it took on this aspect of the matter.

25. Therefore, question No. 2, so far as the assessment year 1969-70 is concerned, must be answered in the negative and in favour of the Revenue. Question No. 3 is answered by saying that in determining the real annual value under Section 22 read with Section 23 of the I.T. Act, the rent receivable should be taken into consideration and not the amount actually supposed to have been received by the assessee. This question is answered in favour of the Revenue. The Tribunal was also right on this aspect of the matter.

26. In the facts and circumstances of the case, each party will pay and bear its own costs.

Sudhindra Mohan Guha, J.

27. I agree.


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