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🍒 Understanding Long-Term vs. Short-Term Capital Gains Tax Rates

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If your equity gains are less than Rs100,000 in a financial year, you can breathe easy. | Planning to sell bonus shares? Watch out for LTCG tax


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Budget 2018 Update: 10% Long Term Capital Gains Tax on sale of Shares and Mutual Funds held for more than 1 year. ———————————-Capital Gains Tax on sale of shares/mutual funds is levied based on the nature of the Capital Gain.


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When the shares are sold there will be a capital gains tax charge on the employees based on any uplift in value between the price paid and the price achieved on sale. Capital gains are currently taxed at 18% as opposed to 40% for income, so there is a clear attraction for the employees.


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The main reason was that judgment of the Supreme Court in another case CIT v.
The court held that there is inherent cost of acquisition in case of Bonus shares, although it looks apparently that no price was paid https://us-park.info/bonus/maxi-bonus-panamericano.html the shareholder.
Thus now nullifying the decision of Supreme Court in another case CIT v.
A case named DEPUTY COMMISSIONER OF INCOME TAX vs.
The submission of the assessee was that on account amendment which has been carried out to clear doubt, the benefit of same should be given to the assessee.
When we examined this contention of the assessee, we found that the amendment is operative from 1st April, 1996.
It has no retrospective effect.
Now The judgment of the Apex Court in the case of B.
Srinivasa Setty again can be invoked and thus the views of CA Dev Kumar Kothari at thread can be upheld.
Cost means An amount that has to be paid or given up in order to get something thus it includes anything given up, When one gets bonus shares 1:1, the price of Original shares normally will be half, thus cost of bonus shares will be half cost of Original shares reduced proportionately.
This method is mentioned in a Supreme court decision named Commissioner of Income Tax, Bihar Vs.
On this though not directly related, but support this view, another decision of Supreme Court named Hunsur Plywood Works Ltd Vs.
Commissioner of Income Tax Decided On: 19.
So cost of bonus shares should be half the price reduced, it will drastically reduce the short term capital gain.
CIT Relied On Commissioner of Income-tax v.
Maneklal Chunilal and Sons Ltd.
The King Discussed Commissioner of Inland Revenue v.
Blott Mentioned Osborne H.
Inspector of Taxes v.
Distinguished Commissioners of Inland Revenue v.
Fisher's Executors Mentioned Commissioner of Income-tax, Bengal v.
Mercantile Bank of India Limited Mentioned Commissioner of Income-tax v.
Rex Discussed Commissioner of Inland Revenue v.
John Blott Mentioned Bouch v.
Sproule Mentioned Nicholas v.
Commissioner of Taxes of the State of Victoria Distinguished Eisner v.
Macomber Discussed Case Note: Direct Taxation — bonus shares - Sections 2 and 66 1 of Indian Income-tax Act, Unemployment Relief Tax Assessment Act, 1933 and Finance Act, 1962 - question is how to determine cost of acquisition of bonus shares for ascertaining profits made on sale of them — Apex Court held, bonus shares can be valued by spreading cost of old shares over old shares and bonus marino 1 issue taken together if shares rank pari passu - when they do not price may have to be adjusted either in proportion of face value they bear or on equitable considerations based on market price before and after issue.
Industry: Finance JUDGMENT A.
This matter has come before us on a case stated by the Income-tax Appellate Tribunal.
The question is how to determine the cost of acquisition of bonus shares for ascertaining the profits made on a sale of them.
The assessment year concerned is 1949-50 for which the accounting year is the calendar year 1948.
The assessee held shares by way of investment and also as stock in trade of his business as a share dealer.
We are concerned in this case only with its holdings of ordinary shares in Rohtas Industries Ltd.
In 1944 the assessee acquired 31,909 of these shares at a cost of Rs.
In that month the Rohtas Industries Ltd.
Between that time and December 31, 1947, the assessee sold 14,650 of the original shares with the result that on January 1, 1948 it held the following shares :- a 17,259 original shares acquired in 1944, b 31,909 bonus shares issued in January 1945, c 59,079 newly issued shares acquired in the year 1945 after the issue of the bonus shares and d 2,500 further shares acquired in 1947.
The total holding of the assessee on January 1, 1948 thus came to 1,10,747 shares which in its books had been valued at Rs.
In arriving at this figure the assessee had valued the bonus shares at the face value of Rs.
On January 29, 1948, the assessee sold all these shares for the total sum of Rs.
It is this return which has led to this appeal.
The Income-tax Officer held that the assessee was not entitled to charge as the cost of acquisition of the article source shares a sum equivalent to their face value for nothing had in fact been paid and he computed their cost at Rs.
In adopting this procedure the Income-tax Officer purported to follow the decision of the Bombay High Court in Commissioner of Income-tax v.
Maneklal Chunilal and Sons Ltd.
The Bombay High Court later following this case in Emerald and Co.
On that basis he held that the assessee had made a profit of Rs.
On appeal the Appellate Assistant Commissioner held that theses shares were not investment shares but formed the assessee's stock in trade on which it was liable to pay income-tax and not capital gains tax.
He also held that the assessee having adopted the method of valuing the stocks at cost and no price having actually been paid for the bonus shares, it must be held that there was an inflation in the opening stock by Rs.
This figure, it mat be observed, represented the cost of the bonus shares at their face value.
In his opinion the bonus shares had to be valued at nil.
The appellate Commissioner's conclusion was that the assessee was liable to be taxed on a trading profit of Rs.
Those view was confirmed on a further appeal to the Appellate Tribunal.
It is however not clear whether the Tribunal held that there had been a trading profit or capital gains.
This matter does not seem to have been raised at any stage after the Appellate Commissioner's order and is not material to the real question that has to be decided.
After the Tribunal's judgment the assessee got an order from the High Court directing the Tribunal to refer the following question to it : "Whether on the facts and circumstances of the case the profit computed at Rs.
The answer to this question admittedly depends on the cost of acquisition, if any, to be properly attributed to the bonus shares.
If the Appellate Commissioner's method of valuing them at nil was wrong, the question had to be answered in the negative.
The High Court, following the judgment of Lord Sumner in Swan Brewery Company Limited v.
The King 1914 A.
The observations of Lord Summer which he later expressed more fully in Commissioner of Inland Revenue v.
Blott 1921 2 A.
I shall consider the view expressed by Lord Sumner later.
Now, I wish to notice another case on which the High Court also relied and that was Osborne H.
Inspector of Taxes v.
I do not think that the observations of Lord Greene M.
All that was there said was that when fully paid shares were properly issued for a consideration other than cash, the consideration must be at the least equal in value to the par value of the shares and must be based on an honest estimate by the directors of the value of the assets acquired.
In that case fully paid shares had been issued in lieu of stocks and the question was as to how the stocks were to be valued.
That case had nothing to do with the issue of bonus shares or the ascertainment of the cost of their acquisition.
As I have said earlier, Lord Sumner's observation it Blott's case 1921 2 A.
The other learned Judges, excepting Lord Dunedin, who took a somewhat different view to which reference is not necessary because it has not been relied upon, held that when the articles of a company authorise the issue of bonus shares and transfer of a sufficient amount out of the accumulated profits in its hands representing their face value to the share capital account, what happens when the articles are acted upon is a capitalisation of the profits and the bonus shares issued are not in the hands of the share-holder income liable to tax.
In Blott's case 1921 2 A.
Lord Sumner on the other hand held that since a company could not issue shares for nothing nor pay for them out of its profits, it must be held that what happened in such a case was as if the company had issued cash dividend to the shareholder and had set if off against the liability of the shareholder to pay for the bonus share issued to him.
I think the preferable view is that taken by the majority of the Judges.
When the articles permit the issue of bonus shares and the transfer of undivided profits direct to the share capital account, it cannot be said that a cash dividend must be deemed to have been declared which could be set off against the liability to pay for the shares.
This is not what was done in fact.
What in fact was done, and legally done, was to transfer the profits to the share capital account by a resolution passed by the majority of the shareholders so that the shareholders never acquired any right to any part of it.
The view taken by the majority has since been followed unanimously, and even if it was open to doubt, for myself, at this distance of time, I would not be prepared to depart from it : Commissioners of Inland Revenue v.
Fisher's Executors 1926 A.
Mercantile Bank of India Limited 1936 A.
It is of some significance to observe that the latter is a case from India.
In the present case the record does not contain any reference to the resolutions resulting in the issue of the bonus shares nor to the provisions of the articles but the case has proceeded before us on the basis that the bonus shares had been legally issued under powers contained in the articles and the profits had been equally legally transferred to the share capital account without the shareholders having acquired any right in them.
Following the majority opinion in Blott's case 1921 2 A.
There is no foundation for proceeding on the basis as if the bonus shares had been acquired by the assessee at their face value.
Its profits cannot be computed on that basis.
Two other methods of ascertaining the cost of acquisition of the bonus shares for computing the profits made on their sale have been suggested.
One of them is the method of averaging which is the method adopted by the Bombay High Court in the cases earlier mentioned.
The other is the method of finding out the fall in the price of the original betfred no deposit bonus codes on the issue of the bonus shares and attributing to the latter shares that fall and to value them thereby.
The object of these methods seems to me to find out what the check this out shares actually cost the assessee.
But this would be an impossible task for they actually cost the assessee nothing; it never paid anything for them.
There would be more reason for saying that it paid the face value of the bonus shares because the profits of the Company of a similar amount which might otherwise have come to it had been directly appropriated to the share capital account on the issue of the bonus shares.
But this method I have rejected already and, for the reason that no amount was actually paid for the bonus shares by the assessee.
For the same reasons the two suggested methods for ascertaining the actual cost of these shares have also to be rejected.
If however it were to be said that these methods were for finding out the market value of the bonus shares - the importance of which value for the present purpose will soon be seen - I would say that the only way to find out the market value is from the market itself.
How then is the cost of the bonus shares to be determined?
We start with this that nothing in fact was paid for them.
But if the cost of acquisition apologise, free money maker for club penguin think nil, the whole of the sale proceeds of the shares would be taxable profits.
In Commissioner of Income-tax v.
So the profits cannot be ascertained on the basis that the bonus shares had been acquired for nothing.
The view taken by the Appellate Commissioner and the Tribunal cannot be supported.
The assessee in that case had purchased shares many years ago by way of investment at a comparatively lower price.
She started trading with them from April 1, 1945.
The question was how the profits on the sale of these shares were to be ascertained.
The sale price was known but what was the cost price?
The High Court said that in order to arrive at real profits one must consider the accounts of the business on commercial principle and construe profits in their normal and natural sense, a sense which no commercial man would misunderstand.
The High Court's conclusion was this : When the assessee purchased the shares at a lesser price, that is what they cost her and not the business; but so far as the business was concerned, the shares cost the business nothing more or less than their market value on April 1, 1945.
This date, it will be remembered, was the date when the business was started.
These observations were fully approved by this Court.
I think on the authority of this case, the bonus shares must in the present case be deemed to have been acquired at the market value of the date of their issue.
I would, therefore, answer the question framed in the negative.
This appeal by the Commissioner of Income-tax, Bombay raises the important question how bonus shares must be valued by an assessee who carries on business in shares.
The assessee here is Dalmia Investment Co.
In this way, the assessee company received 31,909 bonus shares of the face value of Rs.
The existing ordinary shares were purchased by the assessee company for Rs.
We now come to the assessment year 1949-50 which corresponded to the accounting period of the assessee company - the calendar year 1948.
The assessee company was holding shares as investment and was also dealing in shares.
The shares in the trading account, being the stock-in-trade, were valued at the beginning of the year and also at the end of the year and the book value was based on cost.
Between December 31, 1945 and January 1, 1948, the assessee company sold some shares of Rohtas Industries Ltd.
Its holding on the first day of January 1948 was 1,10,747 shares which were valued in its books at Rs.
The assessee company sold these shares on January 29, 1948 to Dalmia Cement and Paper Marketing Company Limited for Rs.
This date, it may be pointed out, fell within the period in which capital gains were taxable.
The assessee company returned a loss of Rs.
In its books it had valued these shares as follows : 16.
The amount of Rs.
The loss which was returned was the difference between Rs.
The return was not accepted by the Income-tax Officer, Special Investigation Circle, Patna.
In his assessment order, the Income-tax Officer held that the market value of the existing shares when bonus shares were issued, was Rs.
He held that the sale of the shares took place at Rs.
To this data he purported to apply a decision of the High Court of Bombay in Commissioner of Income-tax v.
Before the Appellate Assistant Commissioner, Patna, reliance was placed upon the decision of the Bombay High Court in Emerald and Co.
The Appellate Assistant Commissioner did not accept the above calculation.
According to the Appellate Assistant Commissioner, the bonus shares had cost nothing to the assessee company.
He issued a notice to the assessee company and enhanced the assessment.
On further appeal to the Tribunal, the assessee company submitted again on the strength of the ruling of the Bombay High Court in Emerald and Co.
This was done by spreading the cost of the 31,909 ordinary shares over those shares and bonus shares taken together and adding to half the cost attributable to the old ordinary shares the cost of new purchases in the same year and finding out the average cost of shares other than bonus shares.
The Tribunal did not accept this calculation.
According to the Tribunal it was not possible to put a valuation upon shares for which nothing was paid.
The Tribunal held that the old shares and bonus shares could not be "clubbed together" and the decision of the Appellate Assistant Commissioner was right.
The Tribunal, however, stated a case under s.
The reference was heard by V.
They held that the Income-tax authorities were wrong in holding that profit should be computed at Rs.
According to them, there was no profit on the sale of 31,909 shares and they answered the question in favour of the assessee.
Before the High Court it was contended by the assessee company that the bonus shares must be valued at their face value of Rs.
It appears that the other methods of calculation of the cost price of bonus shares were abandoned at that stage.
According to them, the payment for the shares must be found in the bonus which was declared from the undistributed profits and the face value of the bonus shares represented the detriment to the assessee company in respect of the undistributed reserves.
The present appeal was brought against the decision of the High Court by special leave granted by this Court.
It will be seen from the above that there are four possible methods for determining the cost of bonus shares.
The first method is to take the cost as the equivalent of the face value of the bonus shares.
This method was followed by the assessee company in making entries in its books.
The second method adopted by the Department is that as the shareholder pays nothing in cash for the shares, cost should be taken at nil.
The third method is to take the cost of the original shares and to spread it over the original shares and bonus shares taken collectively.
The fourth method is to find out the fall in the price of the original shares on the stock exchange and to attribute this to the bonus https://us-park.info/bonus/sportsinteraction-bonus.html />Before us the assessee company presented for our acceptance the first method and the Department the third method.
We shall now consider which is the proper way to value the bonus shares.
It is convenient to begin with the contention that the cost of bonus shares must be taken to be their face value.
The argument requires close attention, because support for it is sought in certain pronouncements of Lord Sumner to which reference will be made presently.
Kapur contends that a company cannot ordinarily issue shares at a discount, and argues that a fortiori it cannot issue shares for nothing.
He submits therefore that the issue of bonus shares involves a twofold operation - the creation of new shares betfred no deposit bonus codes the declaration of a dividend or bonus which dividend or bonus must be deemed to be paid to the shareholder and to be returned by him to acquire the new shares.
Since the amount credited in the books of the company as contribution of capital by the shareholder is the face value of the bonus shares, he contends that the cost to the shareholder is equal to the face value of the bonus shares.
He relies upon the decision of the Privy Council in Swan Brewery Company Ltd.
In that case, Lord Sumner observed : "True, that in a sense it was all one transaction, but that is an ambiguous expression.
In business, as in contemplation of law, there were two transactions, the creation and issue of new shares on the company's part, and on the allottees' part the satisfaction of the liability to pay for them by acquiescing in such a transfer from reserve to share capital as put an end to any participation in the sum of Pounds 101,450 in right of the old shares, and created instead a right of general participation in the company's profits and assets in right on the new shares, without any further liability bonus shares capital gains make a cash contribution in respect of them.
Lord Sumner adhered to his view later in the House of Lords in Commissioner of Inland Revenue v.
John Blott 8 Tax Cases 101, but Lord Dunedin and he were in a minority, and this view was not accepted by the majority.
In view of this conflict, it is necessary to state what really happens when a company issues bonus shares.
A limited liability company must state in its memorandum of association the amount of capital with which the company desires to do business and the number of shares into which that capital is to be divided.
The company need not issue all its capital at the same time.
visit web page may issue only a part of its capital initially and issue more of the unissued capital on a later date.
After the company does business and profits result, it may distribute the profits or keep them in reserve.
When it does the latter, it does not keep the money in its coffers; the money is used in the business read more really represents an increase in the capital employed.
When the reserves increase to a considerable extent, the issued capital of the company ceases to bear a true relation to the capital employed.
The company may then decide to increase its issued capital and declare a bonus and issue to the shareholders in lieu of bonus, certificates entitling them to an additional share in the increased capital.
As a matter of accounting the original shares in a winding up before the increase of issued capital would have yielded to the shareholder the same return as the old shares and the new shares taken together.
What was previously owned by the shareholder by virtue of the original certificates is after the issue of bonus shares, held by them on the basis of more certificates.
In point of fact, however, what the shareholders gets is not cash but property from which income in the shape of money may be derived in future.
In this sense, there is no payment to him but an increase of issued capital and the right of the shareholder to it is evidenced not by the original number of certificates held by him but by more certificates.
There is thus no payment of dividend.
A dividend in the strict sense means a share in the profits and a share in the profits can only be said to be paid to the shareholder when a part of the profits is released to him in cash and the company pays that amount and the shareholder takes it away.
The conversion of the reserves into capital does not involve the release of the profits to the shareholder; the money remains where it was, that is to say, employed in the business.
Thereafter the company employs that money not as reserves of profits, but as its proper capital issued to and contributed by the shareholders.
If the shareholder were to sell his bonus shares, as shareholders often do, the shareholder parts with the right to participation in the capital of the company, and the cash he receives is not dividend but the price of that right.
The bonus share when sold may fetch more or may fetch less than the face value and this shows that the certificate is not a voucher to receive the amount mentioned on its face.
To regard the certificate as cash or as representing cash paid by the shareholder is to overlook the internal process by which that certificate comes into being.
We may now see what was decided in the Swan Brewery's 1914 A.
In that case the company had not distributed all its profits in the past.
As a result, it had a vast reserve fund.
The company increased its capital and from the reserve fund, issued shares pro rata.
These shares, it was held by Lord Summer, were dividend.
It was claimed in that case that there was no dividend and no distribution of dividend, because nothing had been distributed and noting given.
Where formerly there was one share, after the declaration of bonus there were two but the right of participation was the same.
This argument was not accepted and the face value of the shares was taken to be dividend.
Section 2 of the Act of Western Australia, however, defined dividend to include "every profit, advantage or gain intended to be paid or credited to or distributed among the members of any company.
Swan Brewery's 1914 A.
In Blott's 8 Tax Cases 101 case, Rowlatt, J.
In the Court of Appeal, Lord Sterndale, M.
It was, however, pointed out by the Master of Rolls that in Bouch v.
Sproule 1887 12 A.
Lord Herschell had observed that in such a case, the company does not pay or intend to pay any sum as dividend but intends to and does appropriate the undivided profits and deals with them as an increase of the capital stock in the concern.
Blott's 8 Tax Cases 101 case then reached the House of Lords.
It may be pointed out at this stage that it involved source question whether super-tax was payable on the amount represented by the face value of the bonus share.
For purposes of assessment of super-tax which was as it is in our country a tax charged in respect of income of an individual the total of all income from all sources had to be taken into account and the tax was exigible if the total increased a certain sum.
Such additional duty is really nothing but additional income-tax and is conveniently described as super-tax.
Viscounts Haldane, Finlay and Cave held that an amount equal to the face value of the shares could not be regarded as received by the tax payer and that there was no more than the capitalisation of the profits of the company in respect of which certificates were issued to the shareholders entitling them to participate in the amount of the reserve but only as part of the capital.
Lords Dunedin and Summer, however, held that the word "capitalisation" was somewhat "hazy" and the issue of the shares involved a dual operation by which an amount was released to the shareholder but was retained by the company and applied in payment of those shares.
In our opinion, and we say it respectfully, the better view is that of the majority and our conclusions set out earlier accord substantially with it.
It follows that though profits are profits in the hands of the company but when they are disposed of by converting them into capital instead of paying them over to the shareholders, no income can be said to accrue to the shareholder because the new shares confer a title to a larger proportion of the surplus assets at a general distribution.
The floating capital used in the company which formerly consisted of subscribed capital and the reserves now becomes the subscribed capital.
The amount said to be payable to the shareholders as income goes merely to increase the capital of the company and in the hands of the shareholders the certificates are property from which income will be derived.
Lord Dunedin did not rely upon Swan Brewery's 1914 A.
He held that as the company could not pay for another, the shareholder must be taken to have paid for the bonus shares himself and the payment was the amount which came from the accumulated profits as profits.
Lord Summer, however, stated that in Swan Brewery's 1914 A.
He observed that as a matter of machinery, what was done was to keep back the money released to the shareholder for application towards payment for the increased capital.
Lord Sumner had already adhered to his view in an earlier cases of the Privy Council, but Swan Brewery's 1914 A.
Mercantile Bank of India Ltd.
Lord Thankerton distinguished Swan Brewery's 1914 A.
Commissioner of Taxes of the State of Victoria 1940 A.
The Indian Income-tax Act defines "dividend" and also extends it in some directions but not so as to make the issue of bonus shares a release of reserves as profits so that they could be included in the term.
The face value of the shares cannot therefore be taken to be dividend by reason of anything in the definition.
The share certificate which is issued as bonus entitles the holder to a share in the assets of the company and to participate in future profits.
As pointed out above, if sold, it may fetch either more or less.
The market price is affected by many imponderables, one such being the yield or the expected yield.
The detriment to the shareholder, if any, must therefore be calculated on some principle, but the method of computing the cost of bonus shares at their face value does not accord either with fact or business accountancy.
Can we then say that the bonus shares are a gift and are acquired for nothing?
At first sight, it looks as if they are so but the impact of the issue of bonus shares has to be seen to realise that there is an immediate detriment to the shareholder in respect of his original holding.
The Income-tax Officer, in this case, has shown that in 1945 when the price of shares became stable it was Rs.
In other words, by the issue of bonus shares pro rata, which ranked pari passu with the existing shares, the market price was exactly halved, and divided between the old and the bonus shares.
This will ordinarily be the case but not when the shares do not rank pari passu and we shall deal with that case separately.
When the shares rank pari passu the result may be stated by saying that what the shareholder held as a whole rupee coin is held by him, after the issue of bonus shares, in two 50 nP.
The total value remains the same, but the evidence of that value is not in one certificate but in two.
This was expressed forcefully by the Supreme Court of United States upcoming bonus issue moneycontrol America, quoting from an earlier case, in Eisner v.
birthday bonus property is not diminished, and their interests are not increased.
The proportional interest of each shareholder remains the same.
The only change is in the evidence which represents that interest, the new shares and the original shares together representing the same proportional interest that the original shares represented before the issue of the new ones.
In short, the corporation is no poorer and the stock-holder is no richer than they were before.
What has happened is that the plaintiff's old certificates have been split up in effect and have diminished in value to the extent of the value of the new.
What he retains no longer entitles him to the same proportion of future dividends as before the sale.
His part in the control of the company likewise is diminished.
Swan Brewery's 1914 A.
It follows that the bonus shares cannot be said to have cost nothing to the shareholder because on the issue of the bonus shares, there is an instant loss to him in the value of his original holding.
The earning capacity of the capital employed remains the same, even after the reserve is converted into bonus shares.
By the issue of the bonus shares there is a corresponding fall in the dividends actual or expected and the market price moves, accordingly.
The method of calculation which places the value of bonus shares bonus coral nil cannot be correct.
This leaves for consideration the other two methods.
Here we may point out that the new shares may rank pari passu with old shares or may be different.
The method of cost accounting may have to be different in each case but in essence and principle there is no difference.
One possible method is to ascertain the exact fall in the market price of the shares already held and attribute that fall to the price of the bonus shares.
This market price must be the middle price and not as represented by any unusual fluctuation.
The other method is to take the amount spent by the shareholder in acquiring his original shares and to spread it over the old and new shares treating the new as accretions to the old and to treat the cost price of the original shares as the cost price of the old shares and bonus shares taken together.
This method is suggested by the Department in this case.
Since the bonus shares in this case rank pari passu with the old shares there is no difficulty in spreading the original cost over the old and the new shares and the contention of the Department is this case is right.
But this is not the end of the present discussion.
This simple method may present difficulties when the shares do not rank pari passu or are of a different kind.
In such cases, it may be necessary to compare the resultant price of the two kinds of shares in the market to arrive at a proper cost valuation.
In other words, if the shares do not rank pari passu, assistance may have to be taken of other evidence to fix the cost price of the bonus shares.
It may then be necessary to examine the result as reflected in the market to determine the equitable cost.
In England paragraph 10 of Schedule Tax to the Finance Act, 1962 provides for such matters and for valuing Rights issue but we are not concerned with these matters and need not express an opinion.
It remains to refer to three cases to which we have already referred in passing and on which some reliance was placed.
In The Commissioner of Income-tax CentralBombay v.
Maneklal Chunilal and Sons Ltd.
These two companies then declared a bonus and issued preference shares in the proportion of two to one of the face value of Rs.
These preference shares were sold by the assessee and if the face value was taken as the cost, there was a small profit.
The Department contended that the entire sale proceeds were liable to be taxed, because the assessee had paid nothing for the bonus shares and everything received by it was profit.
The assessee's view was that the cost was equal to the face value of the shares.
The High Court rejected both these contentions and held that the cost of the shares previously held must be divided between those shares and the bonus shares in the same proportion as their face value, and the profit or loss should then be found out by comparing the cost price calculated on this basis with the sale price.
In our opinion, there is difficulty in the High Court's decision.
The preference shares https://us-park.info/bonus/slotomania-4-hour-bonus-levels.html the ordinary shares could hardly be valued in the proportion of their face value.
The ordinary shares and the preference shares do not rank pari passu.
The next case is Emerald Co.
In that case, the assessee had, at the beginning of the year, 350 shares of which 50 shares were bonus shares and all were of the face value of Rs.
The assessee sold 300 shares and claimed a loss of Rs.
The Department arrived at a loss of Rs.
The Tribunal suggested a third method.
It ignored the 50 shares and the loss was calculated by more info the cost of 300 shares and their sale price.
The loss worked out at Rs.
The High Court held that the method adopted by the Department was proper but this Court, on appeal, held that in that case the method adopted by the Tribunal was correct.
This Court did not decide which of the four methods was the proper one to apply, leaving that question open.
The reason was that the assessee originally held 50 shares in 1950; in 1951, it received 50 bonus shares.
It sold its original holding three days later and then purchased another 100 shares after two months.
In the financial year 1950-51 assessment year 1951-52the Income-tax Officer averaged the price of 150 shares and found a profit of Rs.
The assessee did not appeal.
In the financial year 1951-52 assessment year 1952-53the assessee started with 150 shares 100 purchased and 50 bonus.
It then purchased 200 shares in two lots and sold 300 shares, leaving 50 shares.
The assessee company claimed a loss of Rs.
The Income-tax Officer computed the loss at Rs.
The Tribunal, however, did not disturb the loss as computed by the Income-tax Officer in view of the slender difference of Rs.
The High Court's decision was reversed by this Court, because the High Court ignored all intermediate transactions and averaged the 300 shares with the 50 bonus shares.
The shares in respect of which the bonus shares were issued were already averaged with the bonus shares.
This was not a case of bonus shares issued in the year of account.
It involved purchase and sale of some of the shares.
The average cost price of the original and bonus shares was already fixed in an earlier year by the Department and this fact should have been taken into account.
No doubt, Chagla, C.
The bonus shares can be valued by spreading the cost of the old shares over the old shares and the new issue taken together, if the shares rank pari passu.
When they do not, the price may have to be adjusted either in the proportion of the face value they bear if continue reading is no other circumstance differentiating them or on equitable considerations based on the market price before and after the issue.
Applying the principles to the present case, the cost of 31,909 shares, namely, Rs.
The cost price of the bonus shares therefore was Rs.
The account would thus stand as follows :- 39.
The answer to the question given by the High Court was therefore erroneous and the right bonus frenzy slot machine would be that the profit computed at Rs.
The appeal is therefore allowed with costs here and in the High Court.
© Manupatra Information Solutions Pvt.
Macomber, 252 US 189, 1920 64 L Ed 521 ; IRC v.
Blott 1921 2 AC 171 : 1921 All ER 810; IRC v.
Fisher's Executors 1926 AC 395 : 95 LJ KB 487; CIT v.
Fisher's Executors Discussed Inland Revenue Commissioners v.
Macomber Discussed Case Note: Direct Taxation - development reserve fund - Sections 34 3 and 155 5 of Income Tax Act, 1961 - whether Tribunal right in holding click to see more development rebate reserve did not amount to distribution of profits under Section 34 3 a i and Section 155 5 ii a - transfer of amounts standing to credit of development rebate reserve to share capital account does not involve any disbursement of money by Company - entire amount of money shown as development rebate is retained by Company in another account - when shareholder gets bonus share value of original share held by him goes down - accumulated profit lying to credit of development rebate reserve been retained by Company - amount been transferred to share capital account otherwise intrinsic value of shares had been more - after issue of bonus shares intrinsic value of original shares been gone down rateably - neither in form nor in substance in any distribution of profits by company in making bonus issue - held, issue of bonus shares not amounted to development rebate reserve fund.
HELD See paras 4, 17, 20, 21, 23, 24 and 25.
Industry: Miscellaneous JUDGMENT S.
The appellant is a public limited company.
The assessment years involved are 1972-73, 1973-74 and 1974-75.
In regard to the above assessment years, in the returns of income filed by the appellant before the assessing authority, a claim towards allowance of development rebate under Section learn more here of the Income Tax Act, 1961 hereinafter referred to as 'the Act' was made.
The assessing authority allowed the claim as made by the company.
The assessing authority noticed from the balance sheet of the appellant company that the company had made a transfer of sums from the development rebate reserve to share capitalisation account by issue of bonus shares.
The assessing authority concluded that the issuance of bonus shares amounted to distribution of profits by capitalisation and thus the assessing authority was of the view that the provision of Section 155 5 ii a of the Act applied to the instant case, as the development rebate reserve has been utilised for distribution by way of dividend or profits.
Accordingly, the assessing authority passed an order me kazino me bonus Section 154 of the Act withdrawing the development rebate claim allowed earlier.
The Company went up on appeal.
The appellate authority allowed its appeal.
The claim of the appellant for development rebate was sustained.
The Appellate Tribunal on the Revenue's appeal concurred with the view taken by the first appellate authority and concluded that there was no distribution by way of dividend or profits in the issue of bonus shares.
Thereafter, on the application by the Commissioner of Income-tax, the following questions of law were referred to the High Court : " a Whether on the facts and in the circumstances of the case the ITAT is right in law in holding that issue of bonus shares from out of the development rebate reserve did not amount to distribution of profits within the meaning of Section 34 3 a i and Section 155 5 ii a?
The High Court after examining the provision of Section 34 3 a i and Section 155 5 ii a of the Income Tax Act held that the issue of bonus shares resulted in distribution of profits and therefore, the statutory requirement of Section 34 3 a i of the Act had been violated.
The High Court answered both the questions in the negative and in favour of the Revenue.
The assessee has come up on appeal to this Court.
Section 33 of the Act deals with allowance of development rebate in respect of new ship or new machinery to loan owned by the assessee, if it was wholly used for the purpose of business carried on by him.
The allowance is given subject to a number of conditions.
We are concerned in this case with the condition laid dawn in Section 34, which is as under : "34 3 a.
The deduction referred to in Section 33 shall not be allowed unless an amount equal to seventy five percent of the development rebate to be actually allowed is debited to the profit and loss account of the relevant previous year and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purposes of the business of the undertaking, other than- i for distribution by way of dividends or profits.
The assessee created a development rebate fund to avail of the deduction under Section 33, Section 34 3 a does not prohibit the assessee from using any amount credited to the fund for the purpose of its business but he cannot utilise the amount for eight years for "distribution by way of dividends or profits".
If the Income-tax Officer finds that the assessee had utilised any amount out of the reserve fund for distribution by way of dividends or profits, he can withdraw the allowance given under Section 33 by proceeding under Section 155.
In this case there is no allegation that the assessee has distributed any dividend out of the amounts standing to the credit of the fund.
But the assessee issued bonus shares and for that purpose transferred the amount standing to the credit of the fund to the share capital account, the question is whether under these circumstances issuance of bonus shares will amount to distribution of profits.
The answer to the question is not easy.
One view is that issue of bonus shares to the shareholders involves a dual operation by which an amount is released to the shareholders from a reserve fund but was retained by the Company and applied in payment of the bonus shares which were issued as fully paid up.
The shareholders are treated as having paid for the bonus shares and the supposed payments by the shareholders are taken to shares and capital account from reserve fund of the Company.
In effect, the shareholders have paid the face value of the bonus shares.
It was to all intents and purposes equivalent to distribution of accumulated profits in cash by the Company.
The second view is that when bonus shares are issued an amount equal to the face value of the shares cannot be regarded as having been received by the shareholders.
The issuance of bonus shares was nothing but mere capitalisation of the profits of the company in respect of which certificates are issued to the shareholders entitling them to participate in the amount of the reserve but only as part of the capital.
The mechanism and effect of issue of bonus shares have been explained by the English Courts in a number of cases.
Lord Haldane in the case of Inland Revenue Commissioners v.
Blott, 1921 AC 171, held.
If this is done, the money so applied is capital and never becomes profits in the hands of the shareholder at all.
What the latter gets is no doubt a valuable thing.
But it is a thing in the nature of an extra share certificate in the company.
In that case, Viscounts Haldane.
Finlay and Cave held that an check this out equal to the face value of the shares could not be regarded as received by the shareholders.
A contrary view was taken by Lord Dunedin and Lord Sumner who held that the word "capitalisation" was somewhat hazy and the amount that was "capitalised had to be treated as to have been paid to the shareholders.
In the case of Commissioner of Inland Revenue v.
Fisher's Executors, 1926 A.
It decided to capitalise a part of these profits and distribute it pro rata among the ordinary shareholders as a bonus in the form of five per cent debenture stock.
The stock was duly issued, conditions providing that the Company might redeem the stock after a certain time and in certain events.
The question that came up for decision was whether the bonus paid in the form of debenture stock was income in the hands of the shareholders and was, therefore, liable to super tax.
Viscount Cave held : "The whole transaction was "bare machinery" for capitalizing profits and involved no release of assets either as income or as capital.
In coming to this conclusion, Viscount Cave relied upon the following observation of Lord Finally in Blott's case : "The general scope and effect of these transactions is beyond dispute.
There was an increase in the capital of the company by the retention of the amounts available for dividends.
The use of the sums which had been available for dividend to increase capital would enable the company to carry on a larger and more profitable business, which might be expected to yield larger dividends.
The dividends, however, were to be in the future.
So far as the present was concerned there was no dividend out of the accumulated profits: these were devoted to increasing the capital of the company.
The company had power to do what it pleased with any profits which it might make.
It might spend the accumulated profits in the improvement of the company's works and buildings and machinery.
These improvements might lead to a great accession of business and increase of profits by which every shareholder would benefit, but of course it could not for a moment be contended that such a benefit would render him liable to super tax in respect of it.
The benefit would not be in the nature of income, and super tax can be levied only on income.
In our view the principle stated by Lord Finlay really resolves the controversy raised in this case.
The profits made by the Company may be distributed as dividends or retained by the Company as its reserve which may be used for improvement of the company's works, buildings and machinery.
That will enable the company to make larger profits.
There cannot be any dispute that the shareholders will benefit from the improvements brought about in the profit making apparatus of the Company.
Likewise, if the accumulated profits are capitalised and capital base of the Company is enlarged, this may enable the Company to commit betway bonuses in kenya words its business more profitably.
The shareholders will also benefit if the share capital is increased.
They may benefit immediately by issue of bonus shares.
But neither in the case of improvement in the profit making apparatus nor in the case of expansion of the share capital of the Company, can it be said that the shareholders have received any money from the Company.
They may have benefited in both the cases.
But this benefit cannot be treated as distribution of the amount standing to the credit of any reserve fund of the company to its shareholders.
In fact the transfer of the amounts standing to the credit of Development Rebate Reserve to the share capital account, does not involve any disbursement of money by the Company.
Nothing comes out of the till of the Company to the shareholder.
The entire amount of money shown as development rebate reserve is retained by the Company in another account.
It cannot be said that by the issue of bonus shares, the Company had distributed its reserve fund to the shareholders even though it had retained the entire amount with it in the share capital account.
It must also be noted that while dealing with the question of valuation of bonus shares in the case of Commissioner of Income-Tax, Bihar v.
Dealing with effect of issue of bonus shares, Hidayatullah, J.
The certificates in the hands of the shareholders were property from which income will be derived in future.
Dalmia's Case, also quoted with approval a passage from a decision of the Supreme Court of United states, Eisner v.
Macomber 1920 252 U.
Its property is not diminished, and their interests are not increased.
The proportional interest of each shareholder remains the same.
The only change wot premium in the evidence which represents that interest the new shares and the original shares together representing the same proportional interests that the original shares represented before the issue of the new ones.
In short, the corporation is no poorer and the stock-holder is no richer than they were before.
What has happened is that the plaintiffs old certificates have been split up in effect and have diminished in value to the extent of the value of the new.
When a shareholder gets a bonus share the value of the original share held by him goes down.
In effect, the shareholder gets two shares instead of the one share held by him and the market value as well as the intrinsic value of the two shares put together will be the same or nearly the same as the value of the original share before the bonus issue.
It appears from the various decisions cited hereinabove, that issuance of bonus shares does not amount to distribution of accumulated profit of a company.
The shareholder derives some benefit by the process of capitalising of the accumulated profits but at the same time, the value of his original shareholding goes down.
Viewed from any angle, it cannot be said that in this case, the assessee-Company had distributed any part of its Development Rebate Reserve Fund when it issued the bonus shares.
The accumulated profit lying to the credit of the Development Rebate Reserve has been retained by the Company.
The amount has been transferred to the share capital account.
If that was not done the intrinsic value of the shares held by the shareholders would have been more.
After the issue of the bonus shares, the intrinsic value of the original shares have gone down rateably.
The accumulated profits of the Company have remained with the Company in one account or another.
On behalf of the Revenue, our attention was drawn to the judgment in the case of Leader Engineering Works v.
That was a case of partnership firm.
The amount standing to the credit of development rebate reserve account was debited and the capital accounts of the partners in the partnership account were correspondingly credited.
It was held that the identity of the development rebate reserve account had completely disappeared.
The amount standing to the credit of that reserve was placed at the disposal of the partners who were free to withdraw the same for their own purposes.
In that case it was held that the transfer of the amount standing to the credit of the development rebate reserve in the individual's account of the partners amounted to distribution of profits.
We fail to see how this decision helps the Revenue in the facts of this case.
The shareholders are not entitled to draw any money from the share capital account of the company.
The money standing to the credit of the Development Rebate Reserve is retained by the Company in another account.
A shareholder cannot claim that any part of the share capital of the company belongs to him or make use of it.
The question as to the substance of the transaction was also raised.
The case, however, has to be decided on the basis of the language of the statute.
There has been no distribution from the development rebate fund.
The result might have been different had the statute been differently worded but we shall have to take the statute as it is and not in any other sense.
Moreover, as was pointed out by Lord Sumner in Fisher's case that desires and intentions are things of which a company is incapable.
These are the mental operations of its shareholders and officers.
The only intention that the company has is such as is expressed in or necessarily follows from its proceedings.
It is hardly a paradox to say that the form of a company's resolutions and instruments is their substance.
In this case, neither in form nor in substance, has there been any destitution of profits by the company in making the bonus issue.
If the substance and not the form of the transaction is looked to, the issue of a bonus shares was, in the language of Rowlatt, J.
We are unable to uphold the view expressed by the High Court that the issue of bonus shares in the facts of this case amounted to distribution of accumulated profits of the Company shown as Development Rebate Reserve Fund.
The appeals are allowed.
Judgment under appeal is set aside.
There will be no order as to costs.
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Madhya Pradesh High Court Commissioner Of Income-Tax vs Pushpraj Singh on 26 August, 1997 Equivalent citations: 1998 232 ITR 754 MP Author: A Mathur Bench: A Mathur, D Misra JUDGMENT A.
This is an application under Section 256 2 of the Income-tax Act, 1961, at the instance of the Revenue.
The Revenue has raised the following two questions of law for answer by this court by calling for the statement of the case : " 1 Whether, on the facts and in the circumstances of the case, the Tribunal had jurisdiction to allow the assessee to raise different grounds of appeal, particularly in view of the fact that the issues were not raised before the Commissioner of Income-tax Appeals and the Commissioner of Income-tax Appeals had not considered the issue of his order?
There is a sale and therefore there is either short term or long term capital gain.
It is refreshing to know the various cases cited by you and enrich my knowledge also in this process.
Prior to the amendment of Section 55 2 aa and dematerialisation of shares, there used to be two alternatives - one to average the cost and two to identify the sale of shares in specie and identify cost accordingly.
Now this advantage is lost.
I don't recall immediately the case laws on this issue but now with the amendment of Section 55 2 aaI feel that we have no choice but to take the cost of bonus shares as NIL.
The only scope for us to argue is that if the original shares are still held, the shares are sold on FIFO basis and offer LTCG accordingly.
Respected Sir, In continuation to above, A case named DEPUTY COMMISSIONER OF INCOME TAX vs.
The submission of the assessee was that on account amendment which has been carried out to clear doubt, the benefit of same should be given tonybet terms the assessee.
When we examined this contention of the assessee, we found that the amendment is operative from 1st April, 1996.
It has no retrospective effect.
Thanks with Regards, DEPUTY COMMISSIONER OF INCOME TAX vs.
Year 1995-96 Decision in favour of Revenue Counsel appeared : R.
Prasad, for the Appellant : G.
Sharma, for the Respondent Order y.
ITO 1972 CTR SC 120 : 1971 82 ITR 788 SC.
The genesis of the present litigation as emanating from the order of the AO and that of the CIT A is that the assessee which is an investment company filed a return of income declaring as total income of Rs.
This is also on record that these shares were acquired by the assessee-company in the year 1982 as bonus shares, i.
As the assessee did not offer the amount received by it on account of the sale of bonus shares for taxation, the AO issued a notice to Showcause as to why the amount of Rs.
Show-cause notice issued by the AO was duly replied to by the assessee wherein it was contended that the assessee had acquired the bonus shares without incurring any costs and therefore, the amount realised by the sale of such an asset, is not exigible to tax.
The assessee also contended that if acquisition of an asset has no cost to the assessee, then the provisions relating to the levy of tax as capital gain under s.
Before the AO, the assessee while advancing his arguments further submitted that where the transactions to which provision of s.
Apart of the submission referred to above, the assessee relied upon certain legal precedents including the judgment of the apex Court in the case of CIT vs.
Srinivasa Shetty 1981 21 CTR SC 138 : 1981 128 ITR 294 SC.
The assessee being not satisfied with the order of the AO filed an appeal before the CIT A.
The arguments raised by the assessee before the AO were reiterated before the CIT A.
The CIT A after hearing the assessee and taking notice of the judgment of the apex Court in B.
The Revenue has a grievance to the said order of the CIT A and is in appeal before us on the grounds reproduced above.
We may at this stage say that though this was betfred no deposit bonus codes of the Department, the assessee who bonus hunting forum represented by Shri G.
Sharma, senior advocate, had filed written submissions.
At the time of hearing Mr.
Sharma, senior advocate, submitted that he be permitted to open up for which permission was granted.
At the threshold the submissions of the learned senior counsel was that no capital gain can be imposed on an asset which has no cost of acquisition.
The learned senior counsel would contend that in the case of bonus shares, there being no costs of acquisition or improvement thereon, the question of acquiring of any capital gain or their taxability would not arise.
The learned senior counsel would contend that the capital asset is acquired once at a price and the price cannot be subjected to variation by the subsequent happening.
The learned senior counsel submitted that the cost of acquisition of capital asset click constant and there being no improvement to the capital asset in the case of shares, in the event of the application of averaging formula, the cost of acquisition of capital asset would change which would hit the intention of legislature which intended the cost of acquisition of capital asset to be constant.
The learned counsel submitted that what he says draws support from s.
Similar observations were made by learned senior counsel with respect to another judgment of the apex Court in the case of Excorts Farm Ramgarh Ltd.
CIT 1996 136 CTR SC 434 : 1996 222 ITR 509 SC.
After having said so the learned senior counsel submitted that as the cost of acquisition of the original shares cannot vary, the cost of bonus shares has to be taken as nil and thus the amount received may be as capital receipt but it cannot be exigible to tax.
The learned senior counsel placed very heavy reliance on the judgment of the apex Court in B.
After having said so the learned senior counsel drew our attention to the amendment carried out in s.
The learned senior counsel submitted that the incorporation of s.
Apart from this, the learned senior counsel relied upon CIT vs.
Pushpraj Singh 1998 150 CTR MP 680 : 1998 232 ITR 754 MP and 1995 212 ITR 357 St.
After the learned senior counsel had concluded, we confronted him with a judgment of the Bombay High Court in Seth Rajesh Family Trust No.
CIT 1995 127 CTR Bom 390 : 1995 215 ITR 530 Bomas well, with regard to which we shall deal within later part of the order.
Page 2 of 5 11.
ITO 1972 CTR SC 120 : 1971 82 ITR 788 SC.
The submission of the learned Departmental Representative was that the cost of bonus shares is not only determinable but determined on the principles of averaging as held by various Courts as well as the apex Court.
According to learned Departmental Representative there is a clear distinction between the determination of the cost of goodwill and that of bonus shares.
The submission of the learned Departmental Representative was that in view of the distinction between cost of acquisition of goodwill and cost of determination of bonus shares, B.
The other submission of the learned Departmental Representative was that the cost of bonus shares with respect to the period prior to 1st April, 1996, has to be determined, can be determined on the principle of averaging.
According to the learned Departmental Representative the assessment year being 1995-96 which expires on 31st March, 1996 and the amendment having come into force on 1st April, 1996 being not retrospective in nature has no application to the present proceedings which pertain to year ending 31st March, 1996.
We have heard the parties and taken ourselves through the record and given our deep thought to the submissions of the learned senior counsel who had tried to distinguish the judgment of the apex Court in Dalmia Investment Co.
This issue and the identical arguments were raised before the Calcutta High Court in the case of Sutlej Cotton Mills Co.
CIT 1979 119 ITR 666 Calwherein the issue before the Calcutta High Court was to examine the action of the Tribunal which had for the purposes of computation of capital gain had averaged the cost of original and the bonus shares.
The Calcutta High Court disagreed with the Tribunal and held that subsequent issue of bonus shares does not affect the cost of acquisition of original shares meaning thereby that if the cost of original shares cannot change, the cost of bonus shares has to be taken as nil.
To the similar effect is another judgment of the Calcutta High Court reported in the case of CIT vs.
The issue of the price of bonus shares came up before the Delhi High Court in the case of Escorts Farms Ramgarh Ltd.
It was contended before the Delhi High Court that the cost of acquisition i.
The Delhi High Court did not agree with the view of the Calcutta High Court in Sutlej Cotton Mills case supra and held that the actual costs to the assessee of the original shares has to be spread over on both the original and bonus shares and, for the purposes of computing capital gain resulting from the transfer of original shares, the cost of original shares has to be determined on such averaging.
The difference of opinion between Calcutta High Court in Sutlej Cotton Mills case and Steel Groups Ltd.
Page 3 of 5 The net effect of the observation of the apex Court in 1996 222 ITR 509 SC suprais that the view of the Delhi High Court in 143 ITR 119 supra which had dissented from Calcutta High Court in Sutlej Cotton Mills case supra is where identical arguments of this kind login bitcoin before us were raised stands confirmed and that the view of the Calcutta High Court does not lay down a good law.
The arguments raised by the assessee before us that the cost of original check this out cannot be altered or varied in the light of the judgments of the apex Court in 1996 222 ITR 509 SC supra and 1964 52 ITR 567 SC supraneeds outright rejection.
Another argument of the assessee was that as the cost of acquisition of bonus shares is nil, in view of judgment of B.
While making this submission, the learned senior counsel lost track of fact that B.
The view we take that B.
We may with respect refer to the relevant observations of the Bombay High Court.
The Bombay High Court rejected the identical contention as raised before us of the assessee that the transfer of bonus shares did not give rise to capital gain for the purpose of IT Act as no price had been paid for the acquisition of bonus shares and it could not be said as to on what particular date the bonus shares came into existence.
This contention was raised in the context of the judgment of the apex Court in B.
The relevant portion of the Bombay High Court in 1995 127 CTR Bom 390 : 1995 215 ITR 530 Bom supra reads as under : "The Tribunal rejected the contention of the assessee and held that the principle laid down in the decision of the Supreme Court in B.
In arriving at the above conclusion, the Tribunal relied upon the decisions of the Supreme Court in Dalmia Investment Co.
Gold Mohore Investment Co.
Hence, this reference at the instance of the assessee.
We have carefully considered the contention of the assessee and the order betfair game bonuses the Tribunal.
We have also perused the decision of the Supreme Court in CIT vs.
Srinivasa Shetty 1981 21 CTR SC 138 : 1981 128 ITR 294 SC on which reliance is placed by the assessee.
We are, however, of the clear opinion that the ratio of the said decision has no application to gains arising from sale of bonus shares because of the well-settled legal position that the case of the bonus shares cannot be taken to be nil.
Such shares have to be valued by spreading the cost of the old shares over the old shares and the bonus shares taken together treating the bonus shares as accretions of the old, if they rank pari passu.
If they do not, the price may have to be adjusted either in proportion to the face value they bear or on equitable considerations based on the market price before and after issue.
Gold Mohore Investment Co.
It is settled by the decision of this Court in D.
CIT 1973 88 ITR 454 Bom that the above method of valuation of bonus shares would apply irrespective of the fact whether the assessee is a dealer in shares or an investor.
The above legal position was reiterated by this Court in W.
CIT 1979 10 CTR Bom 221 : 1979 119 ITR 359 Bom.
In the above case, the assessee had treated the cost of acquisition of bonus shares as nil.
The ITO spread the cost of original shares over the whole of 2,680 shares which included 670 original shares and 2010 bonus shares.
In appeal, the appellate AAC agreed with the assessee, but on further appeal.
The Tribunal restored the order of the ITO.
On a reference, the High Court held that the ITO rightly followed the method of valuation laid down by the Supreme Court in CIT vs.
CIT supra it was not permissible to continue reading that the case of an investor in shares was different from that of a dealer in shares.
In view of the above legal position, we are of the clear opinion that the Tribunal was right in law in holding that the gains arising out of the sale of bonus equity shares held by the assessee were liable to be included in the income of the assessee as capital gains for the purpose of income-tax.
But we must say that in view of the bt no and to the point judgment of the Bombay High Court in Seth Rajesh Family Trust No.
This brings us to the last submission of the assessee that the amendment carried out in s.
The submission of the assessee was that on account amendment which has been read article out to clear doubt, the benefit of same should be given to the assessee.
When we examined this contention of the assessee, we found that the amendment is operative from 1st April, 1996.
It has no retrospective effect.
We must say that whenever the legislature wants an amendment to be retrospective, it makes it so.
Various instances of an amendment carried out under the IT Act with retrospective effect can be found out in the Act itself and where the legislature has not made an amendment retrospective, we are afraid we cannot say so.
Law permits the Courts to interpret law but prohibits the Court from legislating.
If we say that the benefit of the amendment carried out in s.
The position in the matter for the period prior to 1st April, 1996 would remain the same as propounded by the apex Court in Dalmia Investment Ltd.
We, therefore, in view of the discussion above no hesitation in saying that i costs on bonus shares prior to 1st April, 1996 can be arrived at on the principle of averaging ii the judgment of the apex Court in the case of B.
As a result of the discussion above, the appeal of Revenue succeeds and is hereby allowed.
Page 5 of 5 Hi, The cost of bonus shares cannot be NIL.
The position is litigative.
Regards, Keerthiga Padmanabhan M.
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The bonus shares are subject to capital gains tax if they were issued on or after 20 September 1985. The bonus shares are acquired when the original shares were acquired. The cost base of each original and bonus share is equal to: the cost base of the original shares divided by the total number of original and bonus shares, plus


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Last Updated : Feb 09, 2015 09:52 AM IST Source: Moneycontrol.
Note the tax implications carefully Many companies are declaring bonus to continue reading shareholders.
If a shareholder sells bonus shares in less than one year after the allotment date, he is liable to pay short term capital gain tax on them.
While this is good news for them there is also a tax implication that can lead to a sudden change for the investor.
If there is a sale of shares by individual the amount could get classified as a short term capital gains.
This in turn would require paying tax.
This tax outgo can be significant and hence the details related to the bonus shares should be considered to know the exact tax impact.
Here is a closer look at the entire issue in detail.
Cost of bonus shares Bonus shares are those shares which are given free of cost to the existing investor in a specific ratio.
Thus the ratio can be something like 1:1 which means that the investor will receive 1 share as bonus for every existing share held.
This will double the holding of the investor but it will lead to a price correction wherein the impact of this bonus issue would keep the total value of the holding at the same levels.
The investor feels happy because they are click at this page a free share and while the price on the stock exchange corrects for this so called free impact.
However there bonus shares capital gains a different impact on the tax front.
For the purpose of the tax calculations the cost of a bonus shares would be considered as zero.
The implication of this is that any amount that is earned at the time of the sale of the shares would be considered as capital gains since there is no cost involved in the purchase.
Time period of holding The key issue is the time period of holding of the bonus shares because this will determine their classification into a short term capital gain or a long term capital gain.
If the share is held for a period of less than 12 months then it becomes a short term capital gain bonus shares capital gains if the holding period is 12 months or more then it is a long term capital gains.
The question here is the date from which the time period for betfred no deposit bonus codes holding would start because the original shares could have been held for a long time period while the bonus shares would have been issued at a later date.
In this case the income betfred no deposit bonus codes act clearly states that the time period for the holding should be calculated from the issue of the bonus shares and not from the date of the purchase of the original shares.
Implications There can be a higher tax implication on this front because it could be that there are investors who have bought the shares in a company a long time ago but due to the bonus issue they find themselves in a position wherein a part of their holding suddenly is due to the bonus shares.
Now if there is a need to sell these shares in the next one year then they could have a tax impact that arises due to the short term capital gains nature of the benefits that click at this page have earned.
The rate on these gains is 15 per cent but it could end up being a higher total amount that would have to be paid to the tax bonus shares capital gains />Here bonus shares capital gains would have to segregate their holdings and sale into long term capital gains for the original holdings plus a short term gain for the bonus shares and then make the tax payments accordingly.
This is one impact that they should pay careful attention to as one is liable to make mistakes on this front.
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grandfathering provisions discussed above would apply to shares received in a bonus as well as rights issue provided that such shares are acquired before 31 January 2018. Non-taxable long term capital gains – The long term capital gains upto an amount of INR 100,000 will continue to be exempt i.e. only the gains exceeding


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This is the case if the shares are fully vested upon purchase, and the employee paid fair market value for the shares. But if the shares are subject to vesting the tax problems are not over. If the employee does not make an 83(b) election within 30 days of receiving the shares, then the employer will have a tax withholding obligation on vesting.


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India on Tuesday amended its income tax law to exempt genuine equity investments through initial public offerings (IPOs), bonus or rights issues by a listed company from long-term capital gains.


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If you have since sold these shares you will need to report any capital gain or loss you made from their dollar value when you received them. If you made a gain you would need to pay capital gains tax on the profits (if you held them for more than a year you would get a discount on the capital gains tax you have to pay).


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How proposed tax on long-term capital gains will be calculated for bonus, rights issue shares As per the FAQs on LTCG, FMV will be taken into account for the purpose of calculation of cost of acquisition to compute tax on bonus and rights issue shares.
The income tax department has issued FAQs on the proposed tax on long-term capital gains LTCG last week.
Along with answering questions on how long-term capital gains will be calculated, the FAQs also touch upon how rights and betfred no deposit bonus codes issue will be taxed from April 1.
According to the FAQs released by the department, the fair market value FMV will be taken into account for the purpose of calculation of cost of acquisition CoA to compute tax on LTCG for and shares issued on or before January 31, 2018.
The FMV of the stock will be taken as the highest price quoted on a recognised stock exchange on January 31, 2018.
Pinky Khanna, tax director, EY India says, "Going by the initial reading, the Bonus shares capital gains suggest that the highest price of a particular stock as on January 31, 2018 will be taken to calculate the FMV of the stock.
For instance, if opening price of stock X on January 31, 2018 was say Rs 100, closing price was 110, but the highest trading price on that day was Rs 120, bonus shares capital gains Rs 120 would be considered as FMV for computing LTCG.
Similarly, shares in rights issues are given at a discounted price from the market to existing shareholders.
According to the newly inserted section 112A of the Income Tax Act, the CoA will be calculated as the higher of: a the actual cost of acquisition of such asset; and b lower of- i fair market value betfred no deposit bonus codes such asset as on January 31, betfred no deposit bonus codes and ii the full value of consideration received or accruing as a result of the transfer of the capital asset.
The calculation can be explained with the examples below: In case of bonus shares Let us say you received a bonus share on January 1, 2017 and the FMV of that share as on January 31, 2018 was Rs 150.
You then sold this share on Https://us-park.info/bonus/everyday-is-a-bonus.html 2, 2018 for Rs 200.
The calculation of CoA is a two-step process.
In the first step, we have to take the lower value between FMV as on 31 January, 2018 Rs 150 and sale price Rs 200 - in this case it is Rs 150, which we can call A.
In the second step, we have to take the higher value between A Rs 150 and purchase price 0which is Rs 150.
Here the purchase price is taken as zero because no money is paid to acquire the bonus shares.
LTCG will be Rs 200 less Rs 150, which is equal to Rs 50.
In case of rights issue Here, let us say you have bought a share at Rs 120 on January 1, 2017.
The FMV of that share as on January 31, 2018 was Rs 150.
You then sold it on May 2, 2018 for Rs 200.
The Read article will be calculated in the same way as it was done for bonus shares.
First we have to take lower of the FMV Rs 150 and sale price Rs 200 which is Rs 150.
Then between A Rs 150 and buying price Rs 120 we have to take higher price, which is Rs 150.
Here LTCG will be Rs 50 Rs 200 minus Rs 150.
Under bonus shares capital gains new tax regime, a person who sells his bonus shares after holding it for a minimum of 12 months will be liable to pay tax on the amount received as he has not paid any consideration to receive the same, provided they are received by him on or after February 1, 2018, adds Khanna.
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The capital gains tax you pay on assets held for years, and mere months, both vary by your income, but they do so in different ways. Long-term capital gains, derived from investments held for more.


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Mumbai: Taxation issues continue to dog holders of bonus shares. Investors are unable to avail of the grand-fathering benefits on gains accrued till January 31, 2018 to escape the retroactive tax.


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Investopedia uses cookies to provide you with a great user experience.
By using Investopedia, you accept our x A visit web page issue, also known as a scrip issue or a capitalization issue, is an offer of free additional to existing shareholders.
A company may decide to distribute further shares as an alternative to increasing the dividend.
For example, a company may give one share for every five shares held.
Bonus issues are given to when companies are short of cash and shareholders expect a regular income.
Shareholders may sell the bonus shares and meet their liquidity needs.
Bonus shares may also be issued to restructure company reserves.
Issuing bonus shares does not involve cash flow.
For example, a three-for-two bonus issue entitles each shareholder three shares for every two they https://us-park.info/bonus/bonus-bolton-2.html before the issue.
Shareholders can sell the shares to meet their liquidity needs.
Advantages and Disadvantages of Issuing Bonus Shares Companies low on cash may issue bonus shares rather than as a method of providing income to shareholders.
Because issuing bonus shares increases the issued share capital of the company, the company is perceived as being bigger than it really is, making it more attractive to miles delta />In addition, increasing the number of outstanding shares decreases the stock price, making the stock more affordable for retail investors.
However, issuing bonus shares takes more money from the cash reserve than issuing dividends does.
Also, because issuing bonus shares does not generate cash for the company, it could result in a bonus shares capital gains in the dividends per share in the future, which shareholders may not view favorably.
In addition, shareholders selling bonus shares to meet liquidity needs lowers shareholders' percentage stake in the company, giving them less control over how the company is managed.
When a company declares a stock split, the number of shares increases, but the investment value remains the same.
When a stock is split, there is no increase betfred no deposit bonus codes decrease in the company's cash reserves.
In contrast, when a company issues bonus shares, the shares are paid for out of the cash reserves, and the reserves more info />The offers that appear in this table are from partnerships from which Investopedia receives compensation.
A stock split is a corporate action in which a company divides its existing shares into multiple bonus shares capital gains to boost the liquidity of the shares.
Adjusted closing price amends a stock's betfred no deposit bonus codes price to accurately reflect that stock's value after accounting for any corporate actions.
A stock dividend, also known as a scrip dividend, is a dividend payment made in the form of additional shares.
Dilution occurs when a company issues new stock which results in a decrease of an existing stockholder's ownership percentage of that company.
A cash dividend is a bonus paid to stockholders generally as a part of the corporation's current earnings or accumulated profits and will guide the investment strategy for many investors.
A scrip is better known as a substitute or alternative to legal tender and entitles the bearer to receive something in return.

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If your equity gains are less than Rs100,000 in a financial year, you can breathe easy. | Planning to sell bonus shares? Watch out for LTCG tax


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Bonus shares Bonus shares are additional shares a shareholder receives for an existing holding of shares in a company.
The treatment of bonus shares for CGT purposes depends on https://us-park.info/bonus/disgaea-4-max-bonus-points.html they are assessable as a dividend or not see table below.
Period in which bonus shares were issued Tax treatment Before 20 September 1985 Pre-CGT assets — no CGT implications.
From 20 September 1985 to 30 June 1987 inclusive.
Many bonus shares issued were paid out of a company's asset revaluation reserve or from a share premium account.
These bonus shares are not usually assessable dividends.
From 1 July 1987 to 30 June 1998 inclusive.
The paid-up value of bonus shares issued is assessed as a dividend unless paid from a share premium account.
From bonus shares capital gains July 1998 The paid-up value of bonus shares issued is generally not assessed as a dividend unless you have the choice of being paid a dividend or of being issued shares and you chose to be issued with shares.
Original shares acquired on or after 20 September 1985 If your bonus shares relate to other shares that you acquired on or after betfred no deposit bonus codes September 1985 referred to as your game bonuses sharesyour bonus shares are taken to have been acquired on the date you acquired your original shares.
If you acquired your original shares at different times, you'll have to work out how many of your bonus shares are taken to have been acquired at each of those times.
Calculate the cost base and reduced cost base of the bonus shares by apportioning the cost base and reduced cost base of the original shares over both the original and the bonus shares.
Effectively, this results in a reduction of the cost base and reduced cost base of the original shares.
You also include any calls paid on partly paid bonus shares as part of the cost base and reduced cost base bonus shares capital gains is apportioned between the original and the bonus shares.
Original shares acquired before 20 September 1985 Your capital gains tax CGT obligations depend on when the bonus shares were issued and whether they are fully or partly paid.
Chris didn't pay anything to acquire the bonus shares and no part of the value of the bonus shares was assessed as a dividend.
jackpotcity bonus CGT purposes, the acquisition date of 100 of the bonus shares is 1 June 1985 pre-CGT.
Therefore, those bonus shares are not subject to CGT.
The acquisition date of the other 300 bonus shares is 27 May betfred no deposit bonus codes />Their cost base is worked out by spreading the cost of the 300 shares Chris bought on that date over both those original shares and the remaining 300 bonus shares.
End of example Example: Partly paid bonus shares Klaus owns 200 shares in MAC Ltd, which he bought on 31 October 1984, and 200 shares bonus shares capital gains PUP Ltd bought on 31 January 1985.
Klaus elected to accept the offer and acquired 200 new partly paid shares in each company.
No part of the value of the bonus shares was taxed as a dividend.
On 1 April 1989, PUP Ltd made a call for the balance of 50 cents outstanding on the partly paid shares, payable on 30 June 1989.
Klaus paid the call payment on that date.
MAC Ltd has not yet made any calls on its partly paid shares.
For CGT purposes, Klaus is treated as here acquired his bonus PUP Ltd shares on the date he became liable to pay the call 1 April 1989.
The cost base of the bonus shares in PUP Ltd includes the amount of the call payment 50 betfred no deposit bonus codes plus the market value of the shares immediately before the call was made.
The MAC Ltd bonus shares will continue to have the same acquisition date as the original shares 31 October 1984 and are therefore not subject to CGT.
However, this will not be the case if Klaus makes any further bonus shares capital gains to the company on calls made by the company for any part of the unpaid amount on the bonus shares.
In this case, the acquisition date of the bonus shares will be when the liability to pay the call arises and the bonus shares will then be subject to CGT.
End of example Where the paid-up value is assessed as a dividend If the paid-up value of bonus shares issued on or after 20 September 1985 is assessed as a dividend, you may have to pay capital gains tax CGT when you dispose of the bonus shares, regardless of when you acquired the original shares.
Original shares acquired on or after 20 September 1985 If your bonus shares relate to original shares that you acquired on or after 20 September 1985, the acquisition date of the bonus shares is the date they were issued.
Their cost base and reduced cost base includes the amount of the dividend, plus any call payments you made to the company if they were only partly paid.
The exception to this rule is bonus shares you received before 1 July 1987.
They coral bonus taken to be acquired on the date you acquired your original shares.
Their cost base is calculated as if the amount was not taxed as a dividend see.
Original shares acquired before 20 September 1985 The rules that apply where you acquired your original shares before 20 September 1985 depend on when the bonus shares were issued and whether they were partly paid or fully paid.
On 1 February 1997, the company issued him with 500 bonus shares partly paid to 50 cents.
On 1 May 1997, the company made a call for the 50 cents outstanding on each bonus share, which Mark paid on 1 July 1997.
The bonus shares have an acquisition date of 1 February 1997.
If Mark held the bonus shares for more than 12 months when he sold them, he can use the indexation method to calculate moneycontrol issue upcoming bonus capital gain.
Amounts payable to a company on shares in the company can be indexed only from the date of actual payment.
This is different from the indexation treatment of amounts paid to acquire assets in other circumstances where indexation is available from the time the liability to make the payment arises.
If Mark disposes of the shares after 11.
Answer 3 You are taken to have acquired the bonus shares before 20 September 1985 and they are not subject to capital gains tax.
Our commitment to you We are committed to providing you with accurate, consistent and clear information to help you understand your betfred no deposit bonus codes just click for source entitlements and meet your obligations.
If you follow our information and it turns out to be incorrect, or it 1 bonus marino misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.
Some of the information on this website applies to a specific financial year.
This is clearly marked.
Make sure you have the information for the right year before making decisions based on that information.
If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.
Copyright notice © Australian Taxation Office for the Commonwealth of Australia You are free to copy, adapt, modify, transmit and distribute this material as you wish but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products.

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Many companies are declaring bonus to their shareholders. If a shareholder sells bonus shares in less than one year after the allotment date, he is liable to pay short term capital gain tax on them.


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How to calculate CGT
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LTCG or Long Term Capital Gain Tax on Stocks and Equity Mutual Funds