COMMISSIONER OF INCOME TAX Vs. D.V. PARANJAPE

JUDGEMENT

(1.) By this income-tax reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the following questions of law, arising out of the order of the Tribunal relating to the assessment year 1978-79, have been referred for opinion of this court:

(2.) Though five separate questions are referred by the Tribunal for the opinion of this court, in effect, the Tribunal considered only three questions. The first question which was agitated by the assessee, related to the validity of the reopening of the assessments. The second question related to the merits of the case and involved the issue as to whether, what was transferred was only the rights of the shareholders or those rights along with the control over the company. The third question involved was whether the assessees were entitled to the benefit of section 54E of the Act in respect of the transfer of bonus shares. There was a difference of opinion between the learned Judicial Member and the learned Accountant Member. The learned Judicial Member held that the assessee had not fully and truly disclosed the material facts, and, therefore, the Assessing Officer was justified in reopening the assessment under sections 147 and 148 of the Act. On the other hand, the learned Accountant Member was of the opinion that such reopening in the present case was legally invalid. On the second question, the Judicial Member held that the transfer of control was reflected in the higher price of the shares and the reality was not that the shares were transferred in addition to the control of the company but the control was transferred in addition to the shares. He, therefore, held that the assessee was not entitled to the benefit of section 54E in respect of transfer of the bonus shares. On the other hand, the learned Accountant Member held that in view of the global nature of the transaction involving the transfer of the whole undertaking as a going concern, and since 100 per cent controlling interest in a company was transferred from one group to another group, the entire resultant gain was in the nature of long-term capital gains and was entitled to the benefit of section 54E of the Act in view of the fact that the entire sale proceeds were invested in the eligible assets. In view of the aforesaid differences of opinion, the matter was referred to the hon'ble President under section 255(4) of the Act. The hon'ble President held that the transaction had resulted in the transfer of shares and transfer of certain interest was only a consequence and incidence of the transfer of the shares. In view thereof, he held that the sale of bonus shares resulted in short-term capital gains. In coming to this conclusion, the hon'ble President relied upon a judgment of this court in the case of Manecklal Premchand (deceased) v. CIT, 1990 186 ITR 554 (Bom). He also held that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in the original returns filed for the assessment year 1978-79, and, therefore, reassessment was justified in law. On the delivery of the opinion of the Third Member, the assessees' appeals were disposed of in consonance with the view of the majority of the members, and, accordingly, dismissed. This is how the reference has come up before us.

(3.) The only issue that was canvassed before us by the assessee was whether the sale of the bonus shares ought to be taxed as short-term gains or as long-term gains. Consequently, if they were to be taxed as long-term gains, whether the assessee was entitled to the benefit under section 54E of the Act. On this issue, Mr. Naniwadekar, the learned counsel appearing on behalf of the respondent-assessee, fairly conceded that this issue is covered against the assessee by the judgment of this court in the case of Manecklal Premchand . In the said judgment, this court, after relying upon a Gujarat High Court judgment in the case of CIT v. Chunilal Khushaldas, 1974 93 ITR 369 (Guj.), held that the bonus shares issued by a company are acquired by a shareholder when they are issued and they must be taken to be held by the shareholder from the date of their issue and not from the date when the original shares in respect of which they are issued were acquired by the shareholder.