COMMISSIONER OF INCOME TAX Vs. PORMUTIT BOBY LTD

JUDGEMENT

(1.) IN this reference under S. 256 (1) of the Income -tax Act, 1961 ('the Act') for the asst. yr. 1981- 82, the following question of law has been referred to this Court:

(2.) SHORTLY stated, the facts are that the assessee is a non-resident company. It acquired 1,50,000 shares of Ion Exchange (India) Ltd. of the face value of Rs. 10 each on 17th Aug., 1964, In acquiring the aforesaid shares the assessee paid Rs. 14 lakhs in cash in respect of 1,40,000 shares and the balance 10,000 shares were allotted to the assessee for consideration other than cash. Subsequently, between 6th Sep., 1971 and 28th Aug., 1979 the assessee received from the said company bonus shares aggregating in all to 2,34,000 shares on the following dates:

(3.) BEFORE the CIT (A) , the assessee disputed the cost of acquisition of the shares determined at Rs. 35,040. It was contended that the assessee had been allotted 10,000 equity shares in lieu of technical known-how supplied by the assessee and, therefore, the ITO was wrong in stating that the cost of acquisition of the shares was nil. It was further urged that the shares were acquired on 17th Aug., 1984 and the cost incurred by the assessee on that date in acquiring the shares should have been taken into account by the ITO. The CIT (A) held that the ITO was wrong in determining the cost of acquisition of the shares on the basis of averaging the cost of original shares and the bonus shares received thereon. He held that the price which the assessee paid for acquiring 9,600 equity shares on the date of acquisition would be the cost of acquisition for the purpose of computing the capital gains.