Sri Shashi Parvatha Reddy Vs. Dy. CIT (ITAT Hyderabad)
Coming to the second category of shares i.e. the original and the bonus shares transferred to the assessee by the overseas investors without any cost attached to them, we find that the original shares were initially purchased or acquired by the overseas investors by way of inward remittances of foreign exchange and they were also allotted the bonus shares on the original shares. As held by us in the above paragraphs, the bonus shares acquire the character of the original shares acquired by the overseas investors.
Coming to their transfer to the assessee, the assessing officer has accepted the assets as long term capital assets by taking into consideration the period of holding of the overseas investors also. Having done so, it is not open to the assessing officer to treat the said asset as acquired without any cost by the assessee. Since the assessee has received the asset without any cost, it has to be treated as a gift and the cost of acquisition of the previous owner has to be treated as a cost of acquisition to the assessee. In view of the same, the original shares acquired by the assessee from the overseas investors are also foreign exchange assets under section 115E of the Act and the cost of acquisition of the earlier owners has to be allowed as cost of acquisition of the assessee while computing the long term capital gain. Further, with regards to the capital gain on the sale of bonus shares, our findings in the above paragraphs with regard to the bonus and shares acquired by the assessee hold good even for these shares. The findings of the assessing officer that the assessee has got the bonus shares allotted to him and his father only to avoid tax is not based on any evidence.
