Zash Traders Vs ACIT (ITAT Bangalore)
In the case of Zash Traders vs. ACIT (Income Tax Appellate Tribunal, Bangalore), the dispute revolves around the taxation treatment of bonus shares under the Income Tax Act, specifically focusing on the interpretation of Section 55(2)(aa)(B)(iiia) and its application in computing capital gains. Here’s a detailed summary of the case and the arguments presented:
Background and Legal Framework
Section 55 of the Income Tax Act defines various terms relevant to the computation of capital gains, including “cost of acquisition.” Before the introduction of sub-clause (iiia) under Section 55(2)(aa)(B), there was no specific provision addressing the cost of acquisition of bonus shares. The judicial precedent, particularly based on decisions like CIT vs. Dalmia Investment Company Ltd. and Escorts Farms (Ramgarh) Ltd. vs. CIT, applied a method of averaging the cost of original shares over both the original and bonus shares received.
Introduction of Sub-Clause (iiia)
Sub-clause (iiia) was introduced by the Finance Act, 1995, effective from the assessment year 1996-97. It mandates that the cost of acquisition of bonus shares allotted without payment should be considered as “Nil” for the purpose of computing capital gains. This legislative amendment aimed to simplify the calculation of capital gains arising from bonus shares and to ensure uniformity in tax treatment.
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