Sanjay Gala vs. ITO (ITAT Mumbai)

DATE: (Date of pronouncement)
DATE: July 28, 2011 (Date of publication)

Click here to download the judgement (sanjay_gala_bonus_shares_115F.pdf)

Bonus shares eligible for s. 115F relief if original shares acquired in foreign currency

The assessee, a NRI, purchased shares in foreign currency. On the sale of bonus shares, the assessee claimed relief u/s 115F. The AO & CIT (A) rejected the claim on the ground that s. 115F applied only to shares “acquired or purchased with, or subscribed to in, convertible foreign exchange” and not to bonus shares. On appeal by the assessee, HELD allowing the appeal:

The department’s objection that the assessee has received bonus shares without investing any convertible foreign exchange is not correct because as the original shares were acquired by investing convertible foreign exchange, it cannot be said that the bonus shares were acquired without taking into consideration the original shares. In accordance with Dalmia Investment 52 ITR 567 (SC) the cost of acquisition of the original shares is closely interlinked with the bonus shares. Once bonus shares are issued, the averaging out formula has to be followed with regard to all shares. Accordingly, bonus shares are covered by s. 115C(b) and eligible for benefit u/s 115F.

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