Capital Gains

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Querist : Anonymous

Querist : Anonymous (Querist)

01 August 2010 My question is related to calculation of acquisition value for computation of capital gains for shares. Assume one had bought some 100 shares in 2008 and received 900 shares as bonus in 2009. In a situation where the entire lot of shares was sold in 2009, the original shares is a long term capital asset and is always likely to be a loss. The bonus shares are eligible to be treated as Short term asset and if one were to take the acquisition price as nil the realised amount is always a Gain. The STCG is huge and in my opinion having to pay 15% tax on it is unfair.

Also the Supreme Court in Escorts Farms (Ramgarh) Ltd. v. CIT [1996] 222 ITR 509 held that after the issue of bonus shares, the cost of the original shares should be spread over the original shares as well as bonus shares taken together and in view of the decision of the apex court the view of the Tribunal that the cost of acquisition of the original shares should not be distributed or spread over the original shares as well as bonus shares is plainly unsustainable in law.

Based on the above ruling, is it possible for one to average the cost of original and bonus shares and accordingly calculate my LTCG /STCG liability ?

srinath

srinath (Expert)
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01 August 2010 no it is not possible..
1st of all the whole of sale proceeds which u recd on STCG is free money to u since u ve not purchased anything.
therefore dept is right is taxing it as STCG.