JUDGMENT
S.P. Bharucha, J.
1. Two questions are referred to us in this reference made at the instance of the assessee. They read thus :
“(1) Whether, on the facts and in the circumstances of the case, 120 bonus shares issued by the Century Mills Ltd., can be said to be held by the assessee from the date when to original shares in respect of which they are issued were acquired by the assessee or from the date on which the said bonus shares were issued by the company ?
(2) Whether, on the facts and in the circumstances of the case, the capital gains of Rs. 84,492 arising on the sale of 120 bonus shares of Messrs. Century Mills Ltd., is a short-terms capital gain or a long-term capital gain ?”
2. The bonus shares numbering 120 of Century Mills Ltd., were received by the assessee during the previous year relevant to the assessment year 1070-71 and were sold during the same previous year, the assessee realising the sum or Rs. 84,492 thereby. The Income-tax Officer treated the capital gain of Rs. 84,492 as a short-term capital gain and subjected the assessee to tax accordingly. In appeal, the Appellate Assistant Commissioner and in second appeal, the Income-tax Appellate Tribunal affirmed the decision of the Income-tax Officer. The Tribunal relied upon the decision of the Gujarat High Court in CIT v. Chunilal Khushaldas [1974] 93 ITR 369. This decision squarely covers the point before us and it held that the bonus shares issued by a company are acquired by a shareholder when they are issued and they must be taken to be held by the shareholder from the date of their issue and not from the date when the original shares in respect of which they are issued were acquired by the shareholder.
3. Before us Mr. Mehta, learned counsel for the assessee, fairly stated that the Gujarat decision was against the assessee, but the relied upon the observation of the Delhi High Court in Escorts Farms (Ramgarh) Ltd. v. CIT [1983] 143 ITR 749. The observation is that once the bonus shares have been issued they are treated exactly as other shares, if they rank pari passu with the other shares. Therefore, on the issue of bonus shares what happens is, that though the extent of participation of the holder is not increased, the number of shares is, all holders of original shares being entitled to the bonus. The observation was made in the context of the issue before the court, namely, the cost of acquisition of the original and not bonus shares.
4. We have been taken through the decision of the Gujarat High Court aforementioned and we are, respectfully, in full agreement therewith. It is difficult to see how a bonus share can be said to have been acquired or held by an assessee before the date of the issue.
5. In the result, the first question is answered thus :
The 120 bonus shares issued by the Century Mills Ltd., were held by the assessee on and from the date on which they were issued.
6. Consequently, the second question is answered thus :
The capital gain of Rs. 84,492 arising on the sale whereof is short-term capital gain.
7. No order as to costs.