Bonus Shares yield Capital Gains

The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) held that gains arising from the sale of bonus shares received on shares originally held as stock-in-trade can nevertheless be assessed as long-term capital gains where the taxpayer consciously treats the bonus shares as investments from the date of allotment. 

The Tribunal observed that bonus shares do not automatically inherit the character of the original shares and that the taxpayer’s intention, reflected through accounting treatment and conduct, is a crucial determinant. 

Relying on CBDT Circular No. 6/2016 and established judicial precedents, the Tribunal upheld the treatment of gains from sale of Infosys bonus shares as exempt long-term capital gains rather than business income.