JUDGMENT : Y.B. Bhatt, J. In the present reference under section 256(1) of the Income-tax Act, 1961, the following question is referred to us for our decision : "Whether, on the facts and in the circumstances of the case, the cost of acquisition of the 300 shares in Alembic Chemicals Industries and 200 shares in Alembic Glass Industries, sold by the assessee during the previous year relevant to the assessment year in question, should be determined on the basis of the actual cost of acquisition of these shares or on the basis of averaging the cost of the original shares and right shares/bonus shares received thereon ?" 2. The assessee had in the relevant year sold 300 shares of Alembic Chemicals Industries and 200 shares of Alembic Glass Industries and the question arose as to computation of the capital gains arising from these sales, particularly the manner and method of computation of the cost price, to be taken into consideration. According to the assessee, the purchase of shares of Alembic Chemicals Industries was at the specific rate of Rs. 130 per share on August 1, 1972. 200 shares of Alembic Glass Industries were purchased by her-50 shares on April 14, 1965, at Rs. 100 per share, and the remaining 150 shares on February 26, 1965, at the rate of Rs. 205 per share. According to the assessee, the cost of acquisition for the purpose of computation of capital gains should be worked out only on the basis of the actual cost incurred by the assessee, i.e., the price paid for the purchase of these shares. However, according to the Revenue, bonus shares had been issued to the assessee on the basis of the assessee's shareholding in the said companies, accruing on those shares purchased by the assessee from the market. Thus, according to the Revenue, the cost price of the shareholdings of the assessee should be worked out by the method of averaging out the cost price. In other words, the bonus shares issued upon the shares purchased from the market must also be taken into consideration for arriving at the cost of acquisition for the purpose of capital gains. 3. The Income-tax Officer applied the principle of averaging out and computed the capital gains accordingly. This was also confirmed by the Appellate Assistant Commissioner in the appeal by the assessee. 3. The Income-tax Officer applied the principle of averaging out and computed the capital gains accordingly. This was also confirmed by the Appellate Assistant Commissioner in the appeal by the assessee. The assessee took the matter in second appeal before the Tribunal who reversed the order of the Appellate Assistant Commissioner and the Income-tax Officer. 4. The Tribunal appears to have taken the view that the specific shares which were sold, in respect of which the capital gains were required to be computed, were shares purchased from the market and in respect of which the cost of acquisition was specifically indicated by the assessee. The principle of averaging out was not applied by the Tribunal on the basis of its observation that the facts of the present case are distinguishable from the case of Dhun Dadabhoy Kapadia (Miss) v. CIT 1967 (63) ITR 651 (SC), inasmuch as, in the cited case, the question was of acquisition of rights shares. The Tribunal, in that context, observed that, in the present case, such is not the case. However, there does not appear to be any controversy as regards the fact that the assessee, after having purchased the shares in question from the market, had also acquired further shares by way of a bonus issue. This puts the entire situation in a different perspective. 5. Such a situation has been specifically contemplated and decided by this court in the case of Alembic Chemical Works Ltd. (No. 1) v. CIT 1992 (194) ITR 497. In the said decision, while discussing the decision of the Supreme Court in the case of CIT v. Dalmia Investment Co. Ltd. 1964 (52) ITR 567 , this court observed that the question before the Supreme Court was not merely with regard to the cost of bonus shares. The Supreme Court had worked out the cost of original as well as bonus shares by spreading the cost of original shares over the original shares and the bonus shares. Hence, for the purpose of working out capital gains arising out of sale of original shares, the cost of shares to be deducted from the sale proceeds should be worked out by spreading the cost at which the original shares were purchased over the original shares and the bonus shares. 6. On the facts of the present case, the aforesaid decision of this court applies squarely. 6. On the facts of the present case, the aforesaid decision of this court applies squarely. Under the circumstances, the computation of capital gains in respect of the assessee in relation to the shares sold by the assessee in the relevant year can be done only by averaging out the cost of the shares purchased from the market and the bonus shares accruing to the assessee on the shares so purchased. 7. We make it clear that the principle of averaging out the cost of acquisition would apply only where the shares which are the subject-matter of the sale have been followed by issuance of bonus shares, on the shares so purchased from the market. 8. Under the circumstances, the question referred to us is answered as under : In the facts and circumstances of the case, the cost of acquisition of shares in question should be computed on the basis of averaging out the cost of the original shares and the bonus shares received thereon. This reference stands disposed of accordingly. No order as to costs.