1998 (2) TMI 38 - HC - Income Tax

Summary

Issues:
1. Computation of capital gains on the transfer of property received by the assessee from a company on reduction of its share capital.
2. Entitlement of the assessee to substitute the market value of the property as the cost of acquisition in computing the capital gains.

Detailed Analysis:
1. The judgment pertains to a tax case where the assessee received a property known as "Sabarmathi" on the reduction of the share capital of a company. The issue revolved around the computation of capital gains arising from the subsequent sale of this property. The Income-tax Officer determined the cost of acquisition based on the book value of the property, while the assessee contended that the market value at the time of acquisition should be considered. The Appellate Assistant Commissioner upheld the Income-tax Officer's computation.

2. The crux of the matter was whether the assessee was entitled to substitute the market value of the property as the cost of acquisition for computing capital gains. The Appellate Tribunal referred to a previous judgment involving a similar scenario where it was held that the value of the property received in lieu of reduction in share capital could not exceed the amount stated to be returned to the shareholder. The Tribunal concluded that the assessee could not substitute the market value for the cost of acquisition.

3. The court considered arguments from both sides, referencing a previous case involving the assessee's wife where a similar issue was addressed. In that case, it was established that the property received in exchange for the reduction of share capital should be valued based on the book value at the time of acquisition. The court emphasized that shareholders could not claim additional benefits beyond what was specified in the company's resolution for transferring assets.

4. Drawing parallels between the previous judgment and the current case, the court ruled in favor of the Revenue and against the assessee. It was held that the assessee was not entitled to substitute the market value of the property for the cost of acquisition in computing capital gains. Consequently, the tax case was dismissed with no order as to costs based on the facts and circumstances of the case.