1996 (11) TMI 27 - HC - Income Tax

Agricultural Land Capital Asset Capital Gains Computation Of Capital Cost Of Acquisition Set On Supreme Court

Summary

Issues Involved:
1. Applicability of the principle in CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 (SC) to the present case.
2. Determination of the value of land as on January 1, 1954, for the purpose of computing capital gains.

Issue-wise Detailed Analysis:

1. Applicability of the principle in CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 (SC):

The primary issue is whether the principle established in CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 (SC) applies to the present case. The assessee argued that the value of the land should be determined based on its conversion from agricultural land to house sites in the assessment year 1961-62. The assessee supported this contention by citing the Supreme Court decision in Bai Shirinbai K. Kooka, where the court held that the assessable profits on the sale of shares should be the difference between the sale price and the market price on the date of conversion into stock-in-trade, not the original cost.

However, the court distinguished the present case from Bai Shirinbai K. Kooka, noting that the latter involved the conversion of capital assets into stock-in-trade for business purposes, which is not the case here. The court emphasized that the issue at hand is the determination of capital gains as per sections 45, 48, 49, and 55 of the Income-tax Act, 1961, and not the computation of business income. Consequently, the principle laid down in Bai Shirinbai K. Kooka was deemed inapplicable to the present case.

2. Determination of the value of land as on January 1, 1954:

The assessee contended that the value of the land should be taken at Rs. 6,500 per ground based on a valuer's report, while the Income-tax Officer determined the value at Rs. 2,000 per ground as on January 1, 1954. The court examined the statutory provisions and judicial precedents to resolve this issue.

The court reviewed several decisions from various High Courts, which established that for determining capital gains, the cost of acquisition should be ascertained based on the statutory provisions in sections 45, 48, 49, and 55 of the Income-tax Act. The court cited cases such as M. Venkatesan v. CIT [1983] 144 ITR 886 (Mad), Ranchhodbhai Bhaijibhai Patel v. CIT [1971] 81 ITR 446 (Guj), and CIT v. M. Ramaiah Reddy [1986] 158 ITR 611 (Kar), which supported the view that the cost of acquisition should be determined as on January 1, 1954, when the land was acquired by the previous owner, not at the time of its conversion into house sites.

The court concluded that the Tribunal correctly determined the capital gains by adopting the value of the land as Rs. 2,000 per ground as on January 1, 1954. The court held that the assessee's argument for using the value at the time of conversion in 1961-62 was not supported by statutory provisions or relevant judicial precedents.

Conclusion:
The court affirmed the Tribunal's decision, holding that the principle in CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 (SC) does not apply to the present case. The court upheld the determination of the land's value at Rs. 2,000 per ground as on January 1, 1954, for computing capital gains. The question referred to the court was answered in the affirmative and against the assessee, with no costs awarded.