1993 (1) TMI 57 - HC - Income Tax

Summary

Issues:
1. Determination of cost of acquisition for calculating capital gains on land acquired without payment.
2. Application of relevant legal provisions and case laws to determine the cost of acquisition.

Analysis:

Issue 1: Determination of cost of acquisition for calculating capital gains on land acquired without payment:
The case involved a reference under section 256(1) of the Income-tax Act, 1961, regarding the cost of acquisition of land for determining capital gains. The land in question was thrown into a Hindu undivided family without any payment by the previous owner. The dispute arose regarding whether the cost of acquisition for the current owner should be considered as nil or based on the fair market value of the land on the date it was thrown into the Hindu undivided family. The Income-tax Officer initially considered the cost to be the amount paid by the individual who put the land into the family, while the Appellate Assistant Commissioner and the Tribunal held that the fair market value on the date of acquisition should be considered. The Tribunal partly allowed the appeal and directed the deduction of certain amounts from the compensation received by the assessee.

Issue 2: Application of relevant legal provisions and case laws to determine the cost of acquisition:
The legal arguments presented by the parties revolved around the interpretation of the term "cost of acquisition" under section 48(1)(a)(ii) of the Income-tax Act. The assessee relied on the decision in CIT v. Ashwin M. Patel, which held that the cost of acquisition for inherited or partitioned property should be the market value on the date of acquisition. The Revenue argued for considering the cost of acquisition by the original owner, citing the Delhi High Court decision in Addl. CIT v. Madan Lal Jain and Sons. Additionally, references were made to the Supreme Court and various High Court decisions to support different interpretations of the cost of acquisition in cases of property devolution and assets acquired without payment.

In conclusion, the High Court, following its previous decision in Ashwin M. Patel's case, answered the questions in favor of the assessee, stating that the cost of acquisition for determining capital gains should be the fair market value on the date of acquisition. The court declined to refer the matter to a larger Bench considering the small tax effect and the change in law after 1976.