1987 (3) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Determination of the cost of acquisition of shares for the Hindu undivided family (HUF) for the purpose of computing capital gains.

Summary:

Issue 1: Determination of the cost of acquisition of shares for the HUF for the purpose of computing capital gains

The primary question addressed was whether the market value of the shares at the time of acquisition by the assessee HUF should be taken as the cost thereof for the purpose of computation of capital gains. The assessee, a Hindu undivided family, had its karta, T. Maneklal, who acquired shares at their face value and later threw these shares into the hotch-pot of the HUF. The shares were subsequently sold, and the HUF contended that the market value of the shares at the time they were thrown into the hotch-pot should be deducted from the sale price for computing capital gains u/s 48 of the Income-tax Act, 1961. The Income-tax Officer, however, considered the cost of acquisition to be nil and assessed the entire sale proceeds as capital gains.

The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal had differing views, with the Tribunal directing that the market value at the time of throwing into the hotch-pot be considered as the cost of acquisition. The court, however, confined itself to answering the specific question of the cost of acquisition and did not entertain whether capital gains tax was chargeable.

The court examined sections 45, 48, and 49 of the Income-tax Act, 1961, and concluded that the cost of acquisition must be the actual cost to the assessee, which in this case was nil. The court referenced the Supreme Court's observations in CIT v. B.C. Srinivasa Setty, emphasizing that the charging section and computation provisions constituted an integrated code, and the cost of acquisition must be an actual cost.

The court reviewed judgments from the Delhi and Madras High Courts, which had differing interpretations, but ultimately disagreed with their views. The court also considered the Gujarat High Court's judgment in CIT v. Ashwin W. Patel, which suggested using the market value at the time of acquisition, but the court found this approach inconsistent with the statutory provisions.

In conclusion, the court held that the cost of acquisition of the shares by the HUF must be taken as nil, answering the question in the negative and in favor of the Revenue. No order as to costs was made.