1983 (11) TMI 49 - HC - Income Tax

Summary

Issues:
1. Determination of the cost of acquisition of property in the hands of the assessee-Hindu undivided family.
2. Assessment of capital gains based on the cost of acquisition of the property.

Analysis:
The case involved a reference under section 256(1) of the Income Tax Act, 1961, regarding the determination of the cost of acquisition of a property in the hands of the assessee, which was a Hindu undivided family (HUF). The primary issue was whether the market value on the date when the property was impressed with the character of HUF property should be considered as the cost of acquisition. The Tribunal had rejected the assessee's claim that the market value should be taken as the cost of acquisition. The HUF had purchased a plot of land and constructed a building on it, later transferring the property to the HUF by throwing their shares into the common hotchpot. The Income Tax Officer (ITO) treated the cost of acquisition as nil since no cash consideration was paid at the time of acquisition, resulting in the entire sale proceeds being assessed as capital gains. On appeal, the Appellate Tribunal upheld the decision that the cost of acquisition was nil.

In a similar case, the court referred to a previous judgment where it was established that a profit or gain can only accrue when there is a cost of acquisition. The court interpreted sections 45 and 48 of the Income Tax Act and clarified that the cost of acquisition could be in someone else's hands, not necessarily the assessee's, as long as it was spent by the karta of the HUF. In this case, the cost of land and construction incurred by the transferors of the property to the HUF was considered as the cost of acquisition for the purpose of computing capital gains.

Furthermore, the court cited cases from other High Courts where the concept of cost of acquisition in the context of assets transferred to an HUF was discussed. The court highlighted that the cost of acquisition should be the amount spent by the transferors of the property to the HUF. Therefore, the court concluded that the cost of acquisition in this case should be the expenses incurred by the transferors, which were calculated at Rs. 76,748. Consequently, the court ruled in favor of the assessee, holding that the cost of acquisition should be considered as the amount spent by the transferors, and not nil as determined by the lower authorities.