1981 (6) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Determination of the cost of acquisition of shares for the purpose of calculating capital gains.
2. Whether the Tribunal was correct in taking the market value of shares on the dates they were thrown into the common hotchpot as the cost of acquisition.
3. What should be taken as the cost of acquisition if the previous answers are in the affirmative and negative respectively.

Issue-wise Detailed Analysis:

1. Determination of the Cost of Acquisition of Shares for Capital Gains:
The primary issue was whether the cost of acquisition of shares, which were thrown into the common hotchpot of the Hindu Undivided Family (HUF) by its karta, should be considered as "nil" for the purpose of determining capital gains. The Income Tax Officer (ITO) argued that since the HUF did not incur any expense in acquiring these shares, the cost of acquisition should be taken as "nil." However, the Appellate Assistant Commissioner (AAC) and the Tribunal upheld the HUF's contention that the market value of the shares on the date they were thrown into the common hotchpot should be considered as the cost of acquisition.

2. Market Value as Cost of Acquisition:
The Tribunal affirmed that the market value of the shares on the date they were thrown into the common hotchpot should be taken as the cost of acquisition. This was based on the principle that the real value of the property at the time of acquisition should be considered. The court referred to several precedents, including CIT v. Solomon & Sons [1933] 1 ITR 324 (Rangoon High Court), CIT v. A. V. Appu Chettiar [1962] 45 ITR 152 (Madras High Court), and Kalooram Govindram v. CIT [1965] 57 ITR 335 (Supreme Court), which supported the view that the cost of acquisition should be the market value at the time of acquisition, irrespective of whether the property was acquired through purchase, inheritance, or partition.

3. Cost of Acquisition if Previous Answers are Affirmative and Negative:
Given that the answers to the first two questions were in the affirmative, the third question did not survive and was not addressed by the court.

Conclusion:
The court concluded that for the purpose of calculating capital gains, the cost of acquisition of the shares for the HUF should be taken as the market value on the date they were thrown into the common hotchpot by the karta. This decision was based on the principle that the real value of the property at the time of acquisition should be considered, aligning with the precedents set by earlier court decisions. Consequently, the reference was answered in favor of the assessee (HUF) and against the Revenue, with no order as to costs.