1981 (11) TMI 30 - HC - Income Tax

Summary

Issues:
1. Interpretation of the cost of acquisition for the computation of capital gains arising from the sale of shares.

Analysis:
The case involved a question regarding the cost of acquisition of shares for the computation of capital gains. The assessee, an HUF, acquired 40 shares from Madan Lal Jain, the karta of the HUF, without any direct cost incurred by the assessee. The Income Tax Officer (ITO) determined the cost of acquisition as nil, resulting in a capital gain of Rs. 61,000. The Appellate Authority Commission (AAC) upheld the ITO's decision, but the Tribunal ruled in favor of the assessee, considering the cost of acquisition to be Rs. 40,000, the amount at which Madan Lal Jain acquired the shares. The Tribunal did not address the applicability of section 49. The Commissioner then sought a reference to the High Court on the applicability of section 48 in this case.

The Revenue contended that the cost of acquisition should be the actual cost incurred by the assessee, which in this case was nil since no direct cost was borne by the assessee. However, the High Court disagreed with this interpretation. The court analyzed sections 45 and 48 of the Income Tax Act, emphasizing that the cost of acquisition need not be in the hands of the assessee specifically. Referring to the Supreme Court's decision in CIT v. B. C. Srinivasa Setty, the court highlighted that the cost of acquisition pertains to the nature and character of the asset, not necessarily the actual payment made by the assessee. The court noted that the Act did not explicitly require the cost to be incurred by the assessee.

The court further clarified that the absence of specific language such as "to the assessee" in section 48 indicated that the cost of acquisition could be based on the amount spent by Madan Lal Jain to acquire the shares. The court emphasized the importance of strict interpretation in tax provisions and declined to add words not explicitly stated in the law. Consequently, the High Court ruled in favor of the assessee, affirming that the cost of acquisition for the shares should be considered as Rs. 40,000, as determined by the Tribunal. The court's decision was based on the interpretation of relevant sections of the Income Tax Act and previous judicial precedents.