1979 (8) TMI 33 - HC - Income Tax

Summary

Issues Involved:
1. Determination of the cost of acquisition of assets for capital gains computation.
2. Applicability of market value as on July 1, 1962, for computation of capital gains.
3. Interpretation of relevant sections of the Income Tax Act, 1961, particularly sections 45, 48, 49, and 50.
4. Validity of the Tribunal's direction to rehear the appeal.

Issue-wise Detailed Analysis:

1. Determination of the cost of acquisition of assets for capital gains computation:
The primary issue was whether the cost of acquisition of the firm's assets should be their market value as on July 1, 1962. The firm, consisting of two partners (father and son), acquired the assets through a complete partition of their HUF on July 1, 1962. The assets were subsequently brought into the firm as its assets. The Income Tax Officer (ITO) computed the capital gains based on the book value of the properties as their market value on January 1, 1954. The Appellate Assistant Commissioner (AAC) modified this computation, directing that the capital gains be computed at 30% of the sale proceeds. The Tribunal, however, set aside the AAC's order, directing a rehearing of the appeal to consider the market value as on July 1, 1962.

2. Applicability of market value as on July 1, 1962, for computation of capital gains:
The Tribunal's direction to consider the market value as on July 1, 1962, was contested. The Tribunal initially observed that the cost of acquisition might have to be taken as the market value on July 1, 1962. However, in a subsequent order dated August 8, 1972, the Tribunal clarified that it had not given a finding that the cost of acquisition should be the market value as on July 1, 1962. This observation was inconsistent with its earlier direction.

3. Interpretation of relevant sections of the Income Tax Act, 1961:
The court examined sections 45, 48, 49, and 50 of the Income Tax Act, 1961. Section 45 deals with the chargeability of capital gains tax. Section 48 outlines the mode of computation of capital gains, focusing on the cost of acquisition and improvement. Section 49 specifies modes of acquisition, including partition of an HUF, where the cost of acquisition is deemed to be the cost for which the previous owner acquired it. Section 50 deals with depreciable assets and their written-down value. The court concluded that the present case did not fall under any specific mode mentioned in section 49. Therefore, the computation of capital gains had to be made with reference to the cost of acquisition and any improvements as per section 48(ii).

4. Validity of the Tribunal's direction to rehear the appeal:
The court noted that the Tribunal's direction for rehearing was based on an incorrect interpretation of the applicable provisions. The learned counsel for the Commissioner argued that there was no statutory provision authorizing the computation of capital gains based on the market value as on July 1, 1962. The court agreed, stating that the relevant provisions did not envisage the market value of the assets being taken with reference to any date other than January 1, 1954. Consequently, the cost of acquisition alone should be considered.

The court also referenced a similar case (T.C. No. 174 of 1975) where it was held that the market value as on a date subsequent to January 1, 1954, could not be taken into account for an asset acquired after that date. The cost of acquisition should be the value as per the books.

Conclusion:
The court concluded that the cost of acquisition of the assets should be taken at the value at which they appeared in the books of the firm as on July 1, 1962. The question was answered in the negative and in favor of the revenue, with no order as to costs.