2008 (2) TMI 28 - HC - Income Tax

Capital gains tax - assessee had acquired the ownership rights in the land by operation of law and not by purchase or inheritance - the cost of the acquisition of the land to the assessee was nil - no record of any payment made for the acquisition of the land - Thus, in view of the authoritative pronouncements of the hon ble SC in another case, the Tribunal was right while dismissing appeal of the Revenue - not liable to pay any capital gains tax

Summary

Issues Involved:
1. Whether the assessee was liable to pay capital gains tax for the land acquired through court decree under the Punjab Occupancy Tenants Act, 1952?

Analysis:
The judgment delivered by the High Court of Punjab and Haryana involved a crucial issue regarding the liability of the assessee to pay capital gains tax for land acquired through a court decree under the Punjab Occupancy Tenants Act, 1952. The case originated from the Income-tax Appellate Tribunal's order, where the question was raised whether the assessee was liable to pay capital gains tax on the land acquired. The assessee contended that the land was acquired under the provisions of the Punjab Occupancy Tenants Act, 1952, without any payment, and thus, no capital gains tax was applicable. However, the Income-tax Officer added the amount received from the land acquisition to the assessee's income, leading to subsequent appeals and the matter reaching the High Court.

The Commissioner (Appeals) and the Income-tax Appellate Tribunal both ruled in favor of the assessee, emphasizing that no taxable capital gains arose as the land was acquired by operation of law without any cost to the assessee. The Tribunal's decision was based on a similar case involving identical facts, where it was established that the assessee acquired the land without any payment. The Revenue contended that the profits from the land acquisition should be assessable under the head of "Capital gains," citing judgments from other High Courts. However, the High Court analyzed the provisions of the Income-tax Act, specifically section 45, which states that profits or gains from the transfer of a capital asset shall be chargeable to income-tax under the head "Capital gains."

The High Court referred to the Supreme Court's decision in CIT v. B. C. Srinivasa Setty, which emphasized that the charging section and the computation provision together constitute an integrated code. It was highlighted that all transactions falling under the head "Capital gains" must adhere to the computation provisions, and assets with no conceivable cost of acquisition cannot be subject to the charge. Additionally, the court cited another case, CIT v. New Suraj Transport Corporation P. Ltd., where a similar principle was followed. In the present case, the assessee acquired ownership rights in the land through a court decree, and as there was no record of any payment made for the acquisition, the cost of acquisition was deemed nil.

The High Court concluded that since there was no evidence of any payment made for the land acquisition, and the cost was correctly considered as nil, the assessee was not liable to pay any capital gains tax. The court ruled against the Revenue, citing the authoritative pronouncements of the Supreme Court and the precedent set in similar cases. Therefore, the question of law was answered in the negative, and the reference was accordingly answered in favor of the assessee.