1973 (9) TMI 42 - HC - Income Tax

Issues Involved:

1. Levy of tax on capital gains.
2. Substitution of market value as of January 1, 1954, for the cost of acquisition.
3. Classification of depreciable assets under Section 50 of the Income-tax Act, 1961.
4. Constitutionality of Sections 45 to 55 of the Income-tax Act, 1961, under Article 14 of the Constitution.

Issue-wise Detailed Analysis:

1. Levy of Tax on Capital Gains:

In Special Civil Application No. 103 of 1972, the petitioner-company challenged the assessment of capital gains tax levied by the Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal. The company had sold its building and machinery, which were purchased before January 1, 1954, and had obtained depreciation on these assets. The Income-tax Officer levied capital gains tax on the difference between the sale price and the written-down value as adjusted under Section 50(1) of the Income-tax Act, 1961. The petitioner-company argued that the market value as of January 1, 1954, should be considered the cost of acquisition for computing capital gains. This claim was rejected by the Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal.

2. Substitution of Market Value as of January 1, 1954, for the Cost of Acquisition:

The petitioner-company contended that the market value as of January 1, 1954, should be substituted as the cost of acquisition for the building and machinery. The relevant question referred to the court was: "Whether, on the facts and circumstances of the case, the applicant was entitled to substitute the value as on January 1, 1954, as the cost of acquisition of the building and machinery?" The court held that only assessees who acquired depreciable assets in the modes prescribed under Section 49 have the benefit of this option. Since the petitioner-company did not acquire the assets in any of the modes mentioned in Section 49, it fell under Section 50(1), and the adjusted written-down value was to be considered the cost of acquisition.

3. Classification of Depreciable Assets under Section 50 of the Income-tax Act, 1961:

The petitioner-company argued that the classification of depreciable assets into those acquired under Section 49 and those acquired otherwise was irrational, arbitrary, and violated Article 14 of the Constitution. The court examined Sections 48, 49, and 50 of the Income-tax Act, 1961, and concluded that the classification had a rational basis. The legislature classified assessees into two groups: (i) those who acquired depreciable assets themselves and enjoyed depreciation, and (ii) those who acquired depreciable assets as successors and did not enjoy depreciation. This classification was found to be reasonable and not arbitrary.

4. Constitutionality of Sections 45 to 55 of the Income-tax Act, 1961, under Article 14 of the Constitution:

The petitioner-company challenged the constitutionality of Sections 45 to 55, particularly Section 50, under Article 14 of the Constitution, claiming it resulted in discriminatory treatment. The court held that the classification made by the legislature was based on intelligible differentia and had a reasonable nexus with the object of the legislation, which was to levy and collect capital gains tax. The court referred to various Supreme Court decisions and principles, emphasizing that fiscal statutes have a wider latitude in matters of classification. The court concluded that the classification did not result in hostile or unequal treatment and was, therefore, not discriminatory.

Conclusion:

The court dismissed the petition, ruling that the petitioner-company was not entitled to substitute the market value as of January 1, 1954, as the cost of acquisition for the building and machinery. The classification of depreciable assets under Section 50 was found to be reasonable and not in violation of Article 14 of the Constitution. The rule was discharged, and the petitioner-company was ordered to pay the costs of the reference to the Commissioner of Income-tax.

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