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Issues Involved:
1. Escapement of income. 2. Cost of acquisition of assets for capital gains computation. Issue-Wise Detailed Analysis: 1. Escapement of Income: The department appealed against the CIT(A)'s order, which held that there was escapement of income. The assessee had returned a total income of Rs. 4,24,198 for the assessment year 1991-92. Upon discovering that capital gains had escaped assessment, a notice under section 148 was issued, leading to reassessment proceedings. The assessee had purchased 120 shares of Jupiter Press (P.) Ltd. (JPPL) and received immovable property upon the company's liquidation. The property was later sold, and the assessee computed capital gains based on the value of the shares. The Assessing Officer recomputed the capital gains, considering the cost to the previous owner, resulting in a higher capital gain of Rs. 32,69,795 compared to the assessee's computation of Rs. 7,56,240. 2. Cost of Acquisition of Assets: The CIT(A) upheld the assessee's computation, following a previous order that sections 49(1)(iii)(c) and 55(2)(b)(iii) should be read together. The department argued that similar cases had been decided against the assessee, where the cost to the previous owner was considered for capital gains computation. The assessee's counsel contended that the reliance on certain judgments was misplaced and that the provisions of section 55(2)(b)(iii) were not considered in earlier orders. The counsel argued that there were two taxable events: the transfer of shares and the transfer of property received on liquidation. Since both transactions occurred in the same financial year, the computation of capital gains should consider the fair market value of the property on the date of distribution as per section 55(2)(b)(iii). Judgment Analysis: The Tribunal considered the rival contentions and the material on record. It clarified that the judgments in Shantha Rangarajan and Theatre Sri Rangaraja were not applicable to the present case, which involved the distribution of assets by a company on its liquidation. The Tribunal examined the relevant provisions: sections 46(1), 46(2), 49(1)(iii)(c), and 55(2)(b)(iii). Section 46(1): This provision was not relevant as it pertained to the company's distribution of assets, not the shareholder's case. Section 46(2): This section charged the shareholder to capital gains tax upon receiving money or assets on liquidation. The fair market value of the asset on the date of distribution was considered the sales consideration for computing capital gains. Section 49(1)(iii)(c): This section deemed the cost of acquisition of the asset to be the cost to the previous owner when a capital asset became the property of the assessee on liquidation. Section 55(2)(b)(iii): This section provided that if the assessee had been assessed to capital gains tax under section 46, the cost of acquisition would be the fair market value of the asset on the date of distribution. The Tribunal analyzed hypothetical computations to illustrate the application of these provisions. It concluded that if the assessee offered capital gains for taxation as they arose, the total capital gains would be Rs. 70. However, if the assessee postponed the taxability of capital gains, the total would be Rs. 90. The Tribunal noted that both transactions occurred in the same year, complicating the application of section 55(2)(b)(iii). The Tribunal held that the earlier orders of the Tribunal were not per incuriam, as the provisions of section 55(2)(b)(iii) were considered. It emphasized judicial discipline and followed the earlier orders, applying section 49(1)(iii)(c) to compute capital gains based on the cost to the previous owner. Conclusion: The appeal of the department was allowed, and the cost to the previous owner was considered for computing capital gains in terms of section 49(1)(iii)(c).
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