2000 (12) TMI 46 - HC - Income Tax

Summary

Issues:
1. Determination of cost of acquisition for computation of capital gains on shares sold by a Hindu undivided family.
2. Interpretation of Section 49(1)(iv) of the Income-tax Act, 1961 regarding the cost of acquisition in cases of blending.

Analysis:
1. The case involved the sale of 3,900 shares by a Hindu undivided family during the assessment year 1975-76. The Income-tax Officer initially considered the cost of acquisition as nil, resulting in the taxation of the entire sale amount as capital gains. The assessee contended that the cost of acquisition should be the market value of the shares as of the date when they were thrown into the common hotchpotch. The Appellate Assistant Commissioner referred to a previous Tribunal decision, which held that the cost of acquisition should be the real market value of the asset on the date of blending. The Tribunal upheld this view, leading to the current reference before the High Court.

2. The High Court analyzed Section 49(1)(iv) of the Income-tax Act, which deals with the cost of acquisition in cases of blending for a Hindu undivided family. The provision states that the cost of acquisition shall be deemed to be the cost for which the previous owner acquired the asset, increased by any improvement costs. The Court noted that the blending in this case occurred on November 28, 1970, falling after the relevant date specified in the provision. Referring to previous judgments, the Court held that the amount spent by the person who threw the asset into the common hotchpotch should be considered the cost of acquisition. The Tribunal was directed to determine this amount in accordance with Section 260 of the Act, emphasizing that the cost of acquisition cannot be considered nil, as previously held.

In conclusion, the High Court disposed of the reference by clarifying the correct interpretation of the cost of acquisition for shares sold by a Hindu undivided family and directing the Tribunal to reevaluate the matter based on the principles outlined in the judgment.