2014 (6) TMI 14 - HC - Income Tax

Computation of capital gain - FMV u/s 55(3) - fair market value of the assets as on 1.4.1981 assessee acquired the property by succession from previous owner No cost of acquisition of acquired land Held that - Following The Commissioner of Income Tax, Patiala Versus Raja Malwinder Singh, Patiala 2011 (1) TMI 775 - PUNAJB AND HARYANA HIGH COURT section 55(3) statutorily prescribes the cost to be equal to the market value on the date of acquisition - This being the position, capital gain is not excluded even on the plea that value of the asset in respect of which capital gain is to be charged was incapable of being ascertained section 55(3) provides for a situation where value of the asset acquired could not be ascertained - If market value can be ascertained, it has to be taken to be equal thereto and if the value cannot be ascertained, it has to be equal to market value on a specified date at the option of the assessee - It is not the case of the assessee that land had no market value at all on the date of its acquisition - even where the cost of acquisition of capital asset cannot be ascertained but the asset has a market value, capital gain will be attracted by taking the cost of acquisition to be fair market value as on January 1, 1954, or on date statutorily specified or at the option by the assessee, the market value on the date of acquisition no substantial question of law arises for consideration Decided against Assessee.

Summary

Issues:
1. Application of the judgment of CIT v. Raja Malwinder Singh to the present case
2. Computation of capital gain under section 55(3) of the Income Tax Act

Analysis:

Issue 1: Application of CIT v. Raja Malwinder Singh Judgment
The appellant challenged the application of the judgment of CIT v. Raja Malwinder Singh to their case. The Full Bench of the High Court had previously considered this issue and concluded that even if the cost of acquisition cannot be ascertained, capital gain will be attracted by taking the fair market value as on a specified date or at the option of the assessee. The Court emphasized that under the statutory scheme, there can be no situation where the cost is incapable of ascertainment. The Court referred to sections 48, 49, 55(2), and 55(3) of the Act to support its decision. The appellant's argument that the previous owner had not incurred any cost and therefore the provisions of section 55(2)(b) or 55(3) should not apply was rejected. The Court held that the cost of acquisition should be taken as the fair market value on the specified date if the cost of the previous owner cannot be ascertained.

Issue 2: Computation of Capital Gain under Section 55(3)
The Assessing Officer had computed the capital gains in relation to the acquisition of land by adopting the market value of the land as on 1.4.1981. The appellant argued that the cost of acquisition should be taken as the cost to the previous owner under Section 49 of the Act. However, the Court disagreed with this argument, stating that the previous owner is the person who has acquired the asset by payment of money. The Court highlighted that the appellant had acquired the property by succession from the previous owner, and since the cost of acquisition by the previous owner could not be ascertained, the fair market value on the specified date had to be considered for computing capital gains.

In conclusion, the Court dismissed the appeal, stating that no substantial question of law arose in this case. The judgment of the Full Bench in CIT v. Raja Malwinder Singh was upheld, emphasizing the statutory provisions and principles governing the computation of capital gains in cases where the cost of acquisition cannot be ascertained.