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TMI Blog1998 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... e Contractor from whom the assessee had inherited the asset should not be taken into account and adjusted from the value on January 1, 1954, for the purpose of computation of cost of asset for taking capital gain ?" The facts and circumstances of the case in which the question has arisen are that the late Shri Adie Contractor was the owner of a cinema theatre which he acquired prior to January 1, 1954. He died on January 16, 1972. The respondent-assessee, along with two others, inherited the cinema theatre. The asset was sold during the previous year relevant to the assessment year 1977-78. The assessee opted to take the fair market value of the asset as on January 1, 1954, as its cost of acquisition under section 55(2) read with section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he previous year in which the transfer took place". Section 46 deals with the situation arising in the case of distribution of assets to the shareholders on liquidation of a company. Section 47 enumerates certain transactions which are not subjected to charge of capital gains. Section 48 prescribes the mode of computation of capital gain arising on transfer of a capital asset. It in turn envisages that from the full value of the consideration received or receivable as a result of the transfer of the capital asset there shall be deducted expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of the capital asset and the cost of any improvement thereto. Thus, cost of acquisition becomes the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration received or accruing as a result of the transfer of any other capital asset falling within the block of assets during the previous year, exceeds the aggregate of the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer or transfers ; (ii) the written down value of the block of assets at the beginning of the previous year ; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, such excess shall be deemed to be the capital gains arising from the transfer of short-term capital assets ; (2) where any block of assets ceases to exist as such, for the reason that all the assets in that block are transferred during the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the written down value to arrive at the amount of cost of acquisition that is to be deducted from the full value of consideration. Sub-section (2) of section 50 envisages that where on a combined reading of section 49 section 55(2), the assessee opts to take the fair market value of an asset as on January 1, 1954, then such fair market value of the capital asset in question is to be reduced by the amount of depreciation, if any, allowed to the assessee after the said date. The assessee here also cannot be anybody but the assessee in relation to whom the capital gains are to be computed for the purpose of levying tax under the Act of 1961. Here also the word "cost of acquisition" is qualified with expression "as adjusted". Thus, on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered otiose. This contention also does not merit serious consideration. The expression "as adjusted" used in clause (1) as well as ' clause (2) of section 50, has been defined in section 55(1)(a) which reads as under : " 'adjusted', in relation to written down value or fair market value, means diminished by any loss deducted or increased by any profit assessed, under the provisions of clause (iii) of sub-section (1) or clause (ii) of sub-section (1A) of section 32 or sub-section (2) or sub-section (2A) of section 41, as the case may be, the computation for this purpose being made with reference to the period commencing from the 1st day of January, 1954, in cases to which clause (2) of section 50 applies." Whenever realisation is made of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent realisation above written down value up to the amount of depreciation availed of is subjected to tax as income from profits and gains, and any realisation beyond it is subjected to tax as capital gain. However, in case such excess is not received by anyone who has not availed of that depreciation, he does not receive any balancing charge but receives excess over cost of acquisition as capital receipt liable to capital gains. The provisions under section 41(2) make it clear that for the purpose of computing capital gains, the cost of acquisition is to be reduced by actual depreciation availed of by the assessee and is to be increased by the balancing charge, if any, to which he can be subjected under section 41(1) and (2). We a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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