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TMI Blog1980 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... The machinery belonged to Krishna Rao as his separate property although there was all the time a joint family of which he was the karta. On November 1, 1969, Krishna Rao, declared by writing that the machinery shall be the property of the joint family. Barely two months afterwards, on December 31, 1969, this item of machinery was disposed of as an item of joint family property.It was sold to a third party. The sale consideration received by the family was Rs. 44,000. It was conceded that the family was liable to capital gains tax on this transaction. But the question arose as to how the cost of this machine in the hands of the assessee-family had to be determined for purposes of quantifying the capital gains. When the machinery was Krishna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost to the previous owner of the capital asset, and not the cost to the assessee himself who got the asset from the previous owner. Section 49 lists out these exceptional cases. For instance, where the assessee got the capital asset under a gift inter vivos or under a will, the cost to the donor or the testator, as the case may be, has to be adopted as the assessee's cost. Again, where a Hindu coparcener gets the capital asset in family partition, his cost must be based only on the cost at which the joint family had acquired the asset for itself. What we have in this reference is the reverse case of a joint family becoming the owner by operation of the relevant rule of Hindu law, of the separate property of an individual member of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion does not arise in his assessment. It arises in the context of the assessment of the joint family where the machinery has not suffered any depreciation and has not been granted any depreciation. As we earlier mentioned, the machinery stayed with the family for a few days alone, before the family sold it to a third party. Mr. Jayaraman, however, urged that even if s. 50 does not apply because s. 49, as it stood at the time, does not apply for the assessment year in question, still the written down value of the machinery affords reasonable basis for ascertaining the cost in the hands of the assessee-family, because that was the value in the hands of Krishna Rao when he gave it over, gratis, to the family. Learned counsel cited a Supre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty of the family by being thrown into the family hotchpot. Mr. Rangarajan, learned counsel for the assessee, said that Bist and Sons v. CIT [1979] 116 ITR 131 (SC), did not raise any question of ascertainment of cost in the context of capital gains taxation. He said that the Supreme Court themselves were careful to point out that they were not going into any aspect of levy of capital gains having regard to the limited scope of the question at issue before them. We are, however, of the view that the Supreme Court's decision, even though it appertains to the ascertainment of cost for purposes of working out depreciation allowance or balancing charge, lays down a principle which can be reasonably applied to the present case. The principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly proper basis for cost in the hands of the assessee-family. Learned counsel for the Department said that the I.T. Act has, in certain special situations, taken market value as the guiding figure for ascertainment of cost. He cited s. 55(2) of the Act. His point was that in cases not covered by s. 55(2), market value cannot be taken to be the cost of acquisition of the capital asset. We, however, think it is unnecessary in this case to decide the larger question whether s. 55(2) is exhaustive. It remains for us to state the questions of law referred to us, for entering our formal answers thereto. The questions are as under: " 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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