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TMI Blog1985 (7) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... s under: "5 (a) The Trustees shall give to the party of the first part the net income that remains from all the properties of the Trust as stated in above para after deducting the expenses for the administration and management of the Trust properties and also the taxes of local authorities and other government taxes till the life time for the party of the first part. (b) If the net annual income as stated above is less than Rs. 12,000, the Trusts shall give to there party of the first part on demand by the party of the first part such amount of the Trust properties. (c) The Trustees shall give Rs. 1,000 p.m. towards the said amount and if at the end of the year the net income is more than Rs. 12,000, the Trustees shall give the surplus amount at the end of the year after the accounts are prepared. (d) If I, the party of the first part, fall ill, entire expenses thereof shall be given by the Trustees, out of the Trust properties. Over and above this, if the party of the first part need money for any rason, the Trustees shall give if found fit and reasonable, the amount which may be reasonable to the party of the first part. 6. I, party of the first part, shall have th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons who may be living at the time of death of The party of the first part. (c) However, if any son of Shakuntala, sister of the party of the first part has died at the time of the death of the party of the first part, the share of such deceased son shall be given in equal proportion to the heirs of the said deceased's son. 8. Whenever occasion arises to distribute the immovable properties stated above in sub-para (a) of Part I, it shall be the absolute right and authority of the Trustees to decided whether the properties be distributed by metes and bounds and to allot the portion or to divide by paying compensation and to decide to whom to give compensation and of such amount and is such a manner or to divide the immovable properties by selling the same." (v) Smt. Shakuntala, sister of the settlor, died on 12th Oct. 1070. (iv) In their WT return for the asst. yr. 1971-72, the assessee had shown the value of their remainderman' interest in the aforesaid trust at Rs. 71,585 each, as on 31st Dec. 1970 being the valuation date. (vii) On 29th Dec. 1979, the assessee sold their remaindermin's interest in the aforesaid trust to Nishant Trust for a consideration of Rs. 1,76, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndermin's interest by a mode of acquisition other than that referred to in clauses of sub-s. (1) of s. 49 of the IT Act, 1961. In this case the asset in the form of remaindermin's interest became the property in her hands under a transfer to Trust. Therefore, in this case the last previous owner is the settlor. Thus the cost of acquisition in your hands is to be determined as the cost of acquisition which was in the hands of previous owner or the fair market value of the asset on 1st Jan 1964 at your option. Here the capital asset namely the corpus of the Trust become the property of the previous owner before 1st Jan. 1964 and the capital asset in the form of remaindermin's interest become the property in your hands by the modes specified in sub-s. 1 of s. 49 of the Act. Now you furnish the working of the cost of acquisition of this asset as per above provisions." 7. For the reasons stated in the assessment orders, the ITO did not accept the stand taken on behalf of the assessee and worked out taxable capital gains of Rs. 74,561 each on the basis that the value of the remaindermin's interest as on 12th Nov. 1970 the day on which Shakuntala died was Rs. 71,685 as per the WT asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quisition could not be conceived. In other words, he emphasised the fact that even though the remaindermin's interest is an asset, the provisions of s. 45 of the Act cannot be attracted because on the facts and in the circumstances of the case, no cost at all could be conceived for acquiring such an asset. He, therefore urged that the IT authorities were not justified in working out the chargeable capital gains in the instance cases. In support of his contentions the ld. counsel for the assessee, apart from relying on the decision in the case of Srinvasa Shetty, relied on the decision in the case of Evans Fraser Co. Ltd. (1981) 25 CTR (Bom) 128 : (1982) 137 ITR 493 (Bom), CIT vs. Modiram Laxmandas (P) Ltd. (1982) 30 CTR (Bom) 209 : (1983) 142 ITR 702 (Bom), Mrs. Shirinbal (P) Pundole (1981) 129 ITR 446 (Bom) and Nila products Ltd. (1983) 36 CTR (Bom) 405 : (1984) 148 ITR 99 (Bom). The learned representative for the Revenue strongly relied on the orders of the IT authorities and urged that the Tribunal should uphold the orders of the CIT (A). 10. We have carefully considered the rival submissions of the parties and we find considerable force in the stand taken on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. brother and need no repetition but the following aspects may be highlighted: (a) Shri Tulsidas Hargovindas who had received certain properties on partition was considered fully competent to alienated the properties in the form of (i) bungalow Tulsikunj (ii) shares and (iii) securities of the aggregate value of Rs. 1,70,500. (b) Shri Tulsidas settle the above properties in trust on 16th May 1960 under certain terms mentioned in para 3 of the order of may ld. brother. On the fulfilment of certain conditions the trustees were required to distribute the immovable property to the assess. As Shri Tulsidas is alive the question of distribution did not arise. (c) Before the occasion for actual handing over the property arose the assessee sold his interest to Nishant Trust for Rs. 1,76,000. 3. The assessee's contention was that as he had no cost for the asset, there is no question of capital gain. This convention was rejected by the authorities below for the reasons given by them. 4. I do not find any basis for the proposition convassed on behalf of the appellant that wherever there is no cost of an asset to the assessee there are no capital gains liable to be taxed. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial provision for "deemed cost". It cannot be disputed that the asset in question viz., remaindermin's interest became the property of the assessee in terms covered by s. 49(i)(iii)(d). Consequently read with Explanation to s. 49, the cost to the assessee is the cost to the previsions owner. In this case the previous owner was Shri Tulsidas. Since, however, Shri Trulsidas himself obtained the assets under condition mentioned. in s. 49(1)(i), we will have to trace the ownership back to the bigger HUF which perhaps acquired the property otherwise than under the process mentioned under s. 49. The fact that ITO has not gone through this exercise and wrongly adopted W.T. value as the cost cannot be allowed to colour the issue regarding the liability to capital gains. 6. The main question now are if "the asset" sold by the assessee is remaindermin's interest in the trust who was the previous owner of this asset Was there any pervious owner, can it be said that the case is not covered under s. 49 and consequently the asset should be considered as one of the type referred to in Srinivasa Shetty case? In my opinion, the word "the capital asset" has to be taken as referring to the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 289) the author has made a distinction between cases where it is difficult to say that assessee has acquired asset at a cost are distinguishable from cases where it is difficult for certain reasons to evaluate the cost. The case before us falls under the latter category. Consequently capital gain is liable to tax. 8. I, therefore, hold that in this case capital gain is correctly assessed to tax and that the appeals should be dismissed. 9. Appeals are dismissed. 28th Sept. 1984 Reference under s. 255(4) of the IT Act, 1961 V. S. GAITONDE, A. M.: Difference of opinion has arisen between the Members, who constituted the Bench. The following point of difference is referred to the Hon'ble President of the ITAT under s. 255 (4) of the IT Act, 1961: "Whether on the facts and in the circumstances of the case the assessee is liable to be taxed as capital gains arising on account of sale of his interest in the trust dt. 16th May 1980?" Order under s. 255(4) of the IT Act, 1961 On a difference of opinion between the ld. Members who heard the appeals originally, the following point of difference was stated: "Whether on the facts and in the circumstances of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable to tax as income under the head 'capital gains' within the meaning of s. 45 of the Act. The ld. Accountant Member has been of the view that the settlor has been the full owner of the properties at the time of the execution of the Trust, that ownership is a bundle of rights and that the remaindermin's interest is a part of those rights and, therefore the remaindermin's interest was also owned by the settlor as a part of his overall ownership rights over the assets. For this and other reasons given in paragraphs 6 and 7 of his order, he has held that the surplus has been rightly assessed to capital gains tax. 4. It is reiterated before me by Sri J. P. Shah, the ld. counsel for the assessee, that the remaindermin's interest in the Trust properties is altogether a new asset. Placing reliance on the observations of the Supreme Court in the case of CWT vs. Trustees of Nizam's Family Trust 1977 CTR (SC) 306 : (1977) 108 TR 55 at 596 (SC), it is submitted that the right to receive a share in the corpus of a Trust at an uncertain future date cannot, certainly, be correlated with the Trust property itself. More or less, the same view, it is stated, has been taken by Bombay Bench 'E' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tenancy right was not taxable under s. 45 of the Act (ITA No. 61 of 1984 dt. 21st Sept, 1984—CIT vs. A. R. Dias Brothers (1984) 16 BCAJ 996. 5. It is pertinent to mention that at the time of hearing on 15th Feb. 1985 at Ahmendabed, Sri Shah had raised a new point, namely, that the remaindermin's interest was a mere chance to succeed and, therefore, as held by the Supreme Court in the case of Smt. Rukhamanbai vs. Shivram AIR 1981 SC 1881 at 1886 such and interest is in the spes successionis and, therefore, not a property. The Departmental Representative, Sri S. Bhattacharya, had then sought an adjournment on the ground that it was a new point raised and that he wanted time to meet the point. However, when the case was heard at Bombay, Sri Shah submitted that he was not serious in contending that the remaindermin's interest is in the nature of spes succession is and, therefore, not a property. His only attempt was to establish that the reasoning of the Supreme Court and of the Bombay High Court, as given in respect of good-will, will strongly apply to the case of an asset of the type or remaindermin's interest. 6. Sri Bhattacharya, the senior Departmental Representati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A)'s order. Sri Bhattacharya submits that the remaindermin's interest can be purchased even at the initial stage. According to him ownership is a bundle of rights. A person who owns a property also owns life-interest as well as remaindermin's interest and, therefore, it is not correct to say that the remainderman's interest was not owned by anybody. As regards the cost of improvement also, Sri Bhattacharya points out that the fluctuation in the price of the asset on account of the passage of time is not an improvement of the asset and the market value goes up because of fluctuation. The case of goodwill is different. The value of goodwill goes up and goes down with the business and fluctuation of business prospects. The decisions in regard to the tenancy rights, relied upon by Shri Shah, according to Sri Bhattacharya, are distinguishable as tenancy rights cannot, admittedly, be acquired at a cost, there being prohibition of accepting salami etc. As regards the Special Bench order of the Tribunal, Gopaldas T. Aggrawal vs. ITO (1963) 6 ITD 451 (Bom) and the Bombay High Court's decision under s. 256(2) of the Act, the essential fact has been that the property was received on inherita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere being no previous owner of the remaindermin's interest the transaction will not attract capital gains liability. In my view, the argument, though ingenious, is fallacious. It does not need an argument to say that ownership is a bundle of rights over a property. A person cannot give what the does not possess. The mere fact that the settler has created the remaindermin's interest, it has got to be held that he possessed or owned the interest. It is a different thing that he owned both the life-interest and the remaindermin's interest and the two taken together constituted full ownership. As I understand, an owner of a property can divide his ownership right in a number of ways. For instance, if he owns a big house, he can dispose it of room by room floor by floor and wing by wing. He can also dispose of his ownership rights by providing for its enjoyment periodwise. Likewise, he can also dispose of those rights in the manner it has been done in this case, i.e., by creating life-interest for somebody's and remainderman's interest for somebody's else. These are different methods of disposing of the ownership rights. It does not means that merely because the owner of a building has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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