Deepak Anubhai Shah vs Commissioner of Income Tax

G.T. Nanavati, J.—In this reference made u/s 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal, Ahmedabad, has referred the following two questions to this court :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the case of acquisition of the land under consideration to determine capital gains chargeable under the Act was nil, in view of the previous owner having acquired the same without paying any amount ?

If reply to question No. 1 is in favour of the assessee, whether cost of land for determining the capital gain should be Rs. 38,734 being the market value of the land as on 25th March, 1970, when the said land was thrown into the HUF ?"

Briefly stated, the facts giving rise to this reference as that the father of the assessee threw land which belonged to him and which is situated at Amraiwadi in his Hindu undivided family consisting of himself and his three sons. This happened on March 25, 1970. Thereafter, on October 27, 1970, the Hindu undivided family partitioned the properties and as result thereof the assessee received his share in the said land. The land was then acquired by the Government for the Gujarat Housing Board and the assessee received compensation of Rs. 31,905 for his share in the land.

During the assessment proceedings, a question arose as to what was the capital gains received by the assessee. Before the Income Tax Officer, the contention of the assessee was that the cost of acquisition of land in his case would be the fair market value on March 25, 1970. The Income Tax Officer was, however, of the view that the cost of the land to the assessee was the cost of it to the Hindu undivided family for the land was the cost which the individual who had put into it the Hindu undivided family had paid to acquire that the land. This figure was worked out by the Income Tax Officer at Rs. 3,122 and on that basis he computed the capital gains made by the assessee.

The assessee, therefore, appealed to the Appellant Assistant Commissioner. He held that the assessee''s case was covered by the provision of section 55(3) of the Act and the cost to him will have to be taken at the fair market value available on March 25, 1970. The Appellant Assistant Commissioner, therefore, allowed the appeal and directed the Income Tax Officer to adopt that basis and compute the amount of capital gains accordingly.

The Revenue feeling aggrieved by the said decision of the Appellate Assistant Commissioner preferred an appeal to the Tribunal. The Tribunal held that the cost of acquisition to the assessee was Rs. 3,122 as determined by the Income Tax Officer and also Rs. 6,993 which the assessee had to pay to his father under an agreement but for which he would not have got that much land. Taking this view, the Tribunal partly allowed the appeal and directed the Income Tax Officer to deduct Rs. 10,115 from the compensation received by the assessee. The assessee then moved the Tribunal for referring the above stated two questions of law to this court.

Mr. Divatia, learned counsel, appearing for the assessee, submitted that the point involved in this reference is now covered by the decision of this court in Commissioner of Income Tax, Gujarat Vs. Ashiwin M. Patel, wherein it has been held that where the assessee has acquired property by inheritance or will or by partition, the original or actual cost of acquisition of the property would be the real value thereof to the assessee, namely, the market value on the date of its acquisitions. Learned counsel appearing for the Revenue fairly conceded that in view of the decision of this court, question No. 1 will have to be answered in the negative and question No. 2 in the affirmative. He, however, submitted that the said decision of this court is erroneous and, therefore, the matter should be referred to a larger Bench. He submitted that u/s 48(1)(a)(ii) the words used are "cost of acquisition of the asset" and not "cost of acquisition of the asset to the assessee" and, therefore, the cost of acquisition by the original owner has to be taken into account. In support of his submission, he relied upon the decision of the Delhi High Court in Addl. Commissioner of Income Tax Vs. Madan Lal Jain and Sons., . He also submitted that, when a property is put in common stall, there is no transfer of capital asset and, therefore, the cost of acquisition would be the cost of acquisition to the original owner. In support of his contention, he relied upon the decision of the Supreme Court in Goli Eswariah Vs. Commissioner of Gift Tax, Andhra Pradesh, . He also submitted that the Hindu undivided family had received the asset without payment of any amount and, therefore, the cost of acquisition would be nil. In support of this contention, he relied upon the decision of the Bombay High Court in Commissioner of Income Tax Vs. Trikamlal Maneklal (H.U.F.), . He further submitted that for that reason, the judgment of the Supreme Court in Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, will not be applicable as in this case it will be possible to compute the capital gains.

Lastly, and in the alternative, he submitted that the word "devolution" is covered by section 49(1)(iii)(a) and, therefore, the cost of acquisition may be the cost of acquisition to the previous owner. In support of this contention, he relied upon the decision of the Madras High Court in Commissioner of Income Tax Vs. S. Krishnamurthy, and further submitted that section 49(1)(iii)(a) is, therefore, only clarificatory.

We are in this case concerned with the transaction that took place in 1970. We are told at the Bar that the tax effect is also very small. The law was changed from April 1, 1976. For all these reasons, we do not think it proper not to follow the said decision and refer the matter to a larger Bench. Following the decision of this court in Commissioner of Income Tax, Gujarat Vs. Ashiwin M. Patel, we answer question No. 1 in the negative and question No. 2 in the affirmative, that is, in favour of the assessee and against the Revenue. No order as to costs.