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“The cost of acquisition” is a definite sum incurred to acquire capital asset- the judgment of Punjab and Hariyana High Court (FB)** appears to be contrary to law ans settled legal position - deserve to be reviewed.

Income Tax - By: - DEV KUMAR KOTHARI - Dated:- 7-3-2018 - **{ The Commissioner of Income Tax, Patiala Versus Raja Malwinder Singh, Patiala 2011 (1) TMI 775 - PUNAJB AND HARYANA HIGH COURT This has also been followed in subsequent judgment namely 2014 (6) TMI 14 - PUNJAB & HARYANA HIGH COURT Thakur Dwara Shri Krishanji Maharaj Handiyaya, Barnala through Mahant Om Parkash Chela Mahant Madan Dass Versus Commissioner of Income Tax And Another} Before starting discussion on the above judgments ge .....

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me Court even against judgment of the same High Court and also other High Courts. Without ascertaining about settled legal position, author with due respect express that it was not proper for the High Court to differ from earlier judgments. On web-search the author could not find any reference of revenue having challenged the following judgments before the Supreme Court (author hopes that the result of web-search are up to date) : CIT Versus AMRIK SINGH - 2008 (2) TMI 28 - PUNJAB AND HARYANA HIG .....

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held that what is charged under section 45 of the Income-tax Act, 1961, is the profits or gains arising from the transfer of a capital asset and in computing the profit or gain in accordance with the provisions of section 48 of the Act, the cost of acquisition of the capital asset and the cost of any improvement thereto have to be deducted from the full value of the consideration for the transfer of the capital asset and that in the context of the Income-tax Act the expression cost of acquisiti .....

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l rule, on sale of a capital asset one realise capital and there is no profit or gain. This is because, one capital asset is transferred and cash is realised. If one want to acquire another asset of same nature or similar type, he will have to incur capital cost, which may be more than the sale price realised on sale of original asset. However, gains on transfer of capital asset is deemed to be income which is chargeable under the head capital gains . The cost of acquisition: In context of provi .....

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law. Therefore, in other situations, fair market value cannot be considered as the cost of acquisition. Market value as on cut-off date - option is only for assessee: In case of old capital assets acquired prior to applicable cut-of date (01.04.1954, 01.04.1961, 01.04.1981 and now 01.04.2001), the assesse is given an option to substitute fair market value as on applicable cut-off date. The option available is only to the assesse and not to the Assessing Officer. Such market value, if opted by t .....

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beneficial to assessee. The AO cannot force to opt market value instead of actual cost of acquisition or nil if there was no cost of acquisition. An option given to assessee is a privilege, which cannot be made burden on assesse by tax authorities and courts. This is as per settled legal position by way of judgment of the Supreme Court, in the case of Mahendra Mills in context of S.32. 2000 (3) TMI 3 - SUPREME Court / 2000 - 243 ITR 56 (SC) Relevant portion of provisions are reproduced below: Fr .....

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nd the cost of any improvement thereto. Cost with reference to certain modes of acquisition: 49. 1) Where the capital asset became the property of the assesse (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; ii) under a gift or will; iii) a) by succession, inheritance or devolution, or b) on any distribution of assets on the dissolution of a firm, body of individuals or other association of persons, or c) on any distribution of assets on the liquid .....

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any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Explanation: In this sub section the expression previous owner of the property in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (ii) or clause (iii) or clause (iv) of this sub section. (2) xx xx xxx xxx 55(1) For the purposes of sections 48, 4 .....

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in any other case, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and, where the capital asset became the property of the assessee by any of the modes specified in sub section (1) of section 49, by the previous owner, but does not include any expenditure which is deductible in computing the income chargeable under the head interest on securities , income from house property , Profits an .....

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capital asset became the property of the assessee by any of the modes specified in sub section (1) of section 49, and the capital asset became the property of the previous owner before the Ist day of January 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset on the Ist day of January 1954, at the option of the assessee; iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its .....

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owner. The full bench observed and held as follows: Paragraph 2. The assessee sold certain plots for consideration and the income derived therefrom was sought to be taxed as capital gains . The CIT(A) reversed the view taken by the Assessing Officer, holding that cost of acquisition of property in question was nil and thus, no capital gain was attracted. The Tribunal upheld the said view, inter-alia, relying upon judgment of the Hon ble Supreme Court in CIT v. B.C.Srinivasa Setty, (1981) 128 ITR .....

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to be fair market value on the specified date i.e. 1.1.1954 as per applicable provision for assessment year 1977-78 and as on 1.1.1964 for assessment year 1978-79. Even in a case where cost of acquisition cannot be ascertained, 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 bein .....

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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. Contention that value was incapable of being ascertained, as already observed, the value in such case has to be taken as being equal to market value on a specified date. .....

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and the ITAT. Therefore, the observations of the High Court that According to the stand of the assessee, cost of acquisition by the previous owner could not be ascertained . Unquote: the above appears to be contrary to the fact that there was no cost of acquisition, as finally found as fact by the Tribunal while affirming decision of CIT(A). Option: The Court also considered that assesse failed to opt for FMV as on cut- off date. This is also not correct because it is at option of the assessee, .....

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