TMI Blog1998 (1) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act. The accounting year of the assessee ended on September 7, 1971. The assessment was, however, set aside by the Appellate Assistant Commissioner and the case was remanded to the Assessing Officer. Thereafter, the assessment was reframed by the Assessing Officer, adding a sum of Rs. 6,623 as capital gains as a protective measure. The aforesaid amount of Rs. 6,623 had also been assessed in the hands of the Hindu undivided family (HUF) of the assessee. The assessee had purchased two plots of land measuring 5,616 and 9,254 square feet on August 4, 1962, for a total sum of Rs. 18,065. This property, consisting of the two plots, was thrown by him into the common stock of the Hindu undivided family on October 10, 1968. An oral partition of the Hindu undivided family took place on October 22, 1970, and, consisting, the two plots of land ceased to belong to the Hindu undivided family. Income arising from the two plots of land became assessable in the hands of the assessee as an individual. The assessee sold the two plots of land on September 13, 1971. The Assessing Officer determined the capital gain and brought it to tax in the hands of the assessee. Any profit or gain arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal deleted the addition of Rs. 6,623, taking the view that the cost of acquisition in the hands of the previous owner, namely, the Hindu undivided family was nil. On an examination of section 49(1), it would appear that it provided the basis for determining the cost of capital asset for the purpose of working out the capital gains in a case where the asset became the property of an individual by a mode specified therein. The general principle for computing capital gain is to deduct from the sale price the cost of acquisition to the assessee. To this general rule, certain exceptions are engrafted by section 49(1) under which the cost to the previous owner is deemed to be the cost of acquisition to the assessee. If an assessee acquired a property on distribution of assets on the partition of a Hindu undivided family, his case would fall under clause (i) of section 49(1) and, in that situation, the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner had acquired the property. The cost shall, however, increase by the cost of any improvement of the asset as incurred by the previous owner or the assessee. The case of the assessee is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s owners, namely, the Hindu undivided family and the assessee himself. Since the assessee, as an individual, was the last previous owner, being the purchaser of the property, the cost of the asset in his hands as the last previous owner would be the cost of the asset at the time of its sale. The Explanation below section 49(1) would be applicable where the last previous owner acquired the property by any mode other than a partition of the family or under a gift or will or by succession, inheritance or devolution or on the dissolution of a firm, body of individuals or other association of persons. In the case of the assessee, being the last previous owner, the property in question was acquired by purchase and, thus, the mode of acquisition did not fall under any of the three clauses, namely, clause (i), clause (ii) or clause (iii) of section 49(1). A new clause (iv) was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, which reads as under : "(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969." It would thus appear that, by virtue of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the shares on the date on which the shares were thrown into the common stock. The High Court did not agree with the Tribunal's view and held that the cost of shares ought to have been taken to be nil because the Hindu undivided family had not incurred any cost. The High Court, however, did not go into the question as to whether the cost of acquisition shall be deemed to be the cost for which the previous owner had acquired it. The primary question before the court was whether it is the market value of the shares which shall be treated to be the cost of acquisition by the Hindu undivided family. Since the assessee-Hindu undivided family had not acquired the shares by purchase, the question of determining the market value of the shares did not arise. Moreover, clause (iv) was not in operation during the years of assess ment and, therefore, section 49(1) was held to be not applicable. A question of capital gains was examined by the Bombay High Court in CIT v. Kanubhai R. Shah (HUF) [1993] 201 ITR 1050. The facts in that case were similar to those which are in the case in hand before us. There, the assessee was a Hindu undivided family and the assessment year involved was 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied only to cases where the cost, for which the previous owner acquired the property, could not be ascertained. This was not a case where the cost in the hands of the previous owner could not be ascertained. It was held that the cost in the hands of the previous owner was nil and, therefore, there was no scope for taking resort to sub-section (3) of section 55 of the Act. There is, however, no discussion on the Explanation below section 49(1), which contains a deeming provision that it is the cost of the asset in the hands of the last previous owner which shall be deemed to be the cost of acquisition of the asset to the assessee. It is the actual cost of acquisition of the capital asset that has to be taken into account for computing the capital gains. However, the actual cost of acquisition shall not be looked into where the case would fall under section 49 of the Act. The said section provides that the cost of acquisition of the capital asset shall be deemed to be the cost at which the previous owner acquired it. The legal fiction created by section 49 would apply only to the situations specified therein. If the situation did not exist in terms of section 49 or section 55, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition was nil for the Hindu undivided family. It was held by the court that the cost of acquisition of the property in the hands of the Hindu undivided family was neither nil nor the value of the property as on the date on which the property was thrown into the hotchpot of the Hindu undivided family, but the cost of acquisition in the hands of the individuals, namely, the husband and wife, would be the cost at which the property was jointly purchased by them. Thus, it was the cost of acquisition in the hands of the previous owner which was treated to be the cost for the purpose of computation of capital gains. In the case in hand before us, the assessee is being assessed in the status of an individual. He acquired the property on partition of the Hindu undivided family in which he was a coparcener. In the light of the Explanation below section 49(1), it is the last previous owner, who is none else than the assessee himself, who is to be found for arriving at the cost of acquisition of the asset. Admittedly, the assessee had acquired the property for consideration. By virtue of the Explanation below section 49(1), the cost of the asset, as incurred by the assessee as the last p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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