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TMI Blog1993 (8) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 shares held by it in Duncan Brothers (Bangladesh) Ltd. The cost of acquisition of the said shares by the assessee was Rs. 1,00,000. The Income-tax Officer, therefore, proceeded to determine the capital gains chargeable to tax in the hands of the assessee-company by deducting the cost of acquisition of Rs. 1,00,000 from the said compensation of Rs. 2,05,732. The capital gains of Rs. 1,05,732 was accordingly computed and charged to income-tax in the hands of the assessee-company in the assessment year 1981-82, vide order dated September 22, 1984, passed by the Income-tax Officer under section 143(3)/144B of the Income-tax Act, 1961. Subsequently, the Commissioner of Income-tax initiated proceedings under section 263 of the said Act on the ground that the Income-tax Officer while computing capital gains arising in respect of the aforesaid 5,000 shares of Duncan Brothers (Bangladesh) Ltd., had incorrectly taken the fair market value of the said shares as on January 1, 1964, at Rs. 1,00,000. According to the Commissioner of Income-tax, the fair market value of the said shares as on January 1, 1964, was "nil" and, therefore, the entire compensation of Rs.2,05,732 should have been ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile initiating proceedings under section 263 of the said Act, was wholly untenable and factually incorrect. The Tribunal, therefore, quashed the order passed by the Commissioner of Income-tax under section 263 of the said Act. Before us the contentions as urged before the Tribunal have been reiterated. The contention of the Revenue is that the Commissioner was justified in revising the assessment order which is erroneous in so far as it is prejudicial to the interests of the Revenue. On the other hand, the contention of the assessee is that the order of the Commissioner is factually untrue and legally untenable. We have considered the rival contentions. Section 48 of the Income-tax Act, 1961, provides that the income chargeable under the head "Capital gains" is required to be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, the following amounts, namely,-- (i) Expenditure incurred wholly and exclusively in connection with such transfer ; (ii) The cost of acquisition of the capital asset and the cost of any improvement thereto. Under section 55(2) of the said Act, the assessee has an option t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be determined for the purpose of computation of income chargeable under the head "Capital gains" as provided by section 49 of the Act. It, therefore, follows that the option available to the assessee under sub-clause (ii) of section 55(2) of the Act can be exercised till the income chargeable under the head "Capital gains" is computed. The right of choice is conferred on the assessee by sub-clause (ii) of section 55(2) of the Act solely for the benefit of the assessee and unless there is anything in the enactment which curtails the freedom of choice, it would not be proper to restrict its freedom. Hence, an assessee is entitled to change the option for deduction of the value/cost of the asset for computation of capital gains from section 55(2)(ii) to section 49 (See Rani Udayadevi Payagpur Dewas v. CIT [1989] 180 ITR 375 (MP)). In the present case, the Income-tax Officer has proceeded on the basis of the cost of acquisition of the asset and not on the basis of the fair market value of the asset. When the Income-tax Officer has computed the capital gains on the basis of the cost of acquisition of asset, the Commissioner of Income-tax can consider the order to be erroneous i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngladesh. The Commissioner of Income-tax, in the facts and circumstances of this case, clearly proceeded on a wrong premise that the deduction of Rs. 1,00,000 which was granted by the Income-tax Officer by way of cost of acquisition was, in fact, by way of fair market value as on January 1, 1964. This was factually incorrect as found by the Tribunal. The Income-tax Officer did not grant any deduction by way of fair market value as on January 1, 1964, while computing the capital gains chargeable to tax in the hands of the assessee-company in respect of the said shares. At the hearing in the proceedings under section 263, the assessee submitted before the Commissioner that the assessee had exercised the option under section 55(2)(i) of the Act. Therefore, the Commissioner could not have unreasonably proceeded on the basis that the option to substitute the cost of acquisition for the fair market value as on January 1, 1964, having been exercised by the assessee-company, it was not open to the Income-tax Officer to override the option. This is implicit in the Commissioner's observations occurring in the said order to the following effect : " There is nothing to fault the assessee-co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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