TMI Blog1981 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... " Facts leading to this reference may be briefly stated as under. The assessee is a Hindu undivided family (hereinafter referred to as " HUF for brevity's sake). Manubhai B. Patel, who was the karta and one of the members of the HUF, purchased equity shares, 'A' preference shares and 'B' preference shares of M/s. New Rajpur Mills Company Ltd. in his individual capacity. He threw these shares in the common hotchpot of the HUF on different dates which are not relevant for the purpose of this reference. The HUF itself had also purchased equity shares, 'A' preference and 'B' preference shares of the said mill company. The HUF sold 2,431 equity shares, 145 'A' preference shares and 236 'B' preference shares of the said mill company on August 9, 1971, which fell within the previous year relevant to the assessment year 1972-73 for total consideration of Rs. 2,92,459. Out of the shares, sold by the HUF, 2,285 equity shares, 85 'A' preference shares and the 236 'B' preference shares were those which were originally owned by Manubhai B. Patel and which were thrown by him in the family hotchpot as stated above. One of the questions which arose in the course of assessment proceedings was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of s. 48 that the question has arisen as to what is the cost of acquisition of shares in question which were thrown into the common hotchpot of the HUF by its karta. The contention of the HUF is that for the purpose of computation of capital gains, cost of acquisition should be taken to be the market value of the shares as on the date on which the shares were thrown into the common hotchpot. On the other hand, the Revenue's contention is that so far as the HUF is concerned, it had not incurred any cost for acquiring these shares and, therefore, the cost of acquisition should be taken to be " nil " as was done by the ITO. There is no direct authority which covers the controversy. We, however, find that decisions of the Rangoon High Court, Madras High Court and Supreme Court, rendered in the context of claim of depreciation, throw considerable light and provides a good guide in resolving the controversy. In working out depreciation so often the question arises : what is the original or actual cost of an asset to an assessee in respect of which the assessee claims depreciation ? Such a question has also arisen in cases where the assessee himself has not purchased the asset but has acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... daughters formed themselves into a firm some time after the death of the testator to carry on the business and valued the opening stock left by the testator at its market value, viz., Rs. 3,53,064. It was contended on behalf of the Department that the opening stock should be valued by the new firm at nil as the partners of the firm had not paid anything for it, or at any rate, it should be valued at Rs. 2,78,866 and not its market value of Rs. 3,53,064. The Madras High Court referred to the decision of the Rangoon High Court in CIT v. Solomon Sons [1933] 1 ITR 324 [FB], and earlier decision in Francis Vallabarayar v. CIT [1960] 40 ITR 426 (Mad), and held that as the daughters had not acquired the opening stock by purchase, it could not be valued at its cost to the firm ; the daughters should be regarded as having put their own property into the business and the opening stock had to be valued at its real value on the date of the death of the testator, that is, its market value on that date. As the business of the assessee was a new business and not the testator's business it was not necessary to value the stock as at the last valuation, viz., Rs. 2,78,866. It was held that the sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title to a specific property. The cost of the property to the member at the date of partition would, be the value given to it for the purpose of allotment, provided it was real, of the price at which he purchased it in auction or the value of it ascertained otherwise." It would, therefore, appear that the courts have consistently taken the view that where the assessee has acquired property by inheritance or will or by partition, 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 acquisition for the purpose of depreciation. We do not see why the principles laid down in the aforesaid decision would not apply to a case arising under Chap. IV-E for computation of capital gains. Under s. 48, cost of acquisition of the capital asset has to be deducted from the value of the consideration for the purpose of working out capital gains. It is, therefore, clear that as in the case of depreciation for the purpose of working out capital gains what is important is to find out what is the cost of acquisition. In other words, both in the case of capital gains and depreciation, the vital question whic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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