TMI Blog1980 (12) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... ent dated 15th March, 1962, the assessee sold its Mill No. 3 with attached lands, factory buildings, etc., to Madura Company Ltd. for a consideration of Rs. 10 lakhs The question of capital gains arising out of the transaction came up for consideration in the course of the assessment proceedings of the year. It was not disputed that the assets so sold, except the lands taken therein, were depreciable assets, in respect of which the assessee had obtained depreciation in the earlier years. It was also not disputed that those assets had become the property of the assessee before 1st January, 1954. Before the ITO, the assessee contended that under s. 55(2)(i) of the I.T. Act, 1961, the assessee was entitled to opt for and substitute the fair market value of those capital assets as obtaining on 1st January, 1954, for the cost of acquisition of the assets and that only the difference between such market value and the consideration received for the transfer was to be brought to tax under the head " Capital gains ". According to the assessee, there being no appreciable change in the market value of the assets as on 1st January, 1954, and 15th March, 1962, there was no amount available by w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Tribunal and it was contended on its behalf that there was no warrant for restricting the meaning given to s. 55(2)(i) in the manner contended for by the revenue and it was further contended that all these sections should be read together and those should form an integral part of the whole. It was further highlighted, as it was highlighted before us, that s. 55(2)(i) of the Act did not specifically exclude depreciable assets on which the assessee was entitled to opt for the original cost. It was, therefore, urged, as it was urged before us, that such a limited application of s. 55(2)(i) would create anomalies. It was further urged that if the meaning contended for on behalf of the revenue was adhered to, then persons who had acquired the assets by purchase and suffered depreciation would be at a considerable disadvantageous position than the persons who acquired the assets by other modes contemplated by those sections and also obtained the benefit of depreciation and such anomalous situations should be avoided by a proper and harmonious construction of all the sections taken together. Learned advocate for the assessee emphasised this point by handing over to us a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iary company or any transfer of a capital asset by a subsidiary company to the holding company or such other connected transfers to the companies. Section 48 is important and it is necessary to set out the section. It provides the mode of computation and deduction. The said section reads as follows: "48. Mode of computation and deductions.-The income chargeable under the head 'Capital gains' shall 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." Section 49 is also important which deals with cost with reference to certain modes of acquisition. It provides that if capital assets become the property of the assessee either on the distribution of the assets on the total or partial partition of an HUF or under a gift or a will or by succession, inheritance or devolution, then, in such a situation the cost of the asset shall be deemed to be the cost for which the previous owner of the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to a capital asset, (i) where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee; (ii) where the 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 1st 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 1st 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 liquidation and the assessee has been assessed to income-tax under the head 'Capital gains' in respect of that asset under section 46, means the fair market value of the asset on the date of distribution;... (v) where the capital asset, being a share or a stock of a company, became the property of the assessee on (a) 'the consolidation and division of all or any of the share capital of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by s. 55(2) then there was no occasion or need to enact sub-s. (2) of s. 50. Under sub-s. (2) a special provision had been made for capital assets which were covered by s. 49 as well as s. 55(2), viz., the assets indirectly acquired and which were owned by the previous owner from before 1st January, 1954. For, depreciable assets which were owned by the assessee as the original owner under sub-s. (1) of s. 50 applied, even though the assets might have been owned by the assessee from the 1st day of January, 1954, and in such cases, s. 50(1) did not contemplate that the assessee could treat the fair market value of the assets as on 1st January, 1954, as the cost of acquisition. The written down value of the assets had to be, taken as the cost of acquisition. This view of the Allahabad Division Bench was reiterated again by another decision of the same Division Bench of the Allahabad High Court in the case of Prime Products P. Ltd. v. CIT [1979] 116 ITR 473. This question, also came up for consideration before a Division Bench of the Gujarat High Court in the case of Rajnagar Vaktapur Ginning, Pressing and Manufacturing Co. Ltd. v. CIT [1975] 99 ITR 264. The decision disposed of a writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as successors in any of the modes under s. 49 appeared to be that the assessee in the first group had earned or enjoyed the depreciation themselves, while the assessees in the second group, who were in the nature of successors had not enjoyed the depreciation allowance and the property might have come to them not of their own volition, and, therefore, they could not be placed on the same footing and that some benefit should be given to them in the nature of giving an option to them to select as to whether they should adopt for the purposes of computation of capital gains the basis of either the fair market value as on 1st January, 1954, or the original /cost of acquisition to the previous owner as adjusted by the depreciation, if any, earned by the assessee. So far as the reference was concerned, their Lordships on the construction of the section held that it was only those assessees who had acquired those depreciable assets in any of the modes prescribed under s. 49 that had the benefit of the option to select either the fair market value of the assets on January, 1, 1954, or the cost of acquisition by the previous owner. Their Lordships, therefore, answered the question in favour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal also held that the assessee was entitled to the relief in view of the applicability of s. 47(iv) and also because of the Explanation to s. 34(2)(i). On a reference, the Division, Bench of the Madras High Court held that a reading of s. 41(2) and "s. 50 of the Act showed that the balancing charge and capital gain could not overlap and it was only the amount which was in excess of the balancing, charge that would be attracted to capital gains under s.50. Section 50 was intended to take out a transaction relating to a depreciable asset, which would otherwise fall within s. 45, from the purview of that section when the same fell within s. 32(1)(ii) or s. 41(2). Reliance was placed on the observations appearing at p. 292 as would be apparent from the, narration of the facts and the controversy in that case that the said, decision was rendered in a different context and it will not be proper for, us to rely on the said decision for our present purposes. Our attention was also drawn, to certain observations of the Supreme, Court in the case of CIT v. Bipinchandra Maganlal Co. [1961] 41 ITR 290 and reliance was placed on certain observations appearing at p. 295 of the repor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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