TMI Blog1978 (1) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... 92 in settlement of insurance claim in respect of certain other machinery lost by fire. The ITO held that these receipts resulted in profit under s. 41(2) amounting to Rs. 1,10,302 and in capital gains amounting to Rs. 1,23,523, as against the assessee's computation of the capital gains at a little over Rs. 20,000. The case fell within the purview of s. 50(1) of the I.T. Act, 1961, and s. 50(2) thereof was not attracted. The claim of the assessee that it was entitled to exercise the option of treating the fair market value as cost of acquisition was rejected. The assessee went up in appeal. The AAC accepted the assessee's plea. He held that s. 50(2) read with s. 55(2)(ii) of the I.T. Act, 1961, was applicable, and these sections gave an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under s. 45 of the Act any profits or gains arising from the transfer of a capital asset are chargeable to income-tax under the head " Capital gains ", which is under s. 48 computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, inter alia, the cost of acquisition of the capital asset. s. 49 provides for computing the cost of acquisition of an asset indirectly acquired by the assessee. s. 50 is headed " Special provision for computing cost of acquisition in the case of depreciable assets". In the case of a depreciable asset the provisions of ss. 48 and 49 are to be subject to the following modifications: " (1) The written down value, as defined in clause (6) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ; ........" It is noticeable that sub-s. (2) defines the cost of acquisition for purposes of ss. 48 and 49 only. This definition does not extend to the provisions of s. 50. Under this provision an assessee is entitled to exercise the option of treating the fair market value of the asset on 1st day of January, 1954, to be the cost of acquisition. This is so both for the original owner as well as the assessee who may have acquired the capital asset indirectly, that is, by any of the modes specified in s. 49. s. 55(2) treats the original owner as well as the transferee owner on an equal footing. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 55(2), firstly, because it expressly modifies the provisions of s. 48, and, in the next place, it is a special provision for depreciable assets. s. 55, on the other hand, is only a definition section. The definition of "cost of acquisition" given by its sub-s. (2) is only for purposes of ss. 48 and 49. This definition does not extend to the special provisions for computing the cost of acquisition in the case of depreciable assets under s. 50. Since s. 55(2) does not apply to s. 50, it cannot prevail over it. In other words, the cost of acquisition of a depreciable asset is bound to be computed in accordance with s. 50, even though the capital asset may also, on facts, be within the purview of sub-s. (2) of s. 55. If a capital asset becam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition, also creates an anomalous position. The original owner is entitled to treat the fair market value as the cost of acquisition but without it being reduced by the amount of depreciation allowed after 1st January, 1954, while in the case of an assessee who had indirecly acquired the capital asset the fair market value is to be reduced by that amount under sub-s. (2) of s. 50. Hence both the constructions will have some sort of an anomaly. s. 50 is mandatory. Under it the provisions of ss. 48 and 49 shall be subject to the modifications mentioned in sub-ss. (1) and (2), whereas s. 55(2) does not apply to cases governed by s. 50. s. 50 is hence a special provision, which will prevail over cl. (ii) of s. 55(2) in relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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