Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Deepak Raj Narang on 18 June, 1987
Equivalent citations: [1988]27ITD139(DELHI)
ORDER
K.C. Srivastava, Accountant Member
1. This is a departmental appeal directed against the order of the AAC for the assessment year 1980-81. The assessee is assessed in the status of HUF. During the year under consideration, the assessee sold jewellery for Rs. 1,03,500. The ITO found that the cost of acquisition of this jewellery in 1966 was Rs. 28,000. The assessee contended before the ITO that for the purposes of capital gain, jewellery was not a capital asset till the amendment of Section 2(14) of the Income-tax Act by the Finance Act, 1972 w.e.f. 1-4-1973. The assessee, therefore, contended that the cost of acquisition of the jewellery should be taken as on 31-3-1972 and the market value as on that day should be adopted. According to the assessee, such value was Rs. 53,000 and he worked out the capital gains at Rs. 50,000. The ITO, however, determined the capital gains at Rs. 75,500.
2. When the matter came before the AAC, it was contended that following the decision of the Supreme Court in the case of CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86, the cost of jewellery on the date when it became capital asset under law should be taken at the market value as on that date. Reliance was further placed on two orders of the Benches of the Tribunal, one in the case of Shri Vishwanath, 37 ITR 32 (sic) by the Allahabad Bench of the Tribunal and the other in the case of Gurjit Singh Mansahia v. ITO [1983] 5 ITD 125 by the Chandigarh Bench. The AAC accepted the plea of the assessee after referring to the above order and determined the capital gains at Rs. 50,500.
3. Before the Tribunal, the assessee had also made similar submissions and had relied on the orders of the Tribunal referred to in the order of the AAC. However, when the case was fixed for hearing on 21-4-1987, no body appeared before the Tribunal though the notice had been duly served. We have heard the Departmental Representative and proceed to decide the case on merit. We are of the view that the decision of the Supreme Court in the case of Bai Shirinbai K. Kooka (supra) has no application to the facts of this case. That was a case where an assessee was earlier holding certain shares, as his investment, commenced a business in those shares and claimed that for the purpose of working out the business profit, the value of the stock should be the market value as on the date of such conversion. In the present case, there is no question of any business income being computed and what was to be computed was capital gains on the sale of jewellery. The only fact which has to be determined is the cost of acquisition of that jewellery in the hands of the assessee. The fact that the jewellery was acquired in 1966 and its cost at that time was Rs. 53,000, is not in dispute. The only plea is that the market value as in 1972 should be determined as it was from that date that jewellery became a capital asset for the purpose of computation of capital gains. This issue as such has not been considered by the Chandigarh Bench in the case of Gurjit Singh Mansahia (supra). They were referred to this contention but have not given any decision on this issue as it had been held by them that no capital gains as such was chargeable on the sale of land. There is no doubt, some observations may support the claim of the assessee. The AAC has reproduced the observations of the Chandigarh Bench in his order. In the other case of Shri Vishivanath (supra) decided by the Allahabad Bench of the Tribunal, the question was regarding the computation of capital gains on the sale of agricultural land. The HUF had acquired the agricultural land on 14-9-1969 but agricultural land was included in the definition of capital assets only from a later date. While the revenue authorities had not accepted this plea, the Tribunal was of the view that the decision in the case of Bai Shirinbai K. Kooka (supra) applies to this case as agricultural land became capital assets only from 1-4-1970 by virtue of amendment of Section 2(14)(iii) of the Income-tax Act.
4. Having considered the submissions which had been considered by the AAC and the observations of the Allahabad Bench, we are of the view that the contention of the assessee could not be accepted. The cost of acquisition of an asset is a question of fact and will depend on the actual cost which a particular assessee has to take in respect of a particular asset. The only other provision which has to be considered is the option which is given to the assessee to substitute the cost of acquisition with market value as on 1-1-1954. In this case, the question of exercising that option does not arise as the asset was acquired in 1966. Such a question was considered by the Gujarat High Court in the case of Ranchhodbhai Bhaijibhai Patel v. CIT [1971] 81 ITR 446. In that case, the capital asset which had been transferred was agricultural land. The assessee had contended that agricultural land became capital asset only from a later date and according to the assessee's submission at the time of acquisition also the asset should be a capital asset. While holding that the land in question was not agricultural land, the High Court proceeded to consider the question of computation of capital gains and for that purpose also considered the question of cost of acquisition of the capital asset. Their Lordships observed as under:
Now the question which arises for consideration is as to what is the true meaning and import of the words 'the cost of acquisition of the capital asset' in Section 48, Clause (ii). One construction suggested on behalf of the assessee was that these words, on a plain grammatical construction, require that the property which is sold must be 'capital asset' at the date of acquisition by the assessee, for, otherwise, these words would be rendered inappropriate and meaningless. But, this construction cannot be accepted and for two very good reasons. One is that it would introduce an additional condition of attracting the charge to tax which is not to be found in Section 45 which is the charging section. The only condition for attracting the charge to tax which is laid down in Section 45 is that the property transferred must be capital asset at the date of transfer. How the profits or gains arising for the transfer of such property are to be computed is laid down in Section 48. Section 48 is not intended to lay down any further condition for attracting the charge to tax. It would not, therefore, be right to construe Section 48, Clause (ii), as providing that the property, besides being capital asset at the date of transfer as required by Section 45, must also satisfy the definition of 'capital asset' at the date of acquisition by the assessee. Moreover, such a construction would stultify the charging provision by unduly restricting the ambit and scope of the charge to those cases where the property transferred is 'capital asset' at both terminals, namely, date of the acquisition and date of transfer. Where the property transferred is capital asset at the date of transfer but was not capital asset at the date of acquisition as in the present case, profits or gains arising from transfer of such property would be left out from the ambit and coverage of the charging provision and would escape tax. Of course, if such a result is inevitable, the court would not strain the language of the statutory provision in order to bring such cases within the net of taxation but if, on a plain natural construction of the language used by the Legislature, it appears that such cases were also intended to be covered by the statutory provision and there is moreover no rational justification for leaving out such cases from the scope and ambit of the charging provision, we should not be reluctant to adopt a construction which would bring such cases within the charging provision. It is, therefore, apparent that the only condition which must be satisfied in order to attract the charge to tax under Section 45 is that the property transferred must be capital asset at the date of transfer and it is not necessary that it should have been capital asset also at the date of acquisition by the assessee.
But then what meaning is to be given to the words 'the cost of acquisition of the capital asset' ? How is full effect to be given to these words if the property transferred need not be capital asset at the date of acquisition ? The answer to this question is simple if only we read these words in the light of Section 45. Section 45 says that profits or gains arising from the transfer of a capital asset shall be chargeable to tax and Section 48, Clause (ii), then proceeds to add that such profits or gains shall be computed by deducting from the full value of the consideration for the transfer 'the cost of acquisition of the capital asset'. The words 'the capital asset' in section 48, Clause (ii), are clearly intended to refer to the capital asset which is transferred as mentioned in Section 45. They are identificatory words to denote the property transferred and they do not introduce any requirement that the property transferred shall be capital asset at the date of acquisition, The law says that when property which is a capital asset is transferred, profits or gains arising from the transfer shall be liable to tax and you shall compute such profits or gains by deducting from the consideration for the transfer, what cost you to acquire the 'capital asset', that is, the property transferred. The difference between the consideration for the transfer of the property and the cost of acquisition of the property would represent the profits or gains arising from the transfer of the property and they would be taxable as capital gain under Section 45. This appears to be the plain natural construction of the words used in Section 48, Clause (ii), read with Section 45. There are also certain inherent indications in the Act which go to show that this is the correct construction. Section 55(2), Clause (i), says that where the capital asset became the property of the assessee before the 1st day of January, 1954, the cost of acquisition in relation to the capital asset means the cost of acquisition of the asset to the asseasee or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee. The words 'where the capital asset became the property of the assessee' clearly show that the expression 'capital asset' is used as a demonstrative noun to refer to the property transferred. The question which has to be asked for the purpose of Section 55(2), Clause (i). is when did the property designated as a capital asset in Section 45 become the property of the assessee. If it became the property of the assessee before 1st January, 1954, the assessee would have the option either to take the cost of acquisition of the asset to him or the fair market value of the property on 1st January, 1954, as the cost of acquisition for the purpose of Section 48, Clause (ii).
The argument of the assessee was that the words 'capital asset' in Section 48, Clause (ii), must have the meaning given in the definition of 'capital asset' in Section 2(14) and, therefore, Section 48, Clause (ii), must be construed as referring to the cost of acquisition of the property as a capital asset. If the property was not capital asset at the date of acquisition but subsequently acquired the character of capital asset, it must be with reference to the date of the property becoming capital asset, that 'the cost of acquisition of the capital asset' must be determined. What is required to be deducted, said the assessee, is not the cost of acquisition of the non-capital asset but the cost of acquisition of the capital asset and, therefore, the crucial date must be the date on which the property became'capital asset'. It was on the basis of this contention that the assessee urged that 'the cost of acquisition of the capital asset', in the present case must be taken to be the market value of the land on 23rd January, 1963, and not the original cost of acquisition of the land. But this contention is plainly contrary to the language of Section 48, Clause (ii). It is difficult to see how this construction accords with the words 'the cost of acquisition of the capital asset'. These words emphasise two aspects: one is 'acquisition' and the other is 'cost'. The reference clearly is to the point of time when the capital asset is acquired and the cost of such acquisition is required to be deducted from the full value of the consideration. Where the property transferred was not capital asset at the date of acquisition but subsequently became capital asset as in the present case, it is difficult to see how it can be said that the property as a capital asset was acquired by the assessee when it was converted into a capital asset and how it would be possible in such a case to determine the cost of acquisition. There are no two different acquisitions of property, one as a non-capital asset and the other as a capital asset. The property is acquired by the assessee only once and merely its character changes in the sense that, whereas, originally it was non-capital asset, it now becomes capital asset. It would indeed be doing violence to the language of Section 48, Clause (ii), to read the words 'the cost of acquisition of the capital asset' in the manner suggested on behalf of the assessee. We would have to introduce an unwarranted fiction, namely, that when the property, which at the date of acquisition was non-capital asset, becomes capital asset, it is deemed to be acquired by the assessee as a capital asset on that date and, furthermore, though there can be no cost of such acquisition, the market value of the property on that date should be deemed to be the cost of such acquisition. There is no warrant for imposing such legal fiction on the plain language of Section 48, Clause (ii). The only justification which could be put forward on behalf of the assessee for reading the section in this manner was that the Legislature could not have intended that the appreciation in value which took place whilst the property was non-capital asset should be subjected to tax which would be the inevitable result if we read the section as referring to the cost to which the assessee was put in acquiring the property. But this is a wholly erroneous approach in construing a statutory provision. The intention of the Legislature must be gathered from the words used; it is well settled that what is unexpressed by the Legislature must be taken as unintended. We cannot presume a certain intention on the part of the Legislature and then bend the language of the section with a view to making it accord with such presumed intention. The contention of the assessee also stands refuted by the language of Section 55(2), Clause (i). The property which is transferred could become the property of the assessee -- only at one point of time. It could not become the property of the assessee as non-capital asset at one point of time and as capital asset at another point of time. The argument of the assessee would require us to introduce a legal fiction also in Section 55(2), Clause (i). We would have to assume that when property which was non-capital asset becomes capital asset, it is deemed to become the property of the assessee for the purpose of Section 55(2), Clause (i). Such a construction would do violence to the language of Section 55(2), Clause (i) and would be clearly impermissible on any recognised canon of construction. Then again, it is apparent from Sections 49, 51 and 55(3), that the words 'the cost of acquisition of the capital asset', 'the coat for which the asset was acquired' and 'the cost for which the previous owner of the property acquired it' are variously used by the Legislature to denote the same idea and the reference is intended to be made only to the cost of acquisition of the property regardless of the question whether it was capital asset or non-capital asset at the date of acquisition.
5. The above decision of the Gujarat High Court was not considered by the Allahabad Bench of the Tribunal and it was not taken into consideration by the Chandigarh Bench as well. In view of this, we hold that the view taken by the two Benches do not represent the correct position in law. This decision of the Gujarat High Court was followed by that very High Court in the case of B.N. Vyas v. CIT [1986] 25 Taxman 133. Their Lordships have clearly held that the cost of acquisition can have only one meaning with respect to a particular asset and it was not necessary to consider the value when it became capital asset under law. As already stated by us, the decision in the case of Bai Shirinbai K. Kooka (supra) was on a different issue and it cannot be applied for the purpose of determining capital gains. If the plea of the assessee was to be accepted, it would mean that when the provisions regarding capital gains were introduced for the first time on the statute book, the cost of acquisition of all the capital assets would have to be taken as on first date of that assessment year. This will have the effect of defeating whole purpose of that provision and such interpretation is not permissible. As there is no dispute about the cost of acquisition in 1966, we would set aside the order of the AAC and hold that the ITO had rightly determined the capital gains at Rs. 75,500. The appeal is allowed.