MUTHUKRISHNA REDDIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Cochin Bench, has made this reference and the question referred is:

(2.) The reference relates to assessment year 1963-64, the relevant previous year being 1137 M.E. The original assessment was completed on 16-3-1964. Income Tax Officer subsequently reopened the assessment under S.147(b) of the Income tax Act, 1961 (hereinafter to be referred to as the Act) on the ground that the capital gains arising to the assessee on account of the transfer of a property bad not been brought to tax. Following facts are relevant in this connection.

(3.) A property by name Machungal Purayidom belonged originally to the assessee's wife Ratnamal. She died on 21- 10-1954, leaving a will whereby the property was bequeathed to her 4 daughters, Nagammal, Maya Devi, Rajeswari and Visalakshi in equal shares. Nagammal and Maya Devi sold their interest in the property to the assessee on 30-1-1958 for Rs. 10,000/-. Thus one half of the entire property devolved on the assessee. He then sold this one half interest in the property to his daughter Rajeswari on 5-9-1961 for Rs. 40,000/-. In the reassessment the capital gains sought to be assessed was the difference between the selling price of Rs. 40,000/- and the purchase price of Rs. 10,000/- namely, Rs. 30,000/-. At the time of the original assessment it was contended before the Income Tax Officer that in the estate duty proceedings following the death of assessee's wife, the property had been valued at Rs. 42,680/-. So, the value of the one half share which the assessee had purchased, was Rs. 21,340/-. On this basis the capital gains arising in the transaction was treated as Rs. 18,660/- (Rs. 40,000 21,340). It was also alleged that the assessee had put up a building worth Rs. 10,000/- in 1957 and from the amount of Rs. 18,660/- this amount of Rs. 10,000/- had to be deducted. The Income Tax Officer accepted these contentions and brought to tax as capital gains, only the amount of Rs. 8,650/-. Daring the reassessment proceedings under S.147(b) the Income Tax Officer held that since the assessee had purchased the half share in the property only in 1958, the cost of the building alleged to have been put up in 1957 could not be treated as an improvement within the meaning of S.48 and that the market value of the property as fixed in the estate duty proceeding could not be taken as the amount for which the property had been purchased by the assessee. Income Tax Officer therefore, came to the conclusion that the income chargeable to tax had escaped assessment. He accordingly brought to tax the amount of Rs. 30,000/- as capital gains.