COMMISSIONER OF INCOME TAX Vs. MANDHARSINHJI P. JADEJA

JUDGEMENT

(1.) THE Income -tax Appellate Tribunal, Ahmedabad Bench 'C' (Tribunal) has referred the following question for the opinion of this Court under s. 256(2) of the IT Act, 1961 (the Act) at the instance of the CIT, Rajkot : "Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the IT authorities were not justified in working out capital gains of Rs. 41,11,414 and including the same in the total income of the assessee -

(2.) THE respondent -assessee is an individual. The assessment year is 1983 -84 and the relevant previous year is the appears that for asst. yrs. 1974 -75 to 1977 -78 certain tax demands along with estate duty payable on death of his father were outstanding against the assessee. To effect recovery of these outstanding dues the IT Department attached sum of Rs. 65,50,870 was the gross realization from the auction sale. The return of income filed by the assessee was at 'Nil' in the return of income. The case of the assessee was that he was not liable to the charge of capital gains tax as the land in question was received by him from his forefathers by way of inheritance and no cost had been incurred by his forefathers for acquiring the land in question. The assessee in support of his stand placed reliance on the decision of the apex Court in the case of CIT vs. B.C. Srinivasa Setty (1981) 21 CTR (SC) 138 : (1981) 128 ITR 294 (SC) and stated that the assessee was not liable to capital gains tax on correct reading of ss. 48(ii), 49 and 55(2) of the Act. The AO distinguished the decision in the case of B.C. Srinivasa Setty (supra) on the ground that the same pertains to a self - generating business asset and was not applicable to land which was a capital asset. That even otherwise the land was bound to have cost something even to the ancestors of the assessee. The assessee was also called upon to exercise that he does not want to exercise option under s. 55(2) of the Act to adopt the fair market value of the plots as on 1st the assessee by stating that provisions of ss. 48 and 49 of the Act do not provide that there has to be at least some cost while determining long -term capital gains. That the term 'cost' was not defined. The AO, therefore, held that though the assessee was given opportunity to produce evidence in support of the price at which the assessee's forefathers must have purchased the land, the assessee having not furnished the same, the cost price was determined on an estimated basis. Accordingly, he estimated the cost price of 5,727 sq. mtrs. of land at Rs. 3,000. 2.1 The AO stated that the aforesaid determination on the basis of estimated price was without prejudice to the stand of the Department that even if the price of the land was adopted as nil, provisions of s. 45 r/w s. 48 of the Act would be applicable and the assessee was liable to be charged to capital gains tax. After permitting statutory deductions, long - term capital gains was worked out at a figure of Rs. 41,11,414.

(3.) THE assessee carried the matter in appeal before the CIT(A), Rajkot who, for the reasons stated in his order dt. 21st