COMMISSIONER OF INCOME TAX Vs. MANOHARSINHJI P JADEJA

JUDGEMENT

(1.) The Income Tax Appellate Tribunal Ahmedabad Bench 'C' has referred the following question for the opinion of this Court under Section 256(2) of the Income Tax Act, 1961 (the Act) at the instance of the Commissioner of Income Tax, Rajkot.

(2.) The respondent - assessee is an individual. The Assessment Year is 1983-84 and the relevant previous year is the Financial Year ended on 31-03-1983. The assessee inherited property known as 'Ranjit Vilas Palace' along with appurtenant and adjacent lands situated at Rajkot on the death of his father, Shri Pradumansinhji, on 09-11-1973. It appears that for Assessment Years 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 Income Tax Department attached 22059 sq. yds. of vacant land on 01-02-1983. The department divided 5727 sq. mtrs. of land out of the aforesaid acquired parcel of land and sold 33 plots by way of public auction held on 21-03-1983 and 22-03-1983. A sum of Rs.65,50,870/- was the gross realization from the auction sale. The return of income filed by the assessee was accompanied by a letter dated 06-06-1983 wherein the assessee advanced reasons for showing long term capital gains 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 Commissioner of Income Tax, Bangalore Vs. B.C. Srinivasa Setty, (1981) 128 ITR 294 and stated that the assessee was not liable to capital gains tax on correct reading of Sections 48(ii), 49 and 55(2) of the Act. The Assessing Officer distinguished the decision in the case of 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 option under Section 55(2) of the Act and state the fair market value as on 01-01-1964 which could be adopted as "cost of acquisition". The Assessing Officer further took note of the fact that the assessee had specifically vide letter dated 06-06-1983 stated that he does not want to exercise option under Section 55(2) of the Act to adopt the fair market value of the plots as on 01-01-1964 as cost of acquisition, but opted for the cost of acquisition of his ancestors. The Assessing Officer rejected the contention of the assessee by stating that provisions of Sections 48 and 49 of the Act do not provide that there has to be atleast some cost while determining long term capital gains. That the term 'cost' was not defined. The Assessing Officer, 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 5727 sq.mtr. of land at Rs.3,000/-.

(3.) The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals), Rajkot who, for the reasons stated in his order dated 21-03-1986, confirmed the order made by the Assessing Officer.