COMMISSIONER OF INCOME TAX Vs. MINI ADIE CONTRACTOR

JUDGEMENT

(1.) The Income Tax Appellate Tribunal, Ahmedabad Bench 'A, has referred a question of law arising out of its order in I.T.A. No. 656/Ahd/82 relating to A.Y. 1977-78 dated 27.6.1983. The question reads as under:-

(2.) The facts and circumstances of the case in which the question has arisen are that late Shri Adie Contractor was the owner of a cinema theatre which he acquired prior to 1.1.54. He died on 16.1.72. The respondent assessee, along with two others, inherited the cinema theatre. The asset was sold during the previous year relevant to A.Y. 1977-78. The assessee opted to take fair market value of asset as on 1.1.54 as its cost of acquisition u/s 55(2) read with sec. 49, read with sec. 50(2) of the Income-tax Act 1961. The assessee computed the cost of acquisition to be fair market value as on 1.1.54 as reduced by depreciation allowed to the assessee since the asset became vested in him on the death of previous owner and on that balance capital gains were computed. The ITO did not accept the computation of the cost of acquisition made by the assessee but from the fair market value as on 1.1.54 deducted depreciation allowed on such assets after 1.1.54 to late Shri Adie Contractor in addition to the depreciation which has been allowed to assessee after he acquired the asset by way of succession. The view taken by the ITO was confirmed by the AAC. The tribunal on further appeal however accepted the assessee's contention and allowed the claim of the assessee as to the computation of the cost of acquisition for the purposes of computing capital gains for the assessment year in question. In the aforesaid circumstances, the question has been referred to us to consider what is the amount of depreciation that is to be allowed in reaching the cost of acquisition of the asset in question.

(3.) Section 45 provides that "any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in other provisions, be chargeable to income-tax under the head "Capital gains" as income of the previous year in which the transfer took place." Section 46 deals with situation arising in the case of distribution of assets to the shareholders on liquidation of a company. Section 47 enumerates certain transactions which are not subjected to charge of capital gains. Section 48 prescribes mode of computation of capital gain arising on transfer of a capital asset. It in turn envisages that from the full value of the consideration received or receivable as a result of transfer of the capital asset there shall be deducted expenditure incurred wholly and exclusively in connection with such transfer and the cost of acquisition of capital asset and the cost of any improvement thereto. Thus, cost of acquisition becomes the principal factor in computing capital gains arising on transfer of a capital asset. Section 49 provides for a situation where the assessee himself might not have incurred the cost of acquisition of the capital asset in relation to which capital gains is to be computed. In such event, the cost of acquisition of the asset is to be deemed to be the cost for which the last of previous owner of the property acquired it who has acquired it by mode of acquisition other than referred to in sec. 49(1) as increased by cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be. Section 50 deviates from sec. 48 and sec. 49 in dealing with capital assets in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under the Act of 1961 or under the Indian Income-tax Act, 1922.