COMMISSIONER OF INCOME TAX Vs. S KRISHNAMURTHY

JUDGEMENT

(1.) THIS is a case of capital gains assessment of a joint family of father and son. The father, by name Krishnamoorthy, purchased a house property in court-auction and made subsequent improvements thereto from out of his own separate funds, not utilising any joint family funds therefore. Subsequently, he threw this item of property into the joint family hotchpot. After some years, the property was sold at a profit by the joint family. In the hands of the joing family, the capital gains realized on the sale of the property was sought to be assessed. In the assessment, a controversy arose as to what was to be taken as the cost of acquisition of this property for the family. THIS cost had to be determined because the quantum of capital gains assessable under the Act has got to be ascertained by deducting from the total value of the sale consideration, the cost of acquisition.

(2.) THE ITO observed that, really speaking, there was no cost of acquisition at all for the assessee's family. According to him, when the property was thrown into the joint family hotchpot, the family got it for the nothing. Nevertheless, the ITO adopted Rs. 70, 535 as the cost of acquisition to the family apparently because it represented the cost to Krishnamoorthy, who threw the property into the joint family hotchpot.On appeal by the assessee, the Tribunal took the view that the sum of Rs. 70, 533 cannot be regarded as the cost acquisition of the property by the family but can only be regarded as cost of acquisition to the previous owner, Krishnamoorthy. THE Tribunal pointed out that this was not a case in which under any special provisions of the statute, the cost to the previous owner could be regarded as the cost to the assessee for the purpose of computation of capital gains.According to the Tribunal, although the assessee's family got the property for a song, nevertheless its cost to the assessee's family of this property must be regarded as represented by the real value of that property on the date when the property was thrown into the joint family hotchpot.In this references, at the instance of the Income-tax Department, the pertinent question is as follows :"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the real value of the asset on the date on which the property was thrown into the common hotchpot of the Hindu undivided family, but not nil value, should be taken as the cost of acquisition ?" *THE answer to this question bears on the construction of the relevant provisions relating to assessment of capital gains.

(3.) THE endeavour of Mr. Jayaraman, the learned counsel for the Revenue before us, was that the ITO's determination was justified under s. 55(2) read with s. 49(1) of the Act. Learned counsel particularly referred to s. 49(1)(iii)(a) of the Act. THE provision relied on by the Department's counsel reads as under : ".49. (1) Where the capital asset became the property of the assessee - ......(iii)(a) by succession, inheritance or devolution, ....the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be."Mr. Jayaraman laid particular stress on the expression" where the capital asset became the property of the assessee by devolution". According to the learned counsel, the term" devolution" *is apt to fit in which the manner in which the assessee's family in this case acquired the house property as its capital asset.We think there is considerable force in this argument of the Department's learned counsel.