KESHAVJI KARSONDAS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) BY this reference under Section 256(1) of the Income -tax Act, 1961, at the instance of the assessee, the Income -tax Appellate Tribunal has referred the following question of law to this court for opinion :

(2.) THE facts of this case are in a very narrow compass, so also is the controversy. The assessee transferred agricultural land admeasuring 5,308 sq. yards during the previous year relevant to the assessment year 1972 -73. The transfer took place on June 17, 1971. The admitted position is that agricultural land was not included within the definition of 'capital asset' till April 1, 1970. It was only by the Finance Act, 1970, that with effect from April 1, 1970, certain agricultural lands in India specified in sub -clause (iii) of clause (14) of section 2 of the Act were included in the definition of 'capital asset'. There is not controversy in this case that the land sold by the assessee meets the description of 'agricultural land' which forms part of 'capital asset' at the time of transfer. There is also no controversy that the sale of the said land attracts income -tax on capital gains. The only controversy is in regard to the 'cost of acquisition' of the said land. The admitted position is that the above agricultural land was acquired by the grandfather of the assessee prior to 1941 and the assessee became the owner of the said agricultural land by devolution. As such, section 48 of the Act read with section 49(1) would operate for the purpose of determining 'capital gains' chargeable thereon under section 45 of the Act. The cost in the hand of the grandfather of the assessee, in the ordinary course, would be the cost of acquisition by virtue of section 48 read with section 49(1) of the Act. The assessee, however, contents that the agricultural land in question having become a capital asset only with effect from April 1, 1970, the cost on that date has to be treated as the cost of acquisition and not the cost of acquisition of the land at any time anterior to that date when it was not a capital asset within the meaning of section 2(14) of the Act. This contention of the assessee did not find favour with any of the authorities below including the Tribunal, who were of the opinion that once a property or an asset is brought within the purview of the definition of 'capital asset' and on transfer of such asset if any capital gain arises, such capital gain has to be computed in the manner laid down in sections 48 and 49 of the Act and for that purpose the date of acquisition will be the date when the asset was acquired by the assessee and not the date when the asset became taxable under the Act.

(3.) A regarding of the above provision makes it clear that once an asset becomes a 'capital asset' and it is transferred thereafter, the capital gain has to be computed in the manner laid down in sections 48, 49(1) and 55(2) of the Act. What is relevant is the 'cost acquisition' and not the date on which the asset became a capital asset for the purpose of levy of capital gains tax. This view of ours gets full support from the decision of the Gujarat High Court in Ranchhodbhai Bhaijibhai Patel v. CIT : [1971]81ITR446(Guj) . In that case also, similar argument was sought to be advanced by the assessee. Repelling the contention of the assessee, it was observed as under (at page 458) :