Ita v. B.c.srinivasa Setty, (1981) 128 Itr 294 Andjudgment Of Gujarat High Court Incit Vy. Manoharsinhyi P.jade)A, (2006)281 Ttr 19

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No.3 of 2014 (O&M)Date of decision: 18.03.2014 Thakur Dwara Shri Krishanji Maharaj Handiyaya, Barnala through MahantOm Parkash Chela Mahant Madan Dass .....- Appe Vs, Commissioner of Income Tax, Patiala and another ...keSpondents CORAM: HON’ BLE MR. JUSTICEK AJAY KUMAR MITTHON’BLE MS. JUSTICE ANITA CHAUDHRY Present:Ms. Radhika Suri, Advocate for the appellant. Ajay Kumar Mittal,J. inThis appeal has been preferred by the assessee under section260A of the Income Tax Act, 1961 (in short, “‘the Act’) against the ordedated 15.5.2013 Annexure A-3, passed by the Income Tax AppellateTribunal, Chandigarh Bench, Chandigarh in ITA No.172/Chd/2010 for theassessment year 2006-07, claiming following substantial questions of law:- 1) Whether in the facts and circumstances of the case, theIncome Tax Appellate Tribunal has fallen in error inapplying the ratio of the judgment of the Hon'ble Court inthe case ofCIT vy. Raja Malwinder Singh(2011) 334 ITR48 to the facts and circumstances of the present case? 11) Whether 1n facts and circumstances of the case, theIncome Tax Appellate Tribunal has fallen in error inapplying the provisions of section 55(3) of the Income TaxAct to compute the capital gain even though there was nocost of acquisition of the acquired land and thus no profitsand gains could be computed on acquisition of the same’ ).A tew facts relevant for the decision of the controversy;involved, as narrated in the appeal may be noticed. Agricultural landmeasuring 146 kanals 19 marlas was situated within the municipal limits ofBarnala which was acquired by the Improvement Trust, Barnala.Compensation of v2,/7,91,294/- was awarded as per award dated28.11.2005. Since the land was gifted to the appellant by the Maharaja ofPatiala, the cost of acquisition of the land was the same as to the Maharajaof Patiala. Since the Maharaja did not incur any cost, the same was notchargeable to tax under section 45 of the Act. The Assessing Officerrejected the said plea of the appellant vide order dated 24.12.2008,Annexure A.| by holding that as per the provisions of section 55(3) of theAct, even in cases where the cost of acquisition to the previous owner couldnot be ascertained, the same had to be computed by taking into account thefair market value of the assets as on 1.4.1981. The Assessing Officeradopted the market value of the land as on 1.4.1981 and computed thecapital gains in relation to the acquisition of land. Aggrieved by the order,the assessee filed appeal before the Commissioner of Income Tax(Appeals)[CIT(A)]. Vide order dated 8.12.2009, Annexure A.2,the CIT(A) set asidethe order passed by the Assessing Officer and deleted the addition onaccount of capital gains made by the Assessing Officer. Not satisfied with ITA No.3 of 2014 (O&M) the CIT(A) had erred in holding that the compensation received on accountof acquisition of land of the assessee was not exigible to tax as neither theassessee nor the previous owner had incurred any cost to acquire the asset,Vide order dated 15.5.2013, Annexure A.3, the Tribunal accepted theappeal by placing reliance on the Full bench decision of this Court in.Raja Malwinder Singh'S case (Supra). Hence the present appeal by the assessee.3We have heard learned counsel for the appellant-assessee andperused the record. ITA No.3 of 2014 (O&M) the CIT(A) had erred in holding that the compensation received on accountof acquisition of land of the assessee was not exigible to tax as neither theassessee nor the previous owner had incurred any cost to acquire the asset,Vide order dated 15.5.2013, Annexure A.3, the Tribunal accepted theappeal by placing reliance on the Full bench decision of this Court in.Raja Malwinder Singh'S case (Supra). Hence the present appeal by the assessee.3We have heard learned counsel for the appellant-assessee andperused the record. 4 Learned counsel for the assessee-appellant submitted that thecost of acquisition in the present case had to be taken as the cost to theprevious Owner under Section 49 of the Act. The explanation to Section 49specifically provides that previous owner 1s one who has acquired the assetby a mode other than referred to in clauses |, 2, 3 and 4 of this sub section.It was further argued that the previous owner under the Act 1s a person whohas acquired the asset by payment of money 1.e. the cost incurred foracquisition of the asset. In case the previous owner has not incurred any costneither the provisions of Section 55(2) (b) nor the provisions of Section 55(3) of the Act would apply. Support was drawn from judgment of the ApexCourt inCIT, Bangalore v. b.C.Srinivasa Setty, (1981) 128 ITR 294 andjudgment of Gujarat High Court inCIT vy. Manoharsinhyi P.Jade)a, (2006)281 TTR 19. 4]We are not impressed with the submissions of learned counselfor the appellant. The matter is no longerres integra.The Full Bench of thisCourt in Raja Malwinder Singh'scase (supra) after considering thejudgment of the Apex Court in.B.C. Srinivasa Setty'case (supra) and the provisions of Sections 48, 49, 55(2) and 55 (3) of the Act under similarcircumstances observed as under:- “S. It 1s pointed out that judgment in CIT, Bangalore yvb.C.Srinivasa Setty[1981] 128 ITR 294 (SC), 1sdistinguishable. It was observed therein that in a newly startedbusiness the value of goodwill was not ascertainable, and onsale of goodwill, capital gain was not attracted. It is submittedthat in case of acquisition of land, the same is either acquired atsome cost or without cost and under the scheme of the Act,there can be no situation when the cost is incapable ofascertainment. Section 55(2) provides for taking the cost eitherequal to the market value as on 1.1.1954 or at the option of theassessee equal to the cost of acquisition of the previous owner.Section 55(3) provides that where cost of acquisition of theprevious Owner cannot be ascertained, it has to be taken to beequal to the market value on the date the asset was acquired bythe previous owner. Explanation to section 49 provides thatprevious owner is the person not covered by the clausesmentioned in section 49(2) 1.e. who acquires propertyotherwise than by way of gift, will or by succession. 6. In the present case, the assessee acquired the property bysuccession from previous owner. According to the stand of theassessee, cost of acquisition by the previous owner could notbe ascertained. However, he failed to exercise the option ofgoing either by the date of market value on the date ofacquisition or by the cost of the previous owner in which caseonly option available to the Assessing Officer was to proceedto compute capital gain by taking the cost of the asset to be fairmarket value on the specified date 1.e. 1.1.1954 as perapplicable provision for assessment year 1977-78 and as on1.1.1964 for assessment year 1978-79. Even in a case wherecost of acquisition cannot be ascertained, section 55(3)statutorily prescribes the cost to be equal to the market value 6. 6. In the present case, the assessee acquired the property bysuccession from previous owner. According to the stand of theassessee, cost of acquisition by the previous owner could notbe ascertained. However, he failed to exercise the option ofgoing either by the date of market value on the date ofacquisition or by the cost of the previous owner in which caseonly option available to the Assessing Officer was to proceedto compute capital gain by taking the cost of the asset to be fairmarket value on the specified date 1.e. 1.1.1954 as perapplicable provision for assessment year 1977-78 and as on1.1.1964 for assessment year 1978-79. Even in a case wherecost of acquisition cannot be ascertained, section 55(3)statutorily prescribes the cost to be equal to the market value 6. on the date of acquisition. This being the position, capital gainis not excluded even on the plea that value of the asset inrespect of which capital gain 1s to be charged was incapable ofbeing ascertained. The view taken in |Amrik Singh'sCaSc[2008] 299 ITR 14 (P&H) based on the assumption that wheremarket value cannot be ascertained, capital gain cannot beapplied, 1s not correct being against the statutory scheme.Similarly, the view taken by the Madhya Pradesh High Court inCIT vs. H.l.Maharaja Sahib Shri Lokendra Singhji,11936]162 ITR 93 (MP) cannot be accepted. The said judgment alsodoes not give effect to the mandate of section 55(3) whichprovides for a situation where value of the asset acquired couldnot be ascertained. If market value can be ascertained, it has tobe taken to be equal thereto and if the value cannot beascertained, it has to be equal to market value on a specifieddate at the option of the assessee. It 1s not the case of theassessee that land had no market value at all on the date of itsacquisition. Contention that value was incapable of beingascertained, as already observed, the value in such case has tobe taken as being equal to market value on a specified date.” Further, while concluding, it was held :- **Even where the cost of acquisition of capital asset cannot bascertained but the asset has a market value, capital gain will beattracted by taking the cost of acquisition to be fair market valueas on January 1, 1954, or on date statutorily specified or at theoption by the assessee, the market value on the date ofacquisition.” do The Full Bench of this Court tn Raja Malwinder Singh'sCdaSN (supra) had dissented from judgment of the Madhya Pradesh High Court 1n CIT v. H.H.Maharaja Sahib Shri Lokendra Singhyj, (1986) 162 ITR 93 (MP), whereas the Gujarat High Court in |Manoharsinhyji P.JadejaS CdSe (supra) had applied the principles enunciated therein. We are unable to subscribe to the view expressed 1n Manoharsinhyji P-Jadeja'scase (supra). 8.As a result, no substantial question of law arises 1n this appealand the same 1s hereby dismissed. March 18, 2014<4%: (Ajay Kumar Mittal)Judge(Anita Chaudhry) (Anita Chaudhry)Judge