Delhi High Court

Commissioner Of Income Tax vs N.N. Mohan & Sons on 11 December, 2000

Equivalent citations: 2001 115 TAXMAN 252 Delhi

Author: Pasayat

JUDGMENT

Pasayat, C.J.

On being moved for reference under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), the Appellate Tribunal, Delhi Bench-B, has referred the following question for opinion of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the directions of the Commissioner of Income-tax (Appeals) to the effect that the cost of acquisition of 3,900 shares sold by the assessee during the previous year be taken at Rs. 57,150 in all for the computation of capital gains ?"

2. Brief reference to the factual aspects would suffice.

3. The assessee is an HUR During the assessment year 1975-76, corresponding to the accounting year ending on 31-3-1975, it sold 3,900 shares of Mohan Meakin Breweries Ltd. for a sum of Rs. 28,295. The Income Tax Officer noticed that these shares were out of a lot which had been thrown into the common hotchpot by its coparceners on 28-11-1970. According to the assessee, the cost of acquisition of these shares was to be the market value of the shares as on 28-11-1970. The Income Tax Officer observed that there being no special provision in respect of acquisition under section 49, cost of acquisition had to be taken at nil Accordingly, he brought to tax the amount of Rs. 28,295 as capital gains. Matter was carried in appeal by the assessee before the Appellate Assistant Commissioner. Reference was made by the assessee to a decision of the Tribunal in the case of Madan Lal Jain & Sons v. Income Tax Officer (IT Appeal No. 15 101 of 1967-68) for the assessment year 1963-64. In that case also, a similar dispute arose. The Tribunal with reference to the language of section 48 held that cost of acquisition in such a case would not be nil but the real market value of the asset on the date of declaration, i.e., date of blending. This plea was accepted by the Appellate Assistant Commissioner. The revenue carried the matter in appeal before the Tribunal. The assessee pointed out that the Appellate Assistant Commissioner had merely followed an earlier order of the Tribunal and what was sought to be interpreted was the effect of provisions before the introduction of section 49(1)(iv) with effect from 1-4-1976 because assessment order concerned was of 1975-76. The Tribunal dismissed the appeal holding that the view expressed in Madan Lal Jain & Sons' case (supra) was to be applied to the facts of the case. On being moved for reference, the question as stated above has been referred for opinion of this Court.

4. We have heard the learned counsel for the revenue, there is no appearance on behalf of the assessee in spite of service of notice. The revenue's stand before the Tribunal was pressed into service.

Section 49(1)(iv) reads as follows:

"Cost with reference to certain modes of acquisition, (1) Where the capital asset became the property of the assessee-

(i) to (iii) **

(iv) such assessee being a Hindu undivided family, by the mode referred to in sub-section (2) of section 64 at any time after the 31st day of December, 1969,

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.

Explanation.In this sub-section the expression 'previous owner of the property n relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in clause (i) or clause (it) or clause (iii) or clause (iv) of this sub-section.'

5. A bare perusal of the provision makes it clear that where capital asset became property of the assessee by the mode referred to in sub-section (2) of section 64 at any time after 31-12-1969, in case of an assessee who is an HUF, 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 asset incurred or borne by the previous owner or the assessee, as the case may be. Undisputedly, acquisition of the asset, i.e., shares, was by the act of blending. Blending was done by throwing the property into the common hotchpot. Obviously, expression 'previous owner of the property' in the case at hand would mean the person who had thrown the property into the common hotch-pot and that constituted the act of blending. Though the provision was introduced by the Taxation Laws (Amendment) Act, 1975 with effect from 1-4-1976, it covered transactions where a capital became the property of the assessee by the mode referred to in sub-section (2) of section 64. Said sub-section was introduced with effect from 1-4-1971 by the Taxation Laws (Amendment) Act, 1970 and at the relevant point on time reads as follows:

"(2) Where, in the case of an individual being a member of a Hindu undivided family, any property having been the separate property of the individual has, at any time after the 31st day of December, 1969, been converted by the individual into property belonging to the family through the act of impressing such separate property with the character of property belonging to the family or throwing it into the common stock of the family or been transferred by the individual, directly or indirectly, to the family otherwise than for adequate consideration (the property so converted or transferred being hereinafter referred to as the converted property), then, notwithstanding anything contained in any other provision of this Act or in any other law for the time being in force, for the purpose of computation of the total income of the individual under this Act for any assessment year commencing on or after the 1st day of April, 1971,-

(a) the individual shall be deemed to have transferred the converted property, through the family, to the members of the family for being held by them jointly;

(b) the income derived from the converted property or any part thereof shall be deemed to arise to the individual and not to the family;

(c) where the converted property has been the subject-matter of a partition (whether partial or total) amongst the members of the family, the income derived from such converted property as is received by the spouse on partition shall be deemed to arise to the spouse from assets transferred indirectly by the individual to the spouse and the provisions of sub-section (1) shall, so far as may be, apply accordingly:

Provided that the income referred to in clause (b) or clause (c) shall, on being included in the total income of the individual, be excluded from the total income of the family or, as the case may be, the spouse of the individual.

Explanation 1.- For the purposes of sub-section (2),

property includes any interest in property, movable or immovable, the proceeds of sale thereof and any money or investment for the time being representing the proceeds of sale thereof and where the property is converted into any other property by any method, such other property.

Explanation 2- For the purposes of this section, 'income' includes loss."

6. Under section 49(1)(iv), the effect of blending has to be in cases where the act of blending took place after 31-12-1969. In the instant case, the act of blending was done on 28-11-1970. In our view, the cost of acquisition cannot be taken as 'nil' as was held by the Income Tax Officer, and market value as was held by the Tribunal with reference to its decision in Madan Lal Jain & Sons' case (supra). In fact said decision came up for consideration of this court in Addl. CIT v. Madan Lal Jain & Sons (1983) 140 ITR 2001. It was held that what was spent by the karta of the assessee-HUF would be the cost of acquisition within the meaning of section 48. In other words, the amount spent by the person who threw the asset into the common hotchpot would be the cost of acquisition. In another decision by this court in Deena Nath Nanda & Sons v. CIT( 1984) 149 ITR 96, decision in Madan Lal Jain & Sons' case (supra) was referred to. With reference to the facts of the said case, it was held that the cost of acquisition of the property in the hands of HUF was neither nil nor the value of the property as on 30-3-1968, i.e., the date on which the property was thrown into the common hotchpot of the HUF; but the cost of acquisition of the property in the hands of the individuals concerned. The said decisions are in line with our view. We find that the Tribunal has not addressed itself to the question as to what was the amount paid by the person who threw the shares into the common hotchpot, for its acquisition. The Tribunal shall undertake that exercise while dealing with the matter under section 260 of the Act.

7. The reference is, accordingly, disposed of.