Commissioner of Income tax vs Shanthi Chandran

R. Jayasimha Babu, J.—The question referred to us is ""Whether, on the facts and circumstances of the case and having regard to the

provisions of section 49 of the Income Tax Act, the Tribunal is right in law in holding that the value of shares as mentioned in the family settlement

deed and not the cost to the previous owner, should be taken as the cost of acquisition of share obtained by the assessee in the family settlement ?

The assessee while they were minors and unmarried, being the daughters of one Jagadish Chandran, received certain shares from Premier

Cotton Spinning Mills Ltd., under the settlement effected by their father on 2-3-1977. In that settlement the value of the shares mentioned was

higher than the amount for which the said Jagadish Chandran had acquired the shares. Subsequently in the assessment year 1982-83, the assessees

sold those shares and derived a capital gain therefrom.

The assessees contended before the assessing authority that the cost of acquisition of the shares which they were entitled to deduct u/s 48(ii) of

the Act should be taken as the amount mentioned in the settlement deed. The Income Tax Officer did not accept their contention and hold that u/s

49 of the Act, it was the cost to the previous owner that was required to be regarded as a cost of acquisition. The Commissioner (Appeals) having

held otherwise in appeal, the Income Tax Officer appealed to the Tribunal which confirmed the order of the appellate authority. The Tribunal held

that the shares had been obtained by the two daughters for a consideration and the consideration was in the view of the Tribunal their right to

receive their marriage expenses.

Section 49 of the Act deals with the cost with reference to certain modes of acquisition and provides that where the capital asset became the

property of the assessee in any of the modes mentioned in sub-clauses (i) to (vi), 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.

The sub-clauses of section 49(1) of the Act refer to the distribution of assets on the total or partial partition of an HUF; the assets received

under a gift or will., the assets received by way of succession; inheritance or devolution, the assets received on the distribution of assets on the

dissolution of a firm ; Body of Individual or other Association of Persons, the assets received on the distribution of assets on the liquidation of a

company., and to the assets under a transfer to a revocable or an irrevocable trust, etc.

In a partition, the consideration for the partition is the mutual relinquishment the rights of the parties in the joint family properties in which each

has share, the fact that the daughters have a right to maintenance and marriage expenses and would have been entitled to a share at a partition does

not render the value of the shares allotted to them under a settlement deed, the price for which they had sold or relinquished their rights over the

properties of the family. The family settlement in this context is analogous to a partition. It is the cost to the previous owner that is to be taken into

account as the cost of acquisition of shares and not the amounts mentioned in the family settlement deed by the settlor.

The question referred to us is, therefore, answered in favour of the revenue and against the assessee.