Smt. Sushilaben Kantilal Shah vs Commissioner of Income Tax

G.T. Nanavati, J.—The following five questions are referred to this Court by the Tribunal at the instance of the assessee u/s 256(1) of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case, the Tribunal Was right in law in holding that the cost for which the bigger Hindu undivided family as the previous owner acquired the property in question on March 25, 1970, is capable of being ascertained?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that (i) Navinchandra, (ii) Dhirajlal, and (iii) Lalitchandra were not previous owners of the property in question within the meaning of Explanation below section 49(1), income tax Act (as the text stood on April 15, 1972)?

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in the face of provisions of section 49(1), income tax Act, the general doctrine of real profits or gains could not be attracted?

If question No. 3 is answered in the negative and in favour of the assessee, what basis is to be adopted for applying the said general doctrine of real profits and gains?

Whether, on the facts and in the circumstances of the case, the amount paid by the assessee to Dhirajlal and Navinchandra (i.e., other two parties to the partition) at the time of partition dated July 20, 1970, could be, for applying the general doctrine of real profits or gains, adopted as the assessee Hindu undivided family''s cost of acquisition of the asset in question?

The main point, which arises for consideration as a result of these five questions, is covered by the decision of this Court in Commissioner of Income Tax, Gujarat Vs. Ashiwin M. Patel, , which has been followed in CIT v. Chandrakant C. Gandhi [1993] 114 Taxation 41 (Guj.) and Deepak Anubhai Shah Vs. Commissioner of Income Tax, . In Ashwin M. Patel''s case (supra) this Court has held that for the purpose of working out capital gains on the transfer of a capital asset, which the assessee himself has not purchased, the correct method of finding out the cost of acquisition of the capital asset to the assessee is to ascertain the real value of the capital asset to the assessee at the time he acquired it. The real value of the capital asset to the assessee is the market value as on the date of acquisition. This Court further held that the throwing of shares by a member of a HUF into the family hotchpot is not a transfer in the strict legal sense. However, the substance of the transaction is that as a result of throwing shares into the common hotchpot, the HUF acquires an absolute title to the shares. It is held that when shares are thrown by the karta of a HUF into the family hotchpot, the cost of acquisition of the shares to the HUF for the purpose of computing capital gains arising from the sale of those shares by the HUF, would be the market value of the shares as on the date on which it acquired them, namely, the date on which they were thrown into the common hotchpot by the karta. In this case, we are concerned with land but the same reasoning would apply and, therefore, following the decision of this Court in Ashwin M. Patel''s case (supra), we answer the questions as under:

Question No. 1 is answered in the affirmative. So also question No. 2 is answered in the affirmative. Question Nos. 3, 4 and 5 are answered in the negative. The said questions are answered by holding that the general doctrine of real profits or gains was attracted and that the basis for adopting the said general doctrine was the market value of the land in question as on the date on which the same was acquired by the HUF. No order as to costs.