Capital gains on remainderman's interest fail where no ascertainable cost of acquisition can be determined.

Capital gains under the Income-tax Act require the charging provision and computation machinery to operate together. The Gujarat HC noted that the assessee's remainderman's interest under a trust deed vested only on the death of his mother, but the decisive issue was whether that transferred right had an ascertainable cost of acquisition. It held that the interest arose only under the trust arrangement, no previous owner with a determinable cost of that right could be identified, and no actual cost of creation was shown in the settlor's hands. Because the computation provisions could not be applied, the capital gains charge did not attach.

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Issues: Whether the assessee was liable to capital gains tax on the sale of his remainderman's interest under the trust deed, and whether that interest had a determinable cost of acquisition for the purpose of the computation provisions.

Analysis: The charging of capital gains under section 45 of the Income-tax Act, 1961 operates with the computation machinery in sections 48, 49 and 55 as an integrated scheme. The assessee's right under the trust deed was contingent until the death of his mother, when it vested. Even so, the decisive question was whether the asset sold was one in respect of which a cost of acquisition could be conceived. The Court held that the remainderman's interest came into existence only under the trust arrangement and that no previous owner with an ascertainable cost of such right could be identified. On the facts, the backward chain of acquisition snapped at the settlor, and no material established any actual cost of creation in his hands. Since the computation provisions could not be applied to such an interest, the capital gains charge failed.

Conclusion: The assessee was not liable to be taxed on capital gains from the sale of the remainderman's interest, and the question was answered in the negative, in favour of the assessee.

Ratio Decidendi: Where the asset transferred is a contingent right that vests only later and no conceivable cost of acquisition can be ascertained in the hands of the assessee or the relevant previous owner, the capital gains charging provision does not apply because the computation mechanism fails.

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