1995 (3) TMI 10 - HC - Income Tax

Court upholds rectification order under sec. 154, clarifies fair market value rule

The court ruled in favor of the Department, holding that the rectification order under section 154 was valid due to a mistake apparent on the face of the ... Capital Gains, Cost Of Acquisition, Fair Market Value, Original Assessment, Original Order Issues involved: The judgment addresses the cancellation of an order passed under section 154 of the Income-tax Act for the assessment years 1968-69, 1969-70, and 1972-73, regarding the option of adopting fair market value for depreciable assets acquired before January 1, 1954.Assessment Years 1968-69, 1969-70, and 1972-73:- The Income-tax Officer initially allowed the assessee to adopt the fair market value as on January 1, 1954, for depreciable assets acquired before that date.- Subsequently, the Officer invoked section 154 of the Act to revise the assessments by taking the written down value as the cost of acquisition, depriving the assessee of the fair market value option.- The Appellate Assistant Commissioner upheld the Officer's decision.Debatable Issue and Application of Section 154:- The Tribunal found the issue debatable, stating that the provisions of section 154 could not be applied due to the debatable nature of the matter.- The Tribunal held that the assessee cannot exercise the fair market value option as section 50 of the Act is mandatory for depreciable assets acquired before January 1, 1954.Interpretation of Section 50 and Section 55(2):- Various High Courts, including Gujarat, Allahabad, Kerala, and Calcutta, concluded that section 50 is a special provision for determining capital gains on depreciable assets, and the fair market value option under section 55(2) is not applicable to section 50.- The Tribunal's decision was based on the correct understanding that the fair market value option cannot be exercised for depreciable assets acquired before January 1, 1954.Application of Section 154 and Mistake on the Face of the Record:- The Tribunal's cancellation of the rectification order under section 154 was deemed incorrect as there was an error apparent on the face of the record in the original assessment.- The Income-tax Officer's withdrawal of the fair market value option was based on a mistaken application of law, justifying the application of section 154.Conclusion:- The court ruled in favor of the Department, stating that there was no debatable issue regarding the application of section 50, and the rectification order under section 154 was valid due to the mistake apparent on the face of the record.