1993 (9) TMI 83 - HC - Income Tax

Key Date for Land Cost in Capital Gains Calculation: Original Acquisition Date Stands

The court held that the cost of acquisition of agricultural land for the purpose of determining capital gains should be based on the date of original ... Capital Asset, Capital Gains Issues involved: The judgment addresses the issue of determining the cost of acquisition of agricultural lands for the purpose of ascertaining capital gains, specifically whether the cost should be taken as on January 1, 1954, as contended by the Department, or as on March 1, 1970, as contended by the assessee.Summary: The case involved the transfer of agricultural land during the assessment year 1972-73, with the main dispute revolving around the cost of acquisition of the land. The land in question was acquired by the assessee's grandfather before 1941, and the assessee inherited it. The disagreement arose as to whether the cost of acquisition should be based on the date the land became a capital asset (April 1, 1970) or the date it was originally acquired. The authorities, including the Tribunal, held that the cost of acquisition should be based on the date of original acquisition, not when the land became a capital asset.The court analyzed relevant sections of the Income-tax Act, including sections 45, 48, 49, and 55(2), which deal with the computation of capital gains and the cost of acquisition. It emphasized that the crucial factor is the 'cost of acquisition' and not the date when the asset became a capital asset. Referring to a previous decision by the Gujarat High Court, the court highlighted that the property is acquired only once, and changing its character from non-capital to capital asset does not imply a new acquisition date.The court rejected the assessee's argument that the cost of acquisition should be determined based on the date the land became a capital asset in 1970. It emphasized that the cost of acquisition remains the same, based on the date of original acquisition by the assessee's grandfather. The court also dismissed references to commercial principles in determining capital gains, stating that the Act's provisions on computation and cost of acquisition must be followed.Ultimately, the court held that for the purpose of determining capital gains, the cost of acquisition of the agricultural land should be taken as on January 1, 1954, in favor of the Revenue and against the assessee.