Capital gains on asset exchanges follow the value received in exchange, and settled precedent can bar a fresh reference.

In an exchange of capital assets, capital gains are computed on the value of what the transferor receives in return, not on the asset transferred itself as consideration. The Kerala HC noted that the proposed questions were already covered by the Supreme Court in CIT v. George Henderson and Co. Ltd. and CIT v. Gillanders Arbuthnot and Co., so no fresh reference was warranted on that settled position. On that basis, the refusal to refer the questions was upheld and the original petitions were dismissed.

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Issues: Whether the Tribunal was bound to refer the questions of law arising from the common order, in view of the settled law on computation of capital gains in an exchange of assets.

Analysis: The questions proposed for reference were held to be already covered by the Supreme Court decisions in CIT v. George Henderson and Co. Ltd. and CIT v. Gillanders Arbuthnot and Co. The governing principle applied was that, in an exchange, the consideration for transfer is what the transferor receives in lieu of the asset parted with, and the transferred asset itself cannot be treated as the consideration. On that basis, the controversy raised was not treated as requiring fresh reference for opinion of the court.

Conclusion: The refusal to refer the questions was upheld and the original petitions were dismissed.

Ratio Decidendi: In an exchange of capital assets, the consideration for computing capital gains is the value of what is received in exchange, and where the issue is already covered by binding precedent, no reference need be made under section 256(2).

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