Actual purchase price governs capital gains cost, while palace residence exemption does not cover sale proceeds from appurtenant land.

For capital gains computation, the actual price paid for a genuine block purchase was treated as the cost of acquisition, and controlling interest was not recognised as a separate capital asset capable of independent valuation; the cost was therefore Rs. 100 per share. The exemption in paragraph 15(1)(iii) of the Part B States (Taxation Concessions) Order, 1950 was confined to the bona fide annual value of palaces declared as official residences and did not extend to capital gains from sale of land forming part of, or appurtenant to, such residence; the claimed exemption was unavailable.

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Issues: (i) Whether the cost of acquisition of the shares for computing capital gains or capital loss was Rs. 76 per share or Rs. 100 per share; (ii) Whether capital gains on sale of plots forming part of the official residence of a Ruler were exempt under paragraph 15(1)(iii) of the Part B States (Taxation Concessions) Order, 1950.

Issue (i): Whether the cost of acquisition of the shares for computing capital gains or capital loss was Rs. 76 per share or Rs. 100 per share.

Analysis: The assessee had in fact paid Rs. 100 per share for acquiring the block of shares, and the finding that the market price was lower did not justify splitting the price into share value and a separate price for controlling interest. Controlling interest is only an incidence arising from holding the requisite number of shares and is not a distinct capital asset capable of separate acquisition or transfer. Where a genuine transaction requires payment of a higher price for the block, that actual price is the cost of acquisition for capital gains purposes.

Conclusion: The cost of acquisition was Rs. 100 per share. The question was answered in favour of the assessee and against the Revenue.

Issue (ii): Whether capital gains on sale of plots forming part of the official residence of a Ruler were exempt under paragraph 15(1)(iii) of the Part B States (Taxation Concessions) Order, 1950.

Analysis: The exemption in paragraph 15(1)(iii) extends only to the bona fide annual value of palaces of Rulers declared as official residences. It does not extend to capital gains arising from the sale of land comprised in or appurtenant to the official residence.

Conclusion: The capital gains were not exempt under the Order. The question was answered in favour of the Revenue and against the assessee.

Final Conclusion: The references were answered by holding that actual purchase price governs the cost of acquisition, while the claimed exemption does not cover capital gains from sale of palace land.

Ratio Decidendi: For capital gains computation, the actual price paid for a genuine block purchase is the cost of acquisition, and a claimed exemption must be confined to the precise income category covered by the exempting provision.

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