1978 (1) TMI 61 - HC - Income Tax

Court affirms capital loss allowance for ginning factory acquisition through partial partition.

Additional Commissioner Of Income-Tax Versus Binodiram Balchand And Co.

Additional Commissioner Of Income-Tax Versus Binodiram Balchand And Co. - [1978] 113 ITR 286 Issues:- Interpretation of section 49(1) of the Income-tax Act- Determination of cost of acquisition for capital assets- Application of deeming provision in specific contingenciesAnalysis:The judgment pertains to a reference made under section 256(1) of the Income-tax Act regarding the entitlement of the assessee to a capital loss of Rs. 90,753. The assessee, a registered firm, claimed the capital loss in relation to a ginning factory acquired through partial partition of a Hindu undivided family. The dispute revolved around the cost of acquisition of the factory, with the Income-tax Officer valuing it at Rs. 35,000, while the assessee contended it should be considered at Rs. 1,25,000. The Appellate Tribunal upheld the assessee's contention, relying on section 49(1) of the Act, which deems the cost of acquisition to be the amount for which the previous owner acquired the asset. The Tribunal allowed the capital loss based on this interpretation.The department, in its appeal, argued that the value of the factory should not exceed Rs. 35,000, citing a Supreme Court decision and emphasizing the application of section 49(1)(i) of the Act. The court analyzed section 49, noting that it provides for the cost of acquisition in specific modes of acquisition, including distribution of assets on partition of a Hindu undivided family. The court affirmed that the deeming provision under section 49(1)(i) applied in the case at hand, as the ginning factory became the property of the assessee through a partial partition. Therefore, the cost of acquisition was deemed to be the amount at which the previous owner (Hindu undivided family) acquired it, which was Rs. 1,25,000. Consequently, the court upheld the Tribunal's decision to allow the capital loss of Rs. 90,753 to the assessee.In conclusion, the court answered the reference question affirmatively, stating that the Tribunal was justified in holding that the assessee was entitled to the capital loss. The judgment highlights the importance of interpreting specific provisions of the Income-tax Act, such as section 49, to determine the cost of acquisition for capital assets in cases involving unique modes of acquisition like partition of a Hindu undivided family.