1984 (7) TMI 106 - AT - Income Tax

Tribunal upholds CIT jurisdiction, corrects capital gains computation based on market value.

The Tribunal partly allowed the appeal, upholding the jurisdiction of the CIT (Appeals) to entertain the appeal. The computation of capital gains by the ... - Issues Involved:1. Jurisdiction of CIT (Appeals) to entertain the appeal.2. Correctness of computation of capital gains by the Income Tax Officer (ITO).3. Applicability of the Supreme Court decision in CIT vs. B. C. Srinivasa Setty.4. Assessment of the cost of shares for capital gains computation.Issue-wise Detailed Analysis:1. Jurisdiction of CIT (Appeals) to entertain the appeal:The Department challenged the jurisdiction of the CIT (Appeals) in entertaining the appeal filed by the assessee on 19th July, 1978. The Department argued that the CIT (Appeals) had already disposed of the appeal as infructuous on 30th Jan., 1980, and the assessee did not pursue further appellate remedies. The Tribunal noted that the assessee had filed an appeal against the CIT (Appeals)'s order to the ITAT, which was subsequently withdrawn because the CIT (Appeals) had already granted the relief sought. The Tribunal found that the Department did not raise any objection to the jurisdiction of the CIT (Appeals) at the earliest stage, and thus, the jurisdictional challenge was untenable. The Tribunal upheld the jurisdiction of the CIT (Appeals) to entertain the appeal against the ITO's order dated 20th June, 1981, giving effect to the Tribunal's order.2. Correctness of computation of capital gains by the Income Tax Officer (ITO):The ITO computed the capital gains by taking the sale price of the shares at Rs. 1,045 per share, as determined by the Departmental valuer, and applied the provisions of s. 52(2) of the IT Act. The CIT (Appeals) deleted the additions made by the ITO, relying on the Supreme Court decision in CIT vs. B. C. Srinivasa Setty. The Department argued that the computation made by the ITO was proper as the shares were of manageable companies, and the value had to be determined based on established principles. The Tribunal found that the ITO's computation was not justified as the shares had a cost, and the provisions of s. 52(2) were not applicable in this case.3. Applicability of the Supreme Court decision in CIT vs. B. C. Srinivasa Setty:The CIT (Appeals) relied on the Supreme Court decision in CIT vs. B. C. Srinivasa Setty to delete the entire capital gains assessed. The Department contended that this decision did not apply to the assessee as the shares were not self-generated assets and had a cost. The Tribunal agreed with the Department's contention that the decision in Srinivasa Setty's case was not applicable to the assessee's case, as the shares had a cost, and the provisions of s. 52(2) were not relevant.4. Assessment of the cost of shares for capital gains computation:The assessee argued that the shares had no cost as they were received without any payment, and alternatively, the market value of the shares on the date of receipt should be considered as the cost. The Department argued that the cost of the predecessor should be considered, as per the Explanation to s. 49. The Tribunal found that the shares had an original cost, considering the multiple transfers and changes involved. The Tribunal directed that the capital gains be computed based on the market value of Rs. 482 for 580 shares and Rs. 419 for 38 shares, as shown by the assessee's counsel. Consequently, the capital gains were adopted at Rs. 28,968, as returned by the assessee.Conclusion:The appeal was partly allowed. The Tribunal upheld the jurisdiction of the CIT (Appeals) to entertain the appeal and directed the capital gains to be computed based on the market value of the shares as on the date of receipt by the assessee. The Tribunal found that the CIT (Appeals) had correctly exercised his jurisdiction and decided the matter on merits.