JUDGMENT
B.P. Saraf, J.
1. By this reference under Section 256(1) of the Income-tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this court for opinion at the instance of the Revenue :
” Whether, on the facts and in the circumstances of the case, the market value of the land at the time of the acquisition by the assessee-Hindu undivided family, i.e., March 25, 1970, is, in view of the provisions of Section 55(3) of the Income-tax Act, 1961, to be taken as the cost thereof to the assessee for the purposes of computation of the capital gains ?”
2. The assessce is a Hindu undivided family known as ” Shri Kanubhai R. Shah of Bombay (HUF)”. The assessment year involved in this reference is 1972-73, the corresponding previous year being Samvat year 2027. The dispute in this case relates to the ” cost of acquisition ” of certain land which had been acquired by the Government under the Land Acquisition Act from the assessec for the purpose of computation of capital gains under the Income-tax Act, 1961 (for short “the Act”).
3. To appreciate the real controversy in a proper perspective, it may be expedient to give a brief resume of the facts leading to the acquisition of the land by the assessee and the relevant provisions of the law. We set out the facts first :
On March 22, 1961, four brothers including the karta of the asscssee-Ilindu undivided family had purchased certain lands in Gujarat at the rate of rupee one per square yard. On March 25, 1970, the said four brothers impressed their respective shares in the said land with the character of Hindu undivided family property by throwing the same in the common hotchpotch of the bigger Hindu undivided family comprising all the four brothers (known as the Hindu undivided family of Rasiklal C. Shah). After three months, i.e., on June 26, 1970, there was a partial partition of the said bigger Hindu undivided family and all the members of the bigger Hindu undivided family including the assessee-Hindu undivided family got their respective shares in the said land.
4. It may be pertinent to mention here that on June 15, 1967, in respect of the above land, the Government of Gujarat had issued a notice under Section 4 of the Land Acquisition Act for acquiring the entire land purchased by the said four brothers, including the karta of the assessee-Hindu undivided family which was later thrown into the common hotchpotch of the bigger Hindu undivided family of Rasiklal C. Shah. However, the award was made by the Land Acquisition Officer on April 5, 1971, and compensation of Rs. 62,535 was paid to the assessee-Hindu undivided family in respect of the land falling to its share. Possession of the land was given by the assessce-Hindu undivided family thereafter to the Land Acquisition Officer against the payment of compensation so received.
5. A question arose about the computation of capital gain on transfer of the share of land falling to the share of the assessee-Hindu undivided family for which it had received the compensation of Rs. 62,535. The assessce computed the capital gain by taking the cost of acquisition of the land as the fair market value as on March 25, 1970, that is the date of acquisition of the same by the previous owner, that is, the bigger Hindu undivided family which, according to the assessee, was Rs. 67,728. This was done by taking resort to Section 55(5) of the Act. Thus, taking the cost of acquisition at Rs. 67,728 and the consideration received on transfer Rs. 62,535, a capital loss of Rs. 5,192 was computed and the same was claimed by the assessee in its return of income under the Act for the year under consideration.
6. The Income-tax Officer did not accept the computation of capital gain as made by the assessee as, according to him, Section 55(3) of the Act had no application to the facts of the assessee’s case. According to him, the cost of the land to the assessce-Hindu undivided family was nil because of the fact that the cost of the said land to the previous owner, i.e., the bigger Hindu undivided family from which the assessee had received the same on partition was also nil. In view of the above finding, the Income-tax Officer treated the total amount of Rs. 62,535 received by the assessee from the Land Acquisition Officer as a short-term capital gain and assessed the same in the hands of the assessee as such.
7. The assessee went in appeal to the Appellate Assistant Commissioner. The Appellate Assistant Commissioner accepted the contention of the assessee that the cost of the land had to be taken to be the market value on the date of acquisition by the bigger Hindu undivided family, According to the Appellate Assistant Commissioner, the insertion of Clause (iv) of Subsection (1) of Section 49 of the Act by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976, had no application to the case of the assessee which pertains to the assessment year 1972-73. The appeal of the Revenue to the Tribunal was rejected. The Tribunal affirmed the finding of the Appellate Assistant Commissioner. It held that Clause (iv) of Sub-section (1) of Section 49 having come into force from April 1, 1976, had no application to the case of the assessee. Hence, this reference at the instance of the Revenue.
8. We may now briefly refer to the relevant provisions of the Act which deal with capital gains. Section 45 of the Act provides that any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head ” Capital gains ” and shall be deemed to be the income of the previous year in which the transfer took place. ” Transfer ” has been defined in Section 2(47) of the Act. Transactions which are not to be regarded as “transfer” for the purpose of charging capital gains under Section 45 have been set out in Section 47 of the Act with which we are not concerned in the present case. Section 48 of the Act lays down the mode of computation of capital gains. It provides that the income chargeable under the head ” Capital gains ” shall be computed by deducting from the full value of the consideration for the transfer the cost of acquisition of the capital asset and the cost of improvement and also expenditure incurred wholly and exclusively in connection with such transfer. Then comes Section 49 which lays down certain rules for computing the cost of acquisition of assets which became the property of the assessee by any of tbe modes mentioned therein. This section has a material bearing on the determination of the controversy in the present case and, therefore, it has been set out below :
“49. (1) Where the capital asset became the property of the assessee –
(i) on any distribution of assets on the total or partial partition of a Hindu undivided family ;
(ii) under a gift or will ;
(iii) (a) by succession, inheritance or devolution, or
(b) on any distribution of assets on the dissolution of a firm, body of individuals or other association of persons, or
(c) on any distribution of assets on the liquidation of a company, or
(d) under a transfer to a revocable or an irrevocable trust, or
(e) under any such transfer as is referred to in Clause (iv) or Clause (v) or Clause (vi) of Section 47 ;
(iv) such assessee being a Hindu undivided family, by the mode referred to in Sub-section (2) of Section 64 at any time after the 31st day of December, 1969,
the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be.
Explanation.–In this sub-section, the expression ‘previous owner of the property’ in relation to any capital asset owned by an assessee means the last previous owner of the capital asset who acquired it by a mode of acquisition other than that referred to in Clause (i) or Clause (ii) or Clause (iii) or Clause (iv) of this sub-section.
(2) Where the capital asset being a share or shares in an amalgamated company which is an Indian company became the property of the assessee in consideration of a transfer referred to in Clause (vii) of Section 47, the cost of acquisition of the asset shall be deemed to be the cost of acquisition to him of the share or shares in the amalgamating company. ”
9. It may be mentioned that Clause (iv) to Sub-section (1) of Section 49 was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from April 1, 1976. The words “or Clause (iv)” in the Explanation were also inserted by the same amendment Act with effect from April 1, 1976.
10. A plain reading of this section clearly goes to show that it contains certain exceptions to the general rule that the cost of acquisition would mean the cost of acquisition to the assessee. Under this section, in cases falling under it, the cost to the previous owner is deemed to be the cost of acquisition to the assessee. There are a number of other provisions dealing with various aspects relevant for computation of capital gains but we need not refer to the same as they have no relevance to the controversy before us. The only other section which is important for our purpose is Section 55 of the Act which lays down the meaning of cost of acquisition, etc., for the purposes of Sections 48, 49 and 50 in cases falling thereunder. The assessee in the present case relics on Sub-section (3) thereof which is set out below :
” 55. (3) Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner.”
11. Learned counsel for the Revenue submits that a plain reading of Section 49 makes it clear that this section applies, inter alia, to capital assets which had become the property of the assessee on any distribution of assets on the total or partial partition of a Hindu undivided family. This
is by virtue of Clause (i) of Sub-section (1) thereof. In such cases, the cost of acquisition of the asset is deemed to be the cost for which the previous owner of the property acquired it. According to counsel, in the instant case, there is no dispute that the land in question was received by the assessee on the partial partition of the bigger Hindu undivided family. That being so, Clause (i) is attracted and the cost in the hands of the bigger Hindu undivided family, which was the previous owner thereof, would be the cost of acquisition by virtue of the deeming clause contained in Sub-section (1) of Section 49. The cost in the hands of the bigger Hindu undivided family admittedly was nil, the same having been received by it not by purchase but by throwing of the same by the coparceners into the common family hotchpotch. In this connection, counsel referred to the decision of this court in CIT v. Trihamlal Manehlal (HUF) [19871 168 ITR 733 and submitted that the said judgment squarely applies to the present case.
12. Counsel for the a,ssessee, on the other hand, referred to the decision of the Madras High Court in CIT v. S. Krishnamurthy [1985] 152 ITR 669.
13. We have carefully considered the rival submissions. We find that the controversy in this case is squarely covered by the decision of this court in CIT v. Trihamlal Maneklal (HUF) [1987] 168 ITR 733. The decision of the Madras High Court relied upon by the assessee had also been referred to in the above case by this court. This court, however, did not agree with the meaning given by the Madras High Court to the word ” devolution ” in that case. It also appears that, in the instant case, it is not Clause (iv) of Sub-section (1) of Section 49 which is attracted because, in this case, the assessee has not acquired the property by the mode referred to in that clause. It is the previous owner who has acquired it by that mode. So far as the assessee is concerned, he has acquired the land on partial partition of the bigger Hindu undivided family. That being so, it is not necessary in the present case to enter into the controversy regarding the fact of incorporation of Clause (iv) with effect from April 1, 1976, as the same has no application to the case of the assessee. It may be observed that the normal mode of computation of capital gain is to deduct the cost of acquisition of the transferred asset in the hands of the assessee from the consideration received by him on transfer. In the instant case, the property having been received by the assessee on partial partition of the Hindu undivided family, admittedly, the cost of acquisition in the hands of the assessee was nil. Section 49 is an exception to the above rule and if the assessee falls in any of the clauses of this section, he can claim that the cost for which the previous owner of the property had acquired it should be deemed to be his cost of acquisition for the purpose of computation of capital gain. In the instant case, the previous owner was the bigger Hindu undivided family and the property had been received by the assessee on distribution of the assets of the Hindu undivided family on partial partition. That being so, even taking this case as falling under Clause (i) of Section 49(1) of the Act, the cost of acquisition will be nil, because, even in the hands of the previous owner, it was nil. Thus, whichever way we look at the issue, the only conclusion is that the cost of acquisition was nil.
14. So far as the submission based on Section 55(3) of the Act is concerned, we find that the said provision has no application to the facts of the present case. Sub-section (3) of Section 55 applies only in cases where the cost for which the previous owner acquired the property cannot be ascertained. It is only in such cases that the cost of acquisition to the previous owner is taken to be the market value on the date on which the asset in question became the property of the previous owner. That is not the case here. It is not one of those cases where the cost in the hands of the previous owner cannot be ascertained. Admittedly, the cost in his hands is nil. That being so, there is no scope for taking resort to Sub-section (3) of Section 55 of the Act. That being” so, the calculation of capital gain made in the instant case by the Appellate Assistant Commissioner and the Tribunal by taking resort to the said provision cannot be sustained.
15. In view of the foregoing discussion, the question referred to us is answered in the negative, that is, in favour of the Revenue and against the assessee.
16. Under the facts and circumstances of the case, we make no order as to costs.