CHINTAN N PARIKH vs. COMMISSIONER OF INCOME TAX

ITR/185/1986HC GujaratGJHC24010809198606 August 2001Author: HONOURABLE MR. JUSTICE ANIL R. DAVE,HONOURABLE MR. JUSTICE D.A.MEHTA13 pages
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What were the facts?

The case involves two Income Tax References concerning assessment year 1980-81. The assessees, two brothers, sold their respective interests in a property held under a trust deed dated May 16, 1960. This trust was created by Tulsidas Hargovandas, who had received the property in a partition of a Hindu Undivided Family. Under the trust, Tulsidas retained a life interest, and the immovable property was settled in favour of his sister, Shakuntalaben, with the remainder interest to her surviving sons (the assessees). Shakuntalaben died on October 12, 1970, at which point the assessees became owners of the remainderman's interest. They sold this interest on December 29, 1979, for Rs. 1,76,000 each. The assessees claimed exemption from capital gains tax, arguing the property had no cost of acquisition.

What did the High Court hold?

The High Court held that the assessee acquired the right in the remainderman's interest only on the death of his mother, Shakuntalaben, on October 12, 1970. Prior to her death, the assessee's right was contingent. The Court found that in such a case, not only is there no previous owner as the right, although contingent, came into existence only on the execution of the trust deed, but there is also no conceivable cost of acquisition. Even if Section 49(1) were applied, the backward chain would snap at the settlor, Tulsidas, and it is not possible to conceive a cost in his hands. The Tribunal erred in holding that the assessee was liable to be taxed on capital gains. The question of law was answered in the negative, in favour of the assessee and against the revenue. The Court noted that the computation provisions, forming an integrated code with the charging provision, failed, making it impossible to uphold the Tribunal's view.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the assessee was liable to be taxed on capital gains on account of the sale of his interest arising under the trust dated 16/5/1960 on the death of his mother Shakuntalaben? Assessee's contentions: - The assessee claimed that since the property did not cost anything to the assessee, the capital gain is exempt, relying on the decision in CIT v. K. Ratnam Nadar (1969) 71 ITR 433 (Madras). - The assessee argued that the remainderman's interest was acquired only on the death of his mother, and prior to that, the interest was not in existence. Therefore, there was no 'last previous owner' as envisaged by Section 49 read with Explanation to sub-section (1) of Section 49, and no identifiable cost of acquisition existed. Revenue's contentions: - The Income Tax Officer held that the remainderman's interest was an asset and became property in the hands of Shakuntalaben when the property was settled. By virtue of Section 49(1), the cost of acquisition in the hands of the assessee was the cost in the hands of the previous owner, with the settlor being the last previous owner. An option to adopt the fair market value as on January 1, 1964, was available. - The Tribunal, with a difference of opinion between its members, ultimately held that the asset was not self-generated and came into existence on the date of the trust deed. The Accountant Member held that the interest was in existence from the date of the trust deed until the death of Shakuntalaben.

Which sections of the Income-tax Act were involved?

Section 45,Section 49(1),Section 48(ii)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 185 of 1986 AND INCOME TAX REFERENCE No 95 of 1987

For Approval and Signature:

Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE D.A.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements?

2.

To be referred to the Reporter or not? : YES

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be

The order continues below.

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