COMMISSIONER OF INCOME-TAX vs. RASHNA ADIE CONTRACTOR

ITR/366/1984HC GujaratGJHC24012031198423 April 1999Author: HONOURABLE MR. JUSTICE R.BALIA,HONOURABLE MR. JUSTICE ANIL R. DAVE2 pages
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What did the High Court hold?

The High Court held that the deduction of depreciation allowed to the deceased transferor is not permissible for reducing the cost of acquisition of a capital asset when computing capital gains in the hands of the successor. This applies when the asset falls within the provisions of sub-section (2) of Section 50 and the assessee has exercised the option to adopt the fair market value as on January 1, 1951, as its cost of acquisition in place of the written-down value. The Court reasoned that the computation must thereafter follow the procedure provided in Section 50(2) and other relevant provisions of the Act. The question referred to the Court was answered in favour of the assessee and against the Revenue in the affirmative. The operative direction is to answer the reference in favour of the assessee.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'A', passed an order in I.T.A. No. 656/Ahd/82 for Assessment Year 1977-78 on June 27, 1983. The High Court of Gujarat at Ahmedabad was asked to decide a reference arising from this order. The reference concerns the computation of capital gains for the assessee, Rashna Adie Contractor, who inherited an asset. The dispute revolves around whether depreciation allowed to the deceased transferor, Adie Contractor, should be deducted from the asset's value as of January 1, 1951, for calculating the cost of acquisition for capital gains.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in concluding that the depreciation allowed to the deceased, Adie Contractor, from whom the assessee inherited the asset, should not be taken into account and adjusted from the value as of January 1, 1951, for the purpose of computing the cost of the asset for capital gains. This issue turns on the interpretation of provisions related to capital gains computation, specifically concerning inherited assets and the impact of prior depreciation allowances. Assessee's Contention: The assessee argued, by reference to a similar case (Mini Adi Contractor, T.T.R. No. 164/84, decided by the High Court on 28/29-12-98), that depreciation allowed to the deceased should not be deducted from the fair market value as on 1.1.51 for computing capital gains in the hands of the successor. Revenue's Contention: The judgment does not explicitly record the revenue's contentions, but it addresses the question posed by the ITAT, implying the revenue likely argued for the adjustment of prior depreciation.

Which sections of the Income-tax Act were involved?

Section 50

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 366 of 1984

For Approval and Signature:

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

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

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The order continues below.

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