UDAI SINGH RATHORE,JAIPUR vs. ITO, JAIPUR

per the mode of acquisition as provided u/s section 49(1) of the Act

then, the cost of acquisition would be fair market value as on

01.04.1984. Thus, the ld. DR has submitted that even in case the cost

of acquisition is nill in the hand of the assessee the capital gain has to

be computed as per the provisions of sections 49(1) & 55(2)(b)(ii) of

the Act.

material on record. There is no dispute that the land in question was

awarded to the assessee by the Government of Rajasthan free of cost

and therefore, the cost of acquisition in the hand of the assessee is nil.

The ld. AR of the assessee has contended that since the cost of

acquisition is nil, therefore, the computation of capital gain fails and no

capital gain is chargeable on full receipt of sale of the land. He has

relied upon the various decisions including the decision of Hon’ble

Supreme Court in case of CIT Vs. B.C. Srinivasa Setty (supra). It is

pertinent to note that all these decisions as relied upon by the

assessees were rendered prior to the full bench decision of Hon’ble

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

Punjab and Haryana High Court in case of CIT vs. Raja Malwinder Singh

(supra) wherein the full bench of Hon’ble Punjab and Haryana High

Court after considering the judgment of Hon’ble Supreme Court in

case of CIT Vs. B.C. Srinivasa Setty (supra) as well as the decision of

Hon’ble Gujarat High Court in case of CIT vs. Mandharshingji P.

Jadeja(surpa) and the decision of Hon’ble of MP High Court in case of

CIT vs. H.H. Lokendra Singh (supra) has decided thisissue against the

assessee. we has further noted that even the decisions relied upon by

the assessee of Coordinate Benches of this Tribunal as well as Pune

Bench of the Tribunal were without considering the decision of full

bench of Hon’ble Punjab and Haryana High Court. Since, these

decisions were prior to the decision of Hon’ble High Court, therefore, all

these decisions relied upon the ld. AR of the assessee were rendered

without having the benefit of the decision of full bench of Hon’ble

Punjab and Haryana High Court in case of CIT vs. Raja Malwinder Singh

(supra). Whereas the Coordinate Bench of this Tinunal in case of Shri

Ram Lal Sharma vs. ITO(supra) had the benefit of full bench decision

and has considered an identical issue in para 6 as under:-

“6. I have considered the rival submissions as well as relevant material on record. The land in question was acquired by the assessee by succession, therefore, the cost of acquisition of the

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

land in question in the hand of the assessee would be taken as the cost in the hand of the previous owner of the land. The ld. AR of the assessee has contended that the land was allotted under the Rajasthan Land Reforms and Resumption of Jagir Act, 1952 without any consideration, therefore, the cost of acquisition in the hand of the previous owner is nil. Thus the ld. AR of the assessee has submitted that in view of the decision of Hon’ble Supreme Court in case of CIT Vs. B.C. Srinivasa Setty (supra), decision of Hon’ble Gujarat High Court in case of CIT vs. Mandharshingji P. Jadeja (supra) as well as CIT vs. H.H. Maharana Sahib Shri Lokendra Singhji the Jagir property gifted to the forefathers of the assessee has no cost of acquisition in the hand of the ancestors and therefore no capital gain accrued where the cost of acquisition is not ascertainable. It was also contended that the fair market price cannot be taken into consideration where the cost of acquisition was not ascertainable. On the other hand, the Full Bench decision of Hon’ble Punjab and Haryana High Court in case of CIT vs. Raja Malwinder Singh (supra) has held that even in a case where the cost of acquisition cannot be ascertained, section 55(3) prescribes the cost to the equal to the fair market value on the date of acquisition in case of acquiring the land either at some cost or without cost but there can be no situation when the cost is incapable of ascertainment. This view of the Hon’ble Punjab and Haryana High court was again reiterated in case of Thakur Dwara Shri Krishanji Maharaja Handiyaya, Barnala (Supra). Thus it is clear that there are divergent views of Hon’ble High Courts on this issue particularly the interpretation and understanding of the decision of Hon’ble Supreme Court in case of CIT vs. B.C. Srinivasa Setty (supra). The issue before the Hon’ble Supreme Court in case of CIT vs. B.C. Srinivasa Setty was the taxability of capital gain on transfer of goodwill of a newly commenced business. The Hon’ble Supreme Court has observed that no business commenced for the first time possesses goodwill from the start. It is generated as the business is carried on and may be augmented with the passage of time. Therefore, goodwill 9

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

in a newly commenced business is a self generated asset and in this said contest the Hon’ble Supreme Court has held that the cost of acquisition of self generated asset like goodwill is not possible. The relevant finding of the Hon’ble Supreme Court decision in case of CIT Vs. B.C. Shrinivasa Setty in paras 8 to 11 as held as under:- “8 The mode of computation and deductions forth in s. 48 provide the principle basis for quantifying the income chargeable under the head “capital gain”. The section provides that the income chargeable under that head shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset: “(ii) the cost of acquisition of the capital…” What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by s. 49 and its cost, for the purpose of s. 48, is determined in accordance with those provisions. There are other provisions which indicate that s. 48 is concerned with an asset capital of acquisition at a cost. Sec. 50 is one such provisions. So also is such s s. (2) of s. 55. None of the provisions pertaining to the head “Capital gain” suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded. The elements which create if have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain. 10

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such as class it may, on facts of certain cases be acquired without the payment of money. Therefore, when a capital asset which possesses the inherent quality or monetary value at the time when the persons seeking to acquire it but it was acquired without the payment of money would not take such capital asset in the category that it will not possible to determine the cost of acquisition. Further, in case of self generated intangible asset like goodwill there is not acquisition by the transferor whereas in the case of land acquired by the transferor without any cost but is capable acquisition of cost and therefore the land which was acquired without cost cannot be put into category of the asset which is self generated and the determination of cost of acquisition is not possible. There may be two categories of capital asset where the cost of acquisition is nil. In first category no cost is paid by the person who has acquired it. In other case the asset is self generated in due course of time and it is not possible to ascertain the cost of acquisition and date of generation/acquisition. Therefore, the case of the assessee falls in the categories of the land in question carried/ possesses cost or monetary value though the forefathers of the assessee acquired it without any cost. In such a situation the provisions of section 55 (2)(b) would come into play. For reading reference section 55(2)(b) 55(3) are quoted as under:- Section 55 (2(b) “(b) in relation to any other capital asset,—] (i) where the capital asset became the property of the assessee before the [1st day of April, [1981]], means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the [1st day of April, [1981]], at the option of the assessee ; 12

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

(ii) where the capital asset became the property of the assessee by any of the modes specified in [sub-section (1) of] section 49, and the capital asset became the property of the previous owner before the [1st day of April, [1981]], means the cost of the capital asset to the previous owner or the fair market value of the asset on the [1st day of April, [1981]], at the option of the assessee ; (iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head "Capital gains" in respect of that asset under section 46, means the fair market value of the asset on the date of distribution ; (iv) [***] [(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on— (a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares, (b) the conversion of any shares of the company into stock, (c) the re-conversion of any stock of the company into shares, (d) the sub-division of any of the shares of the company into shares of smaller amount, or (e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference to the cost of acquisition of the shares or stock from which such asset is derived.

Section 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.” 13

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

Thus as per clause (b) sub-section (2) of section 55 read with section 49 (1)(iii)(a) of the Act the cost of acquisition of the asset acquired by succession or inheritance or devaluation shall be deemed to be the cost for which the previous owner of the property acquired it. Where the capital asset become the property of the assessee or previous owner before 01.04.1981 the cost of acquisition means the cost of acquisition of the asset to the previous owner or fair market value of the asset on 01.04.1981 at the option of the assessee. Even in case 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 becomes the property of the previous owner as provided under sub-section (3) of section 55. Since this case of the assessee is covered by provisions of section 55(2)(b) read with section 49(1) of the Income Tax Act therefore, the cost of the acquisition of the property for the purpose of computing the capital gain would be fair market value as on 01.04.1981. The full bench of Hon’ble Punjab and Haryana High Court after considering the decision of the Hon’ble Supreme Court in case of CIT vs. B.C. Srinivasa Setty (supra) as well as other decisions relied upon by the ld. AR on this point has observed in paras 5 to 7 as under:- “5. It is pointed out that the judgment in B.C. Shrinivasa Setty’s case (supra) is distinguishable. It was observed therein that in a newly started business the value of goodwill was not ascertainable, and on sale of goodwill, capital gain was not attracted. It is submitted that in the case of acquisition of land, the same is either acquired at some cost or without cost and under the scheme of the Act, there can be no situation when the cost is incapable of ascertainment. Section 55(2) provides for taking the cost either equal to the market value as on January 1, 1954, or at the option of the assessee equal to the cost of acquisition of the previous owner. Section 55(3) provides that where the cost of acquisition of the previous owner cannot be 14

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

ascertained, it has to be taken to be equal to the market value on the date the asset was acquired by the previous owner. The Explanation to section 49(2), i.e., who acquires property otherwise than by way of gift, will or by succession. 6. In the present case, the assessee acquired the property by succession from the previous owner. According to the stand of the assessee, the cost of acquisition by the previous owner could not be ascertained. However, he failed to exercise the option of going either by the date of market value on the date of acquisition or by the cost of the previous owner in which case the only option available to the Assessing Officer was to proceed to compute capital gain by taking the cost of the asset to be the fair market value on the specified date, i.e., January 1, 1954 as per applicable provision for assessment year 1977-78 and as on January 1, 1964 for the assessment year 1978-79. Even in a case where the cost of acquisition cannot be ascertained, section 55(3) statutorily prescribes the cost to be equal to the market value on the date of acquisition. This being the position, capital gain is not excluded even on the plea that value of the asset in respect of which capital gain is to be charged was incapable of being ascertained. The view taken in Amrik Singh’s case (supra) based on the assumption that where market value cannot be ascertained, capital gain cannot be applied, is not correct being against the statutory scheme. Similarly, the view taken by the Madhya Pradesh High Court in CIT v. H.H. Maharaja Sahib Shri Lokendra Singhji [1986] 162 ITR 93/25 Taxman 66 cannot be accepted. The said judgment also does not give effect to the mandate of section 55(3) which provides for a situation where the value of the asset acquired could not be ascertained. If the market value can be ascertained, it has to be taken to be equal thereto and if the value cannot be ascertained, it has to be equal to the market value on a specified date at the option of the assess. It is not the case of the assessee that land had no market value at all on the date of its acquisition. The contention that the 15

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

value was incapable of being ascertained, as already observed, the value in such case has to be taken as being equal to market value on a specified date. 7. We, thus, hold that even where the cost of acquisition of capital asset cannot be ascertained but the asset has a market value, capital gain will be attracted by taking the cost of acquisition to be fair market value as on January 1, 1954, or on date statutorily specified or at the option by the assessee, the market value on the date of acquisition. The Hon’ble Punjab and Haryana High Court reiterated this view in case of Thakur Dwara Shri Krishanji Maharaj Handiyaya, Barnala vs. CIT (supra). In view of the facts and circumstances of the case as well as the above discussion and following the full bench decision of Hon’ble Punjab and Haryana High Court in case of Thakur Dwara Shri Krishanji Maharaj Handiyaya, Barnala vs. CIT (supra) I am of the considered opinion that the land in question does not fall in the category of the capital asset for which the cost of acquisition is not possible to be ascertained. Accordingly, the cost of acquisition in the hand of the assessee would be the fair market value as on 01.04.1981. Accordingly this issue is decided against the assessees.” Thus, it is clear that the Tribunal has analyzed various decisions relied

upon the ld. AR of the assessee and was of the view that the decision

of Hon’ble Supreme Court in case of CIT Vs. B.C. Srinivasa Setty (supra)

is based on specific fact of intangible asset being goodwill which is self-

generated and therefore, it was not possible to determine the date

when it came into existence. The Date of acquisition of the asset is a

material factor as observed by the Hon’ble Supreme Court in applying

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

the computation provisions pertaining to the capital gain. Thus, as per

the provisions of section 48 the cost of acquisition has to be taken on

the date of acquisition and in case of goodwill in a newly set up

business is considered as self-generated asset and it is not possible to

envisage the cost of acquisition. Thus, the decision of Hon’ble Supreme

Court in case of CIT Vs. B.C. Srinivasa Setty (supra) is based on peculiar

facts where a self-generated intangible asset is not capable of

ascertaining cost of acquisition and therefore, when the cost of

acquisition is not conceivable then the computation provision in respect

of capital gain fails. In view of taken by the Hon’ble Punjab and Haryan

High Court in case of CIT vs. Raja Malwinder Singh (supra) was

reiterated by the Hon’ble Court in case of Thakur Dwara Shri Krishanji

Maharaj Handiyaya, Barnala vs. CIT (supra) in para 5 to 7 as under:-

“5. We are not impressed with the submissions of learned counsel for the appellant. The matter is no longer res integra. The Full Bench of this Court in Raja Malwinder Singh's case (supra) after considering the judgment of the Apex Court in B.C.Srinivasa Setty's case (supra) and the provisions of Sections 48, 49, 55(2) and 55 (3) of the Act under similar circumstances observed as under:— "5. It is pointed out that judgment in CIT v. B.C.Srinivasa Setty, [1981] 128 ITR 294 (SC), is distinguishable. It was observed therein that in a newly started business the value of goodwill was not ascertainable, and on sale of goodwill, capital gain was not attracted. It is submitted that in case of acquisition of land, the 17

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

same is either acquired at some cost or without cost and under the scheme of the Act, there can be no situation when the cost is incapable of ascertainment. Section 55(2) provides for taking the cost either equal to the market value as on 1.1.1954 or at the option of the assessee equal to the cost of acquisition of the previous owner. Section 55(3) provides that where cost of acquisition of the previous owner cannot be ascertained, it has to be taken to be equal to the market value on the date the asset was acquired by the previous owner. Explanation to section 49 provides that previous owner is the person not covered by the clauses mentioned in section 49(2) i.e. who acquires property otherwise than by way of gift, will or by succession. 6. In the present case, the assessee acquired the property by succession from previous owner. According to the stand of the assessee, cost of acquisition by the previous owner could not be ascertained. However, he failed to exercise the option of going either by the date of market value on the date of acquisition or by the cost of the previous owner in which case only option available to the Assessing Officer was to proceed to compute capital gain by taking the cost of the asset to be fair market value on the specified date i.e. 1.1.1954 as per applicable provision for assessment year 1977-78 and as on 1.1.1964 for assessment year 1978-79. Even in a case where cost of acquisition cannot be ascertained, section 55(3) statutorily prescribes the cost to be equal to the market value on the date of acquisition. This being the position, capital gain is not excluded even on the plea that value of the asset in respect of which capital gain is to be charged was incapable of being ascertained. The view taken in Amrik Singh's case [2008] 299 ITR 14 (P&H) based on the assumption that where market value cannot be ascertained, capital gain cannot be applied, is not correct being against the statutory scheme. Similarly, the view taken by the Madhya Pradesh High Court in CIT v. H.H.Maharaja Sahib Shri Lokendra Singhji, [1986] 162 ITR 93 (MP) cannot be accepted. The said judgment also does not give effect to the mandate of section 18

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

55(3) which provides for a situation where value of the asset acquired could not be ascertained. If market value can be ascertained, it has to be taken to be equal thereto and if the value cannot be ascertained, it has to be equal to market value on a specified date at the option of the assessee. It is not the case of the assessee that land had no market value at all on the date of its acquisition. Contention that value was incapable of being ascertained, as already observed, the value in such case has to be taken as being equal to market value on a specified date." 6. Further, while concluding, it was held :— "Even where the cost of acquisition of capital asset cannot be ascertained but the asset has a market value, capital gain will be attracted by taking the cost of acquisition to be fair market value as on January 1, 1954, or on date statutorily specified or at the option by the assessee, the market value on the date of acquisition." 7. The Full Bench of this Court in Raja Malwinder Singh's case (supra) had dissented from judgment of the Madhya Pradesh High Court in CIT v. H.H.Maharaja Sahib Shri Lokendra Singhji, [1986] 162 ITR 93/25 Taxman 66 (MP), whereas the Gujarat High Court in Manoharsinhji P.Jadeja'scase (supra) had applied the principles enunciated therein. We are unable to subscribe to the view expressed in Manoharsinhji P.Jadeja's case (supra).” Accordingly, in view of the decisions of Full Bench of Hon’ble Punjab

and Haryana High Court as well as subsequent decision in case of

Thakur Dwara Shri Krishanji Maharaj Handiyaya, Barnala vs. CIT (supra)

we do agree with the view taken by the Coordinate Bench of this

Tribunal in case of Shri Ram Lal Sharma vs ITO (supra). The ld. AR had

attempted to distinguish the case of the assessee on the ground that

the assessee’s case does not fall in the category of acquisition as 19

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

provided u/s 49(1) of the Act and therefore, these decisions cannot be

applied. We do not find any substance on this contention of the ld. AR

as the issue has been thoroughly and issued by the Hon’ble High Court.

Hence, in view of the above discussion we hold that the land in

question does not fall in the category for which the cost of acquisition

cannot be ascertained. Therefore, cost of acquisition of land in question

would be fair market value as on 01.04.1981. Since, the AO has taken

the cost of acquisition at nil. Therefore, we direct the AO to recomputed

the capital gain by taking the cost of acquisition of the land as fair

market value as on 01.04.1981.

stated at bar that the assessee does not press ground Nos. 1 to 3 of the

original grounds and the same may be dismissed as not pressed. The

ld. DR has no objection if the grounds of the assessee appeal are

dismissed as not pressed. Accordingly, the original grounds Nos. 1 to 3

of the assessee appeal are dismissed being not pressed

In the result, the appeal filed by the assessee is partly allowed.

Order pronounced in the open court on 06/02/2018 Sd/- Sd/- ¼Hkkxpan ½ ¼fot; iky jko½ (Bhagchand) (Vijay Pal Rao) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member 20

ITA No. 818/JP/2013 Shri Udai Singh Rathore vs. ITO, Jaipur

Tk;iqj@Jaipur fnukad@Dated:- 06/02/2018. *Santosh. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Shri Udai Singh Rathore, Jaipur. 2. izR;FkhZ@ The Respondent- ITO, Ward-5(4), Jaipur. 3. vk;dj vk;qDr@ CIT 4. vk;dj vk;qDr@ CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 6. xkMZ QkbZy@ Guard File {ITA No. 818/JP/2013} vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेज. त्महपेजतंत