DEENA NATH NANDA AND SONS Vs. COMMISSIONER OF INCOME TAX
HIGH COURT OF DELHI
D.N. NANDA AND SONS
COMMISSIONER OF INCOME TAX
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S.S.Chadha, J. -
(1.)THIS Reference under s. 256/(1) of the IT Act (hereinafter called as the Act at the instance of the assessee raises the following two question :
"1. Whether on the facts and in the circumstances of the case the Tribunal was right in rejecting the assessee's claim that the market value on the date when the property was impressed with the character of HUF property should be taken as its cost of acquisition in the hands of the assessee ? 2. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the cost of acquisition of property No. G-16, New Delhi South Extension in the hands of the assessee HUF was nil ?"
(2.)THE assessee Deena Nath Nanda and Sons is an HUF. THE year of assessment in question is 1970- 71. THE accounting year ended on 31st Dec., 1970. A plot of land bearing No. 16 Block G, New Delhi South Extension Scheme, Part I was purchased by Deena Nath Nanda and his wife Rattan Devi Nanda. A two and half storeyed building thereafter was constructed thereon and the total cost came to Rs. 76,748. Two affidavits in similar terms. Dt. 30th March, 1968 one by Shri D.N. Nanda and other by his wife Smt. Rattan Devi were executed. It was narrated in these that they jointly owned the said property in their individual and presonal capacities and that with effect from that date they had thrown their shares in that property in the common hotchpot of the HUF styled as Deena Nath Nanda and Sons constituting of Deena Nath, his wife Rattan Devi and two Sons S/Shri Vishawanath Nanda and Surinder Nath Nanda. Subsequently by a sale deed dt. 12th Oct., 1969 the HUF of Deena Nath Nanda and Sons sold this property for a consideration of Rs. 1,40,000. In the return which HUF filed for the assessment year in question it had declared a capital gain of Rs. 63,252 being difference of sale price of Rs. 1,40,000 and the original cost of land and construction viz, Rs. 76,748. THE ITO, however, came to the conclusion that since the assessee HUF had not paid any cash consideration at the time of the acquisition of the property therefore such cost should be treated as nil and the entire sale proceeds of Rs. 1,40,000 were assessable as capital gains. In appeal, at he instance of the assessee the AAC accepted the capital gains figure of Rs. 63,252 as declared by the assessee in the original return subject to deduction as were permissible under s. 80T of the Act. Both sides felt aggrieve and went in the second appeal to the Tribunal THE Tribunal for the reason mentioned in the order came to the conclusion that the cost of acquisition of the property in the hands of the assessee was nil. THE appeal of the Revenue was allowed partly and the appeal of the assessee was rejected.
A similar question came up for consideration before a Division Bench of this Court to which one of us (S.S. Chada, J.) was a party. It is reported as CIT vs. Madanlal Jain and Sons (1983) 140 ITR 200 (Del). The provisions of ss. 45 and 48 of the Act were construed. It was held that a profit or gain can, accrue only when there is a cost of acquisition and not otherwise. The cost of acquisition contemplated by s. 48 of the Act can be the cost of acquisition of the capital in someone's hands and not necessarily in the hands of the assessee as the section does not use the words to the assessee after the words cost of acquisition. Therefore, what was spent by the Karta of the assessee HUF would be the cost of acquisition within the meaning of s. 48. In the case before us the cost of land and construction was Rs. 76,748 and the assets was sold for a consideration of Rs. 1,40,000. Therefore what was spent by Deena Nath and his wife Rattan Devi who had thrown their shares in that property in the common hotchpot of the HUF i.e. the assessee would be the cost of acquisition within the meaning of s. 48.
Similar question arose in CIT, Tamil Nadu III vs. V.S. Krishna Rao (1983) 35 CTR (Mad) 346 : (1983) 144 ITR 347 (Mad), wherein a Division Bench of the Madras High Court was to construe the meaning of cost of acquisition of the asset by an individual throwing capital asset into hotchpot of HUF. The Madras High Court upheld the view of the ITO that Rs. 25,639 being the written down value which the machinery bore at the time the family got it gratis from K, the Karta of the assessee family should be taken as the cost of the machinery to the family and the capital gains worked out on that basis. In a recent case a Division Bench of the Gujarat High Court in CIT vs. Ashwin M. Patel (1983) 144 ITR 566 (Guj) considered the question of the shares thrown in the hotchpot by the Karta. It was held that when shares were thrown by the Karta of the HUF into the family hotch-pot the acquisition of shares to the HUF for purposes of computing capital gains arising from the sale of shares would be the market value of the shares, as on the date on which it acquired them namely the date on which they were thrown into the common hotchpot by the Karta. The Gujarat High Court in our opinion, with due respect to the learned Judges have gone a little too far. But it is, therefore, not necessary to express any considered opinion in this case. The cost of acquisition within the meaning of s. 48 would be the cost of acquisition to Deena Nath Nanda and his wife Rattan Devi Nanda, which has been calculated by the ITO at Rs. 76,748.
Accordingly we answer the two question in favour of the assessee and against the Department. There will be nor order as to costs.
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