Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, the following question has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that for the computation of the profits under the head 'Capital gains' in respect of the depreciable assets which had become the assessee's property before 1st January, 1954, and which were sold by it during the previous year relevant to the assessment year, it was not entitled to seek the aid of Section 55(2)(i) of the Income-tax Act, 1961, and opt for and substitute their fair market value as on 1st January, 1954, as the cost of acquisition thereof in place of their written down value ?"
(2.) The assessee is a company and the assessment year involved is 1962-63 with the financial year ending on 31st March, 1962, as its corresponding accounting period. Under a registered document dated 15th March, 1962, the assessee sold its Mil] No. 3 with attached lands, factory, buildings, etc., to Madura Company Ltd. for a consideration of Rs. 10 lakhs The question of capital gains arising out of the transaction came" up for consideration in the course of the assessment proceedings of the year. It was not disputed that the assets so sold, except the lands taken therein, were depreciable assets, in respect of which the assessee had obtained depreciation in the earlier years. It was also not disputed that those assets had become the property of the assessee before 1st. January, 1954. Before the ITO, the assessee contended that under Section 55(2)(i) of the I.T. Act, 1961, the assessee was entitled to opt for and substitute the fair market value of those capital assets as obtaining on 1st January, 1954, for the cost of acquisition of the assets and that only the difference between such a market value and the consideration received for the transfer was to be brought to tax under the head "Capital gains". According to the assessee, there being no appreciable change in the market value of the assets as on 1st January, 1954, and 15th March, 1962, there was no amount available by way of difference for the tax levy as capital gains.
(3.) The ITO, however, held that the matter came within Section 50(1) of the Act and the assessee was not entitled to seek the aid of Section 55(2)(i) for exercising any option as regards the mode of determining the cost of acquisition of the assets. According to the ITO, Section 50 provided the machinery for taxing capital gains on the transfer of depreciable assets and the section clearly restricted the operation otherwise of the provisions of Sections 48 and 49 and also totally excluded the operation of any other section in the sphere of its own reign. In his view, the expression "cost of acquisition" in Section 55(2) could not be used for the present purpose for the reason that the very wording of the section specifically indicated that the definition given therein was only for the purpose of Sections 48 and 49 and not also of Section 50. ,The ITO expressed the view that the meanings given in that section for the expressions "adjusted" and "cost of improvement" were specified for the purposes not only of Sections 48 and 49 but also of Section 50. It was further his view that Section 50 was a self-contained provision modifying and restricting the operation of Sections 48 and 49. In that view, the ITO held that the "cost of acquisition" of the assets in question was their written down value as provided by Section 50(1) of the Act. Accordingly, he refused the option claimed by the assessee under Section 55(2)(i) of the Act.;