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Commissioner of Income-tax Vs. Upper Doab Sugar Mills - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberIncome-tax Reference No. 658 of 1973
Judge
Reported in[1979]116ITR240(All)
ActsIncome Tax Act, 1961 - Sections 48, 49, 50, 50(1), 50(2), 55 and 55(2)
AppellantCommissioner of Income-tax
RespondentUpper Doab Sugar Mills
Appellant AdvocateAshok Gupta, Adv.
Respondent AdvocateH.R. Gupta, Adv.
Excerpt:
- - this is so both for the original owner as well as the assessee who may have acquired the capital asset indirectly, that is, by any of the modes specified in section 49. s. 55(2) treats the original owner as well as the transferee owner on an equal footing. in other words, the cost of acquisition of a depreciable asset is bound to be computed in accordance with section 50, even though the capital asset may also, on facts, be within the purview of sub- section (2) of section 55. if a capital asset became the property of the assessee before the 1st day of january, 1954, and if such asset is a depreciable asset, then section 50 will apply to it to the exclusion of section 55(2). 12. this construction is fortified by the provisions of sub-section (2) of section 50. if the case of a..........of the assessee that it was entitled to exercise the option of treating the fair market value as cost of acquisition was rejected.3. the assessee went up in appeal. the aac accepted the assessee's plea. he held that section 50(2) read with section 55(2)(ii) of the i.t. act, 1961, was applicable, and these sections gave an option to the assessee to compute capital gains by adopting fair market value of the assets as on january 1, 1954. he accordingly directed the ito to recompute the capital gains in the light of the provisions of sections 50(2) and 55(2)(ii) and also in consonance with the previous assessment history.4. the ito went up in appeal to the tribunal, which upheld the view point of the aac and dismissed the appeal.5. at the instance of the department the tribunal has.....
Judgment:

Satish Chandra, J.

1. The Upper Doab Sugar Mills Ltd., the assessee, is a public limited company. It does the business of manufacture and sale of sugar. The question referred to us relates to the assessment year 1964-65.

2. During the accounting period relevant to this assessment year, which ended on 30th September, 1963, the assessee sold machinery worth Rs. 1,21,000. It also received Rs. 1,17,192 in settlement of insurance claim in respect of certain other machinery lost by fire. The ITO held that these receipts resulted in profit under Section 41(2) amounting to Rs. 1,10,302 and in capital gains amounting to Rs. 1,23,523, as against the assessee's computation of the capital gains at a little over Rs. 20,000. The case fell within the purview of Section 50(1) of the I.T. Act, 1961, and Section 50(2) thereof was not attracted. The claim of the assessee that it was entitled to exercise the option of treating the fair market value as cost of acquisition was rejected.

3. The assessee went up in appeal. The AAC accepted the assessee's plea. He held that Section 50(2) read with Section 55(2)(ii) of the I.T. Act, 1961, was applicable, and these sections gave an option to the assessee to compute capital gains by adopting fair market value of the assets as on January 1, 1954. He accordingly directed the ITO to recompute the capital gains in the light of the provisions of Sections 50(2) and 55(2)(ii) and also in consonance with the previous assessment history.

4. The ITO went up in appeal to the Tribunal, which upheld the view point of the AAC and dismissed the appeal.

5. At the instance of the department the Tribunal has referred the following question of law for the opinion of this court:

'Whether, on the facts and in the circumstances of the case, in determining the capital gains arising to the assessee in the accounting year relevant to the assessment year 1964-65, provisions of Section 50(2) and Section 55(2)(ii) were applicable ?'

6. On facts admitted, the position appears to be that the machinery which was sold or lost by fire was acquired by the assessee-company prior to January 1, 1954. The assessee-company had obtained depreciation allowance in respect of these assets.

7. In substance, the controversy before us is as to how the cost of acquisition of these capital assets is to be computed. The assessee claimed that it was entitled to exercise the option of having the fair market value of the assets as on 1st January, 1954, treated as the cost of acquisition in view of Section 55(2)(i). The revenue, on the other hand, submits that Section 50(1) is a special provision. It applies to the facts of the present case to the exclusion of Section 55(2)(i).

8. Under Section 45 of the Act any profits or gains arising from the transfer of a capital asset are chargeable to income-tax under the head 'Capital gains', which is under Section 48 computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset, inter alia, the cost of acquisition of the capital asset. Section 49 provides for computing the cost of acquisition of an asset indirectly acquired by the assessee. S. 50 is headed 'Special provision for computing cost of acquisition in the case of depreciable assets'. In the case of a depreciable asset the provisions of Sections 48 and 49 are to be subject to the following modifications:

'(1) The written down value, as defined in Clause (6) of Section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.

(2) Where under any provision of Section 49, read with Sub-section (2) of Section 55, the fair market value of the asset on the 1st day of January, 1954, is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation if any, allowed to the assessee, after the said date, and as adjusted,' Section 50 modified the provisions of Sections 48 and 49 in these two respects.

Section 55 is entitled 'meaning of adjusted', 'cost of improvement' and 'cost of acquisition'. Sub-section (1) defines the terms 'adjusted' and 'cost of any improvement '. This meaning is given for the purposes of Sections 48, 49 and 50. Sub-section (2) provides:

'(2) For the purposes of Sections 48 and 49 'cost of 'acquisition' in relation to a capital asset,--

(i) where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee ;

(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 January, 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee ; .....'

9. It is noticeable that Sub-section (2) defines the cost of acquisition for purposes of Sections 48 and 49 only. This definition does not extend to the provi- sions of Section 50. Under this provision an assessee is entitled to exercise the option of treating the fair market value of the asset on 1st day of January, 1954, to be the cost of acquisition. This is so both for the original owner as well as the assessee who may have acquired the capital asset indirectly, that is, by any of the modes specified in Section 49. S. 55(2) treats the original owner as well as the transferee owner on an equal footing. In view of this provision the assessee becomes entitled to treat the fair market value as the cost of acquisition for purposes of Section 48, irrespective of the nature of the capital asset. Section 55(2) is a general provision in relation to a capital asset which was owned by the assessee from before the 1st day of January, 1954. It makes no distinction between the case of an assessee who continues to be the original owner and an assessee who acquires the asset indirectly.

10. We have seen that Section 50 specifically modifies the provisions of Section 48 in respect of computing the cost of acquisition. This modification is in relation to depreciable assets. S. 50 is headed as 'Special provision for computing cost of acquisition in the case of depreciable assets'. Section 50 being a special provision, will apply to depreciable assets both in respect of Sections 48 and 49. Sub-s. (2) of^s. 50 confines itself to cases covered by Section 49; namely, to capital assets indirectly acquired by the assessee. For depreciable assets, which are owned by the assessee as the original owner, Sub-section (1) applies, even though the asset may have been owned by the assessee from before 1st January, 1954. Sub-s. (1) does not contemplate that the assessee can treat the fair market value as the cost of acquisition. In cases covered by it the written down value is to be taken as the cost of acquisition.

11. In our opinion the revenue is right when it contends that Section 50, being a special provision for depreciable assets, will prevail over Section 55(2), firstly, because it expressly modifies the provisions of Section 48, and, in the next place, it is a special provision for depreciable assets. Section 55, on the other hand, is only a definition section. The definition of 'cost of acquisition' given by its Sub-section (2) is only for purposes of Sections 48 and 49. This definition does not extend to the special provisions for computing the cost of acquisition in the case of depreciable assets under Section 50. Since Section 55(2) does not apply to Section 50, it cannot prevail over it. In other words, the cost of acquisition of a depreciable asset is bound to be computed in accordance with Section 50, even though the capital asset may also, on facts, be within the purview of sub- Section (2) of Section 55. If a capital asset became the property of the assessee before the 1st day of January, 1954, and if such asset is a depreciable asset, then Section 50 will apply to it to the exclusion of Section 55(2).

12. This construction is fortified by the provisions of Sub-section (2) of Section 50. If the case of a depreciable asset owned by the assessee from before 1st day of January, 1954, was to be governed by Section 55(2), then there was no occasion or need to enact Sub-section (2) of Section 50. But we find that under Sub-section (2) a special provision has been made for capital assets which are covered by Section 49 as well as Section 55(2), namely, assets indirectly acquired and which were owned by the previous owner from before 1st January, 1954. In such a case the fair market value is to be reduced by the amount of depreciation allowed to the assessee after 1st January, 1954.

13. The legislature specifically confined the operation of Sub-section (2) to indirectly acquired capital assets to which Section 49 is applicable.

14. The position, therefore, is that an assessee who continues to be the original owner of a depreciable asset acquired before 1st January, 1954, cannot exercise the option of treating the fair market value as the cost of acquisition, while an assessee who has indirectly acquired a similar asset can do so. This anomaly is undoubtedly there. On the other hand, the construction that appealed (sic) owner of the capital asset governed by Section 55(2)(i) is also entitled to the option of treating the fair market value as on 1st January, 1954, as the cost of acquisition, also creates an anomalous position. The original owner is entitled to treat the fair market value as the cost of acquisition but without it being reduced by the amount of depreciation allowed after 1st January, 1954, while in the case of an assessee who had indirecly acquired the capital asset the fair market value is to be reduced by that amount under Sub-section (2) of Section 50. Hence both the constructions will have some sort of an anomaly.

15. Section 50 is mandatory. Under it the provisions of Sections 48 and 49 shall be subject to the modifications mentioned in Sub-sections (1) and (2), whereas Section 55(2) does not apply to cases governed by Section 50. Section 50 is hence a special provision, which will prevail over Clause (ii) of Section 55(2) in relation to a capital asset which may be within the ambit of both the provisions.

16. This view finds support in the decision of the Gujarat High Court in Rajnagar Vaktapur Ginning, Pressing and . v. CIT : [1975]99ITR264(Guj) . It was held there that an assessee who is the original owner of a depreciable asset and is not covered by Section 49 is governed by Section 50(1) and cannot opt to select the fair market value of the asset on 1st January, 1954, as the cost of acquisition.

17. It is well-settled that in a taxing statute one has to look at what is clearly said. There is no room for any intendment; there is no equity about a tax, and there is no presumption as to a tax. Nothing is to be read in, and nothing is to be implied. Looking fairly at the language used, the conclusion is inevitable and irresistible, that Section 50 prevails in cases of depreciable assets. We are hence unable to agree with the AAC or with the Tribunal that Section 55(2) was applicable and not Section 50(1). We have not been able to understand how these authorities have applied Section 50(2) to the instant case. That provision is confined to cases covered by Section 49. The present is not a case which falls within the purview of Section 49 at all.

18. We, therefore, answer the question referred to us in the negative, in favour of the department and against the assessee. The Commissioner would be entitled to costs, which are assessed at Rs. 200.


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