Capital gain: Computation: Sections 48 and 49, and section 7 of the Wealth-tax Act, 1957: A.Y. 1992-93: Cost with reference to certain modes of acquisition: Sale of jewellery inherited from son: Fair market value of jewellery as on 1-4-1974 should be arrived at by reverse indexation, from fair market value as on 31-3-1989 on basis of which Revenue had imposed Wealth Tax upon assessee: Reverse indexation is not to be done from date of sale held in December 1991 based on sale price.

 In the month of December, 1991, the assessee had sold certain jewellery which she inherited from her son. The assessee herself gave a declaration of fair market value of the selfsame jewellery as on 31-3-1989 based on the report of a registered valuer for the purpose of the Wealth-tax Act and the Assessing Officer had accepted the said valuation. Further the assessee for calculation of the capital gains arising from sale of the aforesaid jewellery worked out the fair market value of the jewellery as on 1-4-1974 by following the method of reverse indexation. She adopted the base as the fair market value of the jewellery worked out as on 31-3-1989 on the basis of valuation done by the registered valuer. The Tribunal held that fair market value of the jewellery as on 1-4-1974 should be arrived at by reverse indexation from the date of sale held in December, 1991 based on the sale price and not from the fair market value as on 31-3-1989.

On appeal by the assessee, the Gujarat High Court reversed the decision of the Tribunal and held as under:

“(i) According to provisions contained in sections 48 and 49, 1-4-1974 should be treated to be the date in the instant case on which the jewellery was deemed to have been acquired by the assessee. There is no dispute that although the jewellery was transferred in the month of December, 1991, the assessee herself gave a declaration of fair market value of the selfsame jewellery as on 31-3-1989 based on the report of a registered valuer for the purpose of the Wealth-tax Act as required under the said Act. It is admitted position that the Assessing Officer has accepted the said valuation and has not disputed the same for the purpose of the Wealth-tax Act.

(ii) There is also no dispute that both the assessee and the Revenue agreed before the Tribunal that the method of reverse indexation should be the appropriate one for the purpose of ascertaining the fair market valuation of the jewellery as on 1-4-1974.

(iii) There is substance in the contention of the assessee that the Revenue having accepted the valuation of the same jewellery given by her as on 31-3-1989 as correct valuation for the purpose of the Wealth-tax Act, there is no reason why the same valuation should not be treated to be a reliable base for the purpose of computing the capital gain under the Income-tax Act by the process of reverse indexation. There is no reason to disbelieve the valuation given by the assessee under the Wealth-tax Act as on 31-3-1989 based on the valuation assessed by a registered valuer in terms of the said statute. The Revenue having accepted the said valuation for the purpose of the Wealth-tax Act is precluded from disputing the correctness of the selfsame valuation for the purpose of assessment of capital gain, as the factor of ‘fair market value’ is decisive for the purpose of both the Wealth-tax Act and in ascertaining the cost of acquisition under the Income-tax Act.

 (iv) Therefore, there was no justification for disbelieving the valuation of the selfsame jewellery given by the assessee as on 31-3-1989 for the purpose of Wealth-tax Act.

(v) Therefore, the order passed by the Tribunal was liable to be set aside. The Assessing Officer was to be directed to recalculate the capital gain by adopting reverse indexation based on valuation of jewellery given by the assessee as on 31-3-1989 for the purpose of Wealth-tax Act.”