By K. B. Bhujle, Advocate
New Page 9
II. Reported :
14 Capital gains : Cost of acquisition : S. 55(2)(b) of
Income-tax Act, 1961 : Shares acquired prior to 1-4-1981 and held as stock in
trade up to 2-11-1987 : Sale of shares : Assessee entitled to adopt market value
as on 1-4-1981 as cost of acquisition.
[CIT v. Jannhavi Investments (P) Ltd.; 215 CTR 72 (Bom.)]
The assessee had acquired shares prior to 1-4-1981. Up to
2-11-1987, the shares were held as stock in trade when those were converted into
capital assets. On sale of the shares the assessee claimed the market value of
the shares as on 1-4-1981 as the cost of acquisition relying on the provisions
of S. 55(2)(b) of the Income-tax Act, 1961. The Assessing Officer rejected the
claim, on the ground that the shares were held as stock in trade till 2-11-1987.
Relying on the judgment of the Bombay High Court in the case of Keshavji
Karsondas v. CIT; 207 ITR 737 (Bom.) the Tribunal allowed the assessee’s
claim.
On appeal by the Revenue, the Bombay High Court upheld the
decision of the Tribunal and held :
“(i) On behalf of the Revenue, it was sought to be
contended that the decision in the case of Keshavji Karsondas is
distinguishable in the facts of the present case. He pointed out that by
Finance Act, 1992, w.e.f. 1993, the mode of computation of income chargeable
under head ‘Capital gain’ had changed and the concept of ‘indexed cost of
acquisition’ had been introduced and defined under Explanation III to the 5th
proviso of S. 48. According to him the concept ‘indexed cost of acquisition’
was calculable on the basis of the cost of acquisition for the first year in
which the asset was held or on the first day of April, 1981, whichever was
later. He drew our further attention to S. 55(2)(b) which related to
calculation of ‘any other capital asset’.
(ii) In our view, there is no substance in the contention
of the Revenue. The amendment of 1993 referred to hereinabove does not in any
way nullify or dilute the ratio as laid down in the case of Keshavji Karsondas.
The cost of acquisition can only be the cost on the date of the actual
acquisition. In the present case, there was no acquisition of shares on
2-11-1987 when the same were converted from stock in trade to a capital
asset.”
