JUDGMENT R.K. Gulati, J.
1. It is a reference under Section 256(1) of the Income-tax Act, 1961 (for short "the Act").
2. The assessee is a Hindu undivided family. In the previous years relevant to the assessment years 1975-76 and 1977-78, the assessee had sold certain agricultural lands allotted to its share on the family partition of a bigger Hindu undivided family that was effected by an arbitration award dated September 14, 19G9. Before the Income-tax Officer, the assessee admitted that it was liable to "capital gains lax" as the agricultural lands transferred by it fell within the purview of "capital asset" as defined in Section 2(14) of the Act after its amendment by the Finance Act, 1970. However, in the computation of " capital gains ", the assessee put forward a claim that it was entitled to deduct from the full value of the consideration received, the market value as on April 1, 1970, of the assets transferred, as cost of acquisition of the assets. The Income-tax Officer did not agree with the assessee. He computed the capital gains taking the cost of acquisition of assets transferred as on January 1, 1954. For the view the Income-tax Officer took, he relied upon the provisions contained in Sub-section (2) of Section 55 of the Act.
3. On appeal, the claim made by the assessee was accepted by the Appellate Assistant Commissioner of Income-tax which also was upheld by the Income-tax Appellate Tribunal while dismissing the second appeal filed by the Revenue. The Income-tax Appellate Tribunal was of the opinion that, as the agricultural land became a capital asset for the first time on April 1, 1970, because of the amendment brought about in Section 2(14) of the Act, by the Finance Act, 1970, the assessee was entitled to adopt the value of the land as on April 1, 1970, as the cost of acquisition of the asset, inasmuch as the agricultural land held by the assessee prior to April 1, 1970, was not a capital asset. The Income-tax Appellate Tribunal accordingly directed that the cost of acquisition of the capital asset should be the cost as on April 1, 1970, for purposes of computing the capital gains. At the instance of the Commissioner of Income-tax, Lucknow, the Income-tax Appellate Tribunal has referred the following two questions of law for the opinion of this court :
" 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally correct in holding that the agricultural land in question had assumed the character of 'capital assets' for the first time on April 1, 1970, by virtue of the amendment of Section 2(14)(iii) of the Income-tax Act, 1961, by the Finance Act, 1970, with effect from April 1, 1970 ?"
If the answer to the first question is in the affirmative, then " 2. Whether the Income-tax Appellate Tribunal was correct in holding that it was the cost of the asset as on April 1, 1970, which had to be adopted for the computation of capital gains ?"
4. In so far as question No. 1 is concerned, it does not pose much of a problem. On the facts found by the Tribunal, the answer is self-evident which could be in the affirmative only. Indeed, from the statement of the case submitted by the Tribunal and from the various orders attached thereto, it is apparent that the parties were never at issue in so far as the controversy involved in the first question is concerned. In our opinion, the question did not merit a reference to this court. Whatever contest existed between the parties, that was in relation to the compulation of capital gains which is the subject matter of the second question. Be that as it may, in order to answer the first question, we may refer to a couple of statutory provisions and the legislative amendments effected thereto as those provisions stood at the relevant time.
5. We may first notice Section 45 of the Act. Under this Section, the charge to income-tax under the head " Capital gains" is attracted only in respect of profits or gains arising from the transfer of a "capital asset". The expression "Capital asset" is defined in Section 2(14) of the Act. Before April 1, 1970, the definition of the expression " Capital asset" as contained in Section 2(14) excluded from its scope, inter alia, agricultural land in India. Section 2(14), prior to April 1, 1970, as it stood, in so far as it is relevant for our purposes, read as under :
" ' capital asset' means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include--...
(iii) agricultural land in India."
6. By the Finance Act, 1970, which came into effect from April 1, 1970, the definition of " capital asset" contained in Section 2(14) of the Act was amended and in place of Clause (iii) extracted above, a new Clause (iii) was substituted as a result of which, agricultural land in India, which fell within the mischief of Sub-clauses (a) and (b) of Clause (iii) came within the ambit of "capital asset". The result of this amendment was that any profits or gains arising from the transfer of such land became exigible to capital gains tax, which hitherto were not amenable to capital gains tax. There is no dispute before us and none was raised before the tax authorities that the agricultural lands held by the assessee which were the subject of transfer in the previous years relevant to the assessment years in question, were covered either by Sub-clause (a) or Sub-clause (b) of Clause (iii) of Sub-section (14) of Section 2 of the Act.
7. By the same Finance Act, an amendment was also effected in Section 47 of the Act and Clause (viii) was inserted in that Section. In so far as it is relevant for our purpose, the amended provisions of Section 47 of the Act read thus :
"47. Transactions not regarded as transfer.--Nothing contained in Section 45 shall apply to the following transfers-- . . .
(viii) any transfer of agricultural land in India effected before March 1, 1970."
8. From a discussion of the provisions noticed above, the position that obtains is that prior to April 1, 1970, agricultural land in India, wherever located whether in urban asset (sic). The position, however, changed because of the amendment that was brought about by the Finance Act, 1970. After the amendment, agricultural land situated within municipal or cantonment limits or within 8 kilometres of the limits of any municipality or cantonment board was made a " capital asset" w.e.f. April 1, 1970. To put it differently, agricultural land not falling within items (a) and (b) of Clause (iii) of Sub-section (14) of Section 2 of the Act continued to be a noncapital asset for the purposes of the Act. As, undisputably, the agricultural land with which we are concerned fell within the exception to the exceptions introduced by the Finance Act, 1970, the Tribunal was right in holding that the agricultural land in question had come within the purview of the definition of "capital asset" with effect from April 1, 1970, by virtue of the amendment in Section 2(14)(iii) of the Act effected by the Finance Act, 1970. The first question is, accordingly, answered in the affirmative.
9. This brings us to the second question which raises a controversy as to how the capital gains are to be computed where a capital asset which was the subject-matter of transfer was not a capital asset at the date when it was acquired hut subsequently became a capital asset. In the opinion of the Tribunal, in such a situation, the deduction for " cost of acquisition " is to be made at the market value of the asset on the date it came within the purview of the definition of capital asset under Section 2(14) of the Act. It is the correctness of this view that is the subject-matter of the second question.
10. We have heard learned counsel for the parties.
11. For the assessee, it was contended that the view taken by the Tribunal was just and equitable. It was contended that agricultural lands within the municipal or cantonment limits were brought under the definition of "capital assets" by the Finance Act, 1970, as a result of which capital gains arising or accruing on the transfer of such lands became amenable to income-tax with effect from April 1, 1970, and consequently, in reckoning capital gains, the cost of acquisition to be deducted, ought to be the market value as on the date the land assumed the character of "capital asset" and not with reference to any anterior date. According to learned counsel, any other view would be harsh to the assessee and cannot be sustained. It was also urged that Section 49 of the Act had no application, for it applied to a case where the asset was a "capital asset" not only at the time of its transfer but also at the time of its acquisition by the previous owner, a position not obtaining in the instant case.
12. We have considered the matter carefully, but regret our inability to sustain the view taken by the Tribunal. We can neither accept any of the contentions put forward on behalf of the assessee.
13. Chapter IV-E of the Act deals with capital gains. It provides an integrated code concerning the determination and computation of the charge under the head "Capital gains". It has within its fold Sections 45 to 55A of the Act. If certain fundamental concepts underlying some of these provisions are kept clear in mind, it would help a great deal to resolve the controversy set up for consideration.
14. We have noticed earlier and, at the cost of repetition, it may be observed that Section 45 brings to charge "any profits or gains from the transfer of an asset effected in the previous year". Two conditions are predominantly required to attract this Section, viz., there must be a transfer of property and the asset transferred must be a "capital asset" at the date of transfer. If these conditions are attracted, any profit or gain arising from such transfer is exigible to " capital gains tax ".
15. The next step in the process is the computation of capital gains that is to be charged to tax. The manner for computation is provided in Section 48 read with Section 55 of the Act. Under Section 48, the starting point is the full value of the consideration received or accruing. According to this Section, capital gains are to be computed after making deduction from the "full value of the consideration", inter alia, of the cost of acquisition of the capital asset. This Section does not envisage that the capital asset transferred must also be a capital asset on the date of acquisition besides its being capital asset on the date of its transfer. As pointed out by a Division Bench of the Kerala High Court in CITv. Smt M. Subaida Beevi [1986] 160 ITR 557, with which we are in respectful agreement, the cost of acquisition of a capital asset within the meaning of Section 48 is not the cost on the date on which the asset transferred became a capital asset. The deduction permissible under Section 48 is the cost of acquisition, of the capital asset transferred for consideration, whether or not it was a capital asset on the date of its acquisition. The exigibility of capital gains to tax under Section 45 read with Section 48 of the Act is not on the basis that what was transferred was a capital asset on the date of its acquisition, but on the basis that the subject-matter of transfer is a capital asset within the meaning of the Act.
16. The next relevant provision is Section 49 of the Act which speaks of cost with reference to certain modes of acquisition. It, inter alia, provides that when a Hindu undivided family is partitioned and, thereafter, the erstwhile members come to hold the assets obtained on such partition, the cost of acquisition to the members shall be the cost of acquisition to the family, i.e., the previous owner. It is relevant to observe that Section 49 does not contemplate any pre-condition for its application that the asset which was sold had to be a capital asset within the meaning of Section 2(14) at the time it was acquired by the previous owner, as was sought to be argued before us. The contention in that behalf, in our opinion, is without any substance and cannot be sustained. It would be profitable to refer to the observations of the Gujarat High Court in this connection in Ranchhodbhai Bhaijibhai Patel v. CIT [1971] 81 ITR 446, which came to be made repelling a similar contention as canvassed before us, though in a different context. The court observed (at page 459) :
"The words cost of acquisition of the capital asset', 'the cost for which the asset was acquired' and 'the cost for which the previous owner of the property acquired it' are variously used by the Legislature to denote the same idea and the reference is intended to be made only to the cost of acquisition of the property regardless of the question whether it was a capital asset or non-capital asset at the date of acquisition."
17. Another Section which has an important bearing on calculating the capital gain is Section 55 of the Act. Under Clause (ii) of Sub-section (2) of that Section, it is provided that, where the capital asset becomes property of the assessee by any of the modes specified in Section 49 and the capital asset becomes property of the previous owner before January 1, 1954, the "cost of acquisition" means the cost of the capital asset to the previous owner or the fair market value of the asset on January 1, 1954, at the option of the assessee.
18. From the analysis of the provisions referred to above, it is evident that the incidence of tax on the capital gains contemplated under Section 45 is to be computed in the manner provided for in Section 48 of the Act or upon the option being exercised by the assessee in accordance with Section 55 of the Act. The meaning assigned to the phrase "cost of acquisition" under Section 55(2) of the Act is exhaustive and the language used is peremptory. It does not give any latitude to introduce any other facts of the meaning to the expression "cost of acquisition". Once it is found that Section 45 which is the charging Section is attracted, the profits or gains ought to be computed as stated earlier in the manner prescribed by the Act and in no other fashion. There is nothing in the provisions to which we have referred to suggest that the cost of acquisition of an asset could be reckoned in a manner differently except as provided by Section 48 read with Section 55(2) of the Act. The argument that the cost of acquisition would vary or would depend on the fact whether the asset at the time of acquisition was a capital asset or not within the meaning of Section 2(14) of the Act is without any merit and cannot be accepted.
19. As noticed earlier, the assessee had received the agricultural lands in question on partition of a bigger Hindu undivided family and, in terms of Section 49(1)(i), the cost of acquisition of the asset to the assessee was the cost for which the previous owner, namely, the Hindu undivided family had acquired it. It is not in dispute that the family in its turn had acquired the property in question before January 1, 1954. It has been found as a fact that the cost of the agricultural land to the family (previous owner) could hot be ascertained. In the circumstances, the case squarely fell within the purview of Section 55(2)(ii) of the Act and the cost of the capital asset, therefore, had to be reckoned as the cost as on January 1, 1954. The charge under the head "Capital gains" takes into account the capital appreciation from the date of acquisition to the date of sale, subject of course to certain provisions. The only laxity permitted is to substitute the market value of the asset as on January 1, 1954, if the asset sold was in existence at the time, in the place of the cost of acquisition. The amendment brought about by the Finance Act of 1970, does not alter this legal position, nor furnish a different basis to determine the cost of the asset transferred otherwise than in accordance with Section 55(2) of the Act as on January 1, 1954, The effect of the amendment is to bring certain types of agricultural land within the meaning of "capital asset" under the Act, but it does not influence the computation or determination of the taxable gains in terms of the provisions discussed earlier so as to add or detract anything from them. This is what the Income-tax Officer had held. The appellate authorities including the Income-tax Appellate Tribunal were not justified in interfering with the manner in which the capital gains were computed by the Income-tax Officer. The problem with which we are concerned also came up for consideration before a Division Bench of the Karnataka High Court in CIT v. M. Ramaiah Reddy [1986] 158 ITR 611, where the Income-tax Appellate Tribunal had expressed a similar view as in the case in hand. The Bench disapproved the view taken by the Tribunal in that case. It was observed (at page 613) :
" There is hardly any basis for the reasoning adopted by the Tribunal. The agricultural land became a capital asset from April 1, 1970, but that does not mean that the cost of acquisition of the land has to be taken as on April 1, 1970, itself. The cost of acquisition of every capital asset has to be determined in accordance with Section 48 or upon the option being exercised by the assessee under Section 55(2) of the Act. . . . The finding of the Tribunal that the cost of acquisition has to be determined as on April 1, 1970, is untenable. The assessee was in possession of the asset long prior to April 1, 1970. It is, therefore, not correct to state that the cost of acquisition has to be taken only on that date."
20. The rule laid down in the above decision squarely applies to the case before us. From the discussion made above, we cannot sustain the view taken by the Income-tax Appellate Tribunal.
21. The argument of the assessee that the Tribunal has taken an equitable view is of no consequence. In this connection, the classic statement of Rowlatt J. in Cape Brandy Syndicate v. IRC [1921] 12 TC 358 ; [1921] 1 KB 64 may be recalled where it was observed :
" In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
22. As seen earlier, having regard to the relevant provisions, the view. taken by the Tribunal is totally unwarranted in law. It cannot be sustained only on the ground that it would be equitable to do so. By effecting the amendment in the definition of "capital asset ", if the Legislature intended that the computation of the "capital gains ", viz., the cost of acquisition be treated differently, as contended by the assessee, it was for the Legislature to specifically provide for that situation. In the absence of any such provision, the assessee cannot he helped by this court.
23. For what has been stated above, we answer the second question in the negative against the assessee and in favour of the Revenue.
24. The Department shall be entitled to its costs which we assess at Rs. 300.