Case Law Details
In case of transfer of an asset distributed by a company in liquidation, cost of acquisition of same has to be taken as cost to previous owner for purpose of computing capital gains thereon
RELEVANT PARAGRAPH
8. Section 46(2) provides that when a shareholder receives money or any other asset from a company on its liquidation, then such shareholder shall be charged to capital gains tax. This capital gain is on account of transfer of shares effected by extinguishment of rights in the shares. The section further provides that sales consideration for the purpose of computing capital gains will be money actually received or fair market value of the asset on the date of distribution, as the case may be. The said sales consideration will be as reduced by the amount assessed u/s.2(22)(c) . In our case there is no such amount assessed and therefore, for the sake of brevity, in this order reference to fair market value of the asset on the date of distribution will be presumed to be after such reduction and no further reference will be made to sec.2(22)(c) . Again, for the sake of brevity, ; let us name this transaction, i.e. the transaction of transfer I of shares as transaction A. The transfer of shares in this case f. is the first taxable event and since the assessee has received , an asset other than money on liquidation, capital gains will be computed by deducting the cost of shares from the fair market value of the asset. The shares have been acquired by the assessee himself and therefore, there is no question of adopting any cost to the previous owner. The year of tax ability will be the year in which the distribution of assets has taken place, i.e. the year in which the assessee received the asset. In the present case, the assessee has received the asset In financial year 1990-91 and hence capital gains would be taxed in assessment year 1991-92, This entire transaction A can be presented in arithmetical form by taking a hypothetical example. Let us assume the following :
a) cost of acquisition of shares by the assessee Rs. 100/-
b) fair market value of property received Rs. 150/-
c) sales consideration of property sold Rs. 170/-
d) cost of acquisition of property to the company Rs. 80/-
Thus, transaction A will be as follows :
Computation (1)
Sales consideration
for transfer of shares Rs. 150/- (being fair market value of property on the date of distribution received on liquidation)
Less :Cost of acquisition of shares Rs.100/-
Rs. 50/- capital gains chargeable to tax in assessment year 1991- 92
It is presumed that the assesses has offered the capital gain for taxation in assessment year 1991- 92.
9. Now we come to the second transaction which we shall name it as transaction B. This pertains to the sale property received by the assessee on liquidation. Though the assessee has sold the property in the same financial year, i.e. in 1990-91, yet for the time being let us presume that it is sold in financial year 1991-92, i.e. in the subsequent financial year. The property is sold for Rs. 170/-. The question which now arises is as to what should be the cost of acquisition of the asset to compute capital gains. For this purpose, there are two provisions, viz., section 49(l)(iii)(c) and section 55(2)(b)(Hi) , both of which are extracted above. Sec.49(l)(iii) (c) provides that where a capital asset becomes the property of the assessee on distribution of asset on the liquidation of a company, the cost of acquisition of the asset shall be deemed to be the cost to the previous owner, Sec.55(2)(b) (iii) provides that where the asset becomes the property of the assessee on the distribution of assets on liquidation, and if the assessee has been assessed to capital gains tax in respect of that asset under sec.46, the cost of acquisition would be the fair market value of the asset on the date of distribution. It will be noticed that both the provisions provide for the cost of acquisition of an asset which becomes the property of the assessee on the distribution of assets by a company on its liquidation. However, the applicability of either of the provisions would depend on the situation in each case. If the assessee has been charged to capital gains tax on receipt of the property, then, as per sec.55(2)(b) (iii), the cost of acquisition would be the fair market value of the asset on the date of distribution. In the present case, at the end of paragraph 8 we have made a presumption to the effect that the assessee has offered the capital gains of Rs.50/- for taxation in assessment year 1991-92. Therefore, the provisions of sec.55(2)(b) (iii) would come into play. Accordingly, the presentation of transaction B in such a situation would be as follows :
Computation (2)
Sales consideration
on sale of property Rs. 170/-
Less : Cost of acquisition Rs. 150/- (being fair market value of the property on the date of distribution)
Rs. 20/- capital gains
chargeable to tax in assessment year 1992- 93.
To repeat, while presenting the above two computations, we have presumed, (a) the two transactions have taken place in different years, and (b) the assessee has offered for tax the capital gains arising in the year of its accrual. Let us take another situation. We retain presumption (a) as it is. So far s presumption (b) is concerned, let us presume that the assessee has not offered the capital gains for taxation in the year of its accrual. In that case, in our view, the cost of acquisition will be as per sec.49(l)(iii) (c), i.e. it will be the cost to the previous owner. In that case, the arithmetical presentation will be as follows :
Computation (3)
Sales consideration of the property Rs. 170/-
Less: Cost of acquisition to the company Rs. 80/-
Rs. 90/- capital gains chargeable to* tax in assessment year 1992- 93
From the above three computations it can be seen that if the assessee offers capital gains for taxation as they arise, he will be paying tax on total capital gains of Rs.70/-. However, if he has chosen to offer capital gains for tax only in the year of sale.of property received on distribution, he will end up paying more tax, i.e. on capital gains of Rs. 90/-. This can be taken to be the additional tax burden invited by the assessee himself for not offering for tax the capital gain arising in transaction A in the year in which the gain accrued.
10. While presenting the computations in paragraphs 8 & 9 above, we have presumed that both the transactions have taken place in different years. However, as mentioned earlier, this is not the actual position in the case before us. In the case before us, both the transactions have taken place in the same year and this fact in particular has given rise to the dispute. As mentioned earlier, sec.55(2)(b) (iii) comes into play only if capital gains arising from the first transaction as been assessed to tax. In the present case, the question f it being assessed to tax earlier does riot arise because both the transactions have taken place in the sarnie year. The argument of the department is that capital gains arising in transaction A has not been charged to tax in the earlier year and hence, sec.49(l)(iii) (c) will apply. In our considered view, if this interpretation is to be accepted, it would amount to saddling the assessee with higher tax liability for no fault of his. This is one aspect of the matter. Another angle from which the matter can be viewed is this. In point of time, transaction A occurs first and it is only as a result of transaction A, transaction B occurs. Therefore, while preparing the total computation of income, the assessee will first compute capital gains In transaction A and offer it for tax. Thereafter, the assessee will compute capital gains in transaction B and offer it for tax. Under these circumstances, it can be said that the assessee has been assessed to capital gains tax under sec.46 and therefore, provisions of sec.55(2)(b) (iii) will be applied, i.e. the fair market value of the asset on the date of distribution can be taken as the cost of acquisition. The assessee has practically done this only with a slight difference. Instead of making two computations as in computation (1) and computation (2) above, he has integrated both the computations into one as follows :
Computation (4)
Sales consideration of the property Rs. 170/-
Less: Cost of acquisition of shares Rs. 100/-
Rs. 70/- capital gains chargeable to tax in assessment year 1991- 92
Thus, if capital gains arising in transaction A are treated as assess to tax earlier, then, whether the computations are separately done as per computation (1) and (2) or they are integrated into one as in computation (4), it makes no difference. However, the departmental view is as follows :
Computation (5)
Sales consideration of the property Rs. 170/-
Less: Cost of acquisition of the company Rs. 80/-
Rs. 90/- capital gains chargeable to tax in assessment year 1991-92
The department is canvassing for the above computation despite the fact that capital gains arising in transaction A are being taxed as per computation
(4). Again, in our view, computation
(5) should be adopted only where the assessee has postponed the tax ability of capital gains arising in transaction A.
In the present case, the assessee has not postponed the tax ability of capital gains but is offering it for tax in the same year in which the gains have accrued. Therefore, it would be just and proper to accept the computation made by the assessee. However, we may hasten to add that so far as this appeal is concerned, we are not accepting the same for the reasons that follow.
11. The argument of the Id. counsel is that the earlier orders of the Tribunal are per incuriam on account of non-consideration of a statutory provision viz., sec.55(2)(b) (iii) of the Act, Admittedly, this provision was brought to the notice of the Tribunal in the earlier appeals. Though the said provision is not discussed in the earlier orders, we cannot say with certainty that the Tribunal has not considered that provision, more so when the said provision is discussed by the CIT(A) also. It cannot be said that the Tribunal has not considered the impugned order itself. In that sense, therefore, it cannot be said that the earlier orders are per incuriam. The Bombay High Court, albeit in the context of sec.254(2), in the case of CTT vs. Ramesh Electric and Trading Company (203 ITR 497) held that failure by the Tribunal to consider an argument advanced by either party for arriving at a conclusion is not an error apparent on record, although it may be an error of judgement. In the present case, it is not the case of the assessee that it is a case of mistake apparent oh record, and if it is an error of judgement, it is for the superior court to rectify the same and as a co-ordinate Bench we cannot sit on judgement over the decision of another co-ordinate Bench. Secondly, again, though not discussed in the earlier orders, it is possible that the Tribunal may have considered that the capital gain arising in transaction A cannot be said to have been assessed and therefore, may have applied the provisions of sec.49(l)(iii) (c) instead of sec.55(2)(b) (iH). In such circumstance, we, as a co-ordinate Bench have no authority to say that the view expressed in the earlier order is wrong. It is for the superior court to say so. At best, we can say that the view expressed by us in this order is more appealing. For this reason also, despite the view expressed by us at the end of paragraph 10 appears to be a better view, for the sake of judicial discipline we cannot take a different view* It has been held in Morelle vs. Wake ling, (1955) 2 QB 379, that the doctrine of per incuriam should be limited to decisions given in ignorance or forgetfulness of some inconsistent statutory provision or of some authority binding on the court concerned. It cannot be said that the decision given in the earlier orders is the result of any ignorance or forgetfulness about the provisions contained in sec. 55(2)(b)(iii) of the Act. It has also been held by the Supreme Court in the case of Mamleshwar Prasad Vs. Kanahaiya Lai, AIR 1975 SC 907, 910, that the doctrine cannot be extended to cases which were merely not fully argued or which appear to tm& a wrong view of the authorities or to misinterpret a statute Time and again it has been held by the superior court that no Tribunal of tact has any right or jurisdiction to come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on identical facts. Therefore, in the light of this discussion, so far as the present appeal is concerned, we follow the earlier orders of the Tribunal cited in paragraph 4 and hold that while computing capital gain, cost to the previous owner be considered in terms of sec.49(l)(iii) (c) of the Act.
