Law:

Section:

Section 55 of the Income-tax Act, 1961 - Capital gains - Cost of acquisition - Assessment year 1971-72 - Land purchased as agricultural land in 1961 was converted into non-agricultural in year 1962 and was gifted to assessee in 1966 - Assessee sold said land and while computing capital gain took cost of acquisition as it stood on date of gift - ITO held that cost of land to previous owner should be taken as cost of acquisition - Tribunal, however, held that as per CBDT's Circular, cost of acquisition should be determined on basis of conversion of agricultural land to non-agricultural - Whether land became 'capital asset', subject to levy of capital gain tax under section 2(14), only when it was converted into non-agricultural land - Held, yes - Whether Tribunal was right in holding that said circular was applicable in case of assessee and in directing ITO to determine cost of acquisition on basis of value of land as on date of its conversion into non-agricultural land - Held, yes Circulars and notifications - Circular No. 90, dated 1-8-1969. FACTS Agricultural lands were purchased in the year 1961 which were con- verted into non-agricultural lands on 12-3-1962 and were gifted to the assessee in July 1966. In the previous year relevant to the assessment year 1971-72 the assessee sold the land. While computing capital gain he took cost of acquisition of land as it stood on date of gift. The ITO viewed that cost of land to previous owner should have been taken as cost of acquisition. The assessee, however, contended that the said land had become capital asset on the date when it was converted into non-agricultural land, therefore, since it was not capital asset under section 2(14) at the time of acquisition, its cost at that time could not be taken into consideration for the purpose of computation of capital gains. The assessee placed reliance on Circular No. 90, dated 1-8-1969. As per that circular, cost of acquisition was to be determined on the basis of conver-sion of agricultural land into non-agricultural land. The ITO, however, rejected the claim of the assessee. On appeal, the AAC upheld the order of the ITO. On further appeal, the Tribunal held that as per…

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