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Section 45 of the Income-tax Act, 1961 - Capital gains - Chargeability of - Assessee-firm in connection with its business ran a dairy farm and also raised agricultural produce - During relevant accounting year, assessee sold calves born in its farm -Whether there was no cost of acquisition for said calves there could not be a capital gain by their sale as capital asset - Held, yes Facts The assessee-firm in connection with its business ran a dairy farm and also raised agricultural produce. During the relevant accounting year, the assessee sold calves. The ITO held that the aforesaid sale was of capital asset which resulted in short-term capital gain and, therefore, was liable to tax. On appeal the Tribunal affirmed the ITO's order. On reference, the assessee contended that the birth of calves was an addition to his assets and since it did not involve any cost of acquisition no capital gain arose. Held There was no cost of acquisition for the aforesaid calves and, therefore, there could not be a capital gain by their sale as capital assets. Hence, the assessee was not liable to capital gains tax on sale of calves. Cases referred to CIT v. Gold Mohore Investment Co. Ltd. [1969] 74 ITR 62 (SC) and CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC). A. Satyanarayan for the Applicant. M.S.N. Murthy for the Respondent. JUDGMENT Waghray, J.-In this reference under section 256(1) of the Income-tax Act, 1961 ('the Act'), at the instance of the assessee, the following question is referred for the opinion of this Court: "Whether, on the facts and in the circumstances of the case, the sum of Rs. 29,730 realised on sale of calves was liable to capital gains tax?" 2. The assessee-firm in connection with its business runs a dairy farm and also raises agricultural produce. During the period relevant to the assessment year 1976-77, the assessee sold 27 calves for Rs. 29,730 and claimed that it represented a capital receipt and not liable to levy of income-tax. The ITO held that it was a sale of capital asset resulting in a short-term capital gain (as the age of the calves that were sold was less than one year). Applying the principle in CIT v. Gold Mohore Investment Co. Ltd.…

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