Law: Income Tax Act, 1922

Section:

Income-tax--Capital gains---Transfer of property on reduction of company's share capital ---Assessee was not entitled to substitute market value of property as cost of acquisition in lieu of amount of reduction in capital. The assessee was an individual. For the assessment year 1972-73, corresponding to the previous year ended March 31,1972, the Income-tax Officer, had to determine the capital gains arising out of the transfer of a property which was sold on October 13, 1971, for Rs.2,80,000. The assessee had acquired this property from K Ltd. in 1963-64 on the reduction of the share capital of the company. The assessee claimed that the cost of acquisition of this property for the purpose of computing the capital gains, must be taken as the market value of the property at the time when he got it by reduction in the share capital. The Income-tax Officer took the book value of the property as the cost of acquisition at Rs.77,765 and computed the capital gains which was upheld by the Tribunal. On a reference: Held, that in computing the capital gains arising out of the transfer of property received by the assessee from the company on reduction of its share capital, the assessee was not entitled to substitute the market value of the property as the cost of acquisition in the place of the amount of reduction in capital in lieu of which the property was transferred to the assessee. JUDGMENT JANARTHANAM, J.---In this tax case, at the instance of the assessee, Sri S. Rangarajan, Madras, the Tribunal referred the following question of law for the opinion of this Court: "Whether, on the facts and circumstances of the case, computing the capital gains arising out of the transfer of property received by the assessee from the company on reduction of its share capital, the assessee was entitled to substitute the market value of the property as the cost of acquisition in the place of the amount of reduction in capital in the lieu of which the property was transferred to the assessee?" The assessee is an individual. For the assessment year 1972-73, corresponding to the previous year ended March 31, 1972, the Income-tax Officer had to determine the capital gains arising out of…

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