The main legal point established in the judgment is that the levy of capital gains tax is contingent upon the presence of a cost of acquisition for the asset, and in the absence of such cost, the tax is not attracted.

( 1 ) THE Income-tax Appellate Tribunal under section 256 (1) of the Income-tax Act, 1961, referred the following question of law :"whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in holding that capital gains does not arise on acquisition by the Government of the lands in which the assessee had right of protected tenancy ?"the assessee was a protected tenant in respect of lands measuring Acs. 44-19 guntas situated in Yusufgude, within the limits of Hyderabad Municipality. Pursuant to the acquisition proceedings by the State Government for the purpose of the Housing Board, the lands vested in the Government on 18/05/1972. A total compensation of Rs. 10,66,472 was awarded for the lands and the assessee being a protected tenant, she was held to be entitled to 60% of the same and awarded Rs. 6,39,883. The Income-tax Officer levied capital gains on the said amount after giving usual statutory deductions. On appeal, the Commissioner of Income-tax (Appeals) confirmed the order of the Income-tax Officer. On further appeal, the Appellate Tribunal held that the right of protected tenancy stands on the same footing as that of goodwill and the assessee did not pay anything for the protected tenancy and it is a statutory right conferred on the assessee and as such the levy of capital gains is not justified. The learned standing counsel for the Revenue contends that protected tenancy is a right in the property and, therefore, it is a capital asset and the analogy of goodwill is not applicable as it should be confined to incorporeal rights, and the protected tenancy is conferred in lieu of periodical payment of rent to the landlord over a six year period and the cost of acquisition can be related to the rent paid by the tenant. Learned counsel for the assessee, Sri A. Satyanarayana, seeking to sustain the order of the Appellate Tribunal contended that even assuming that protected tenancy is considered as a right in the property, no cost of acquisition is involved and the periodical payment of rent cannot be considered as consideration for protected tenancy as the protected tenancy has been conferred by the status in furtherance of land reforms. The charging section 45 relating to capital gains to the extent is as follows :"45. Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53,54,54b, 54d, 54e and 54f, be chargeable to income-tax under the head Capital-gains, and shall be deemed to be the income of the previous year in which the transfer took place. "section 48 pertaining to the model computation is as follows :"48. The income chargeable under the head Capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely : - (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. "stripped to its essence, the capital gains tax is a levy on the amount representing the difference between the sale consideration of the capital asset and the cost of acquiring the same. The tax is levied on escalation in the cost of asset. In the absence of escalation or gain in the absence of the cost of acquisition save the circumstances enunciated in section 49 the levy of capital gains is not attracted. Section 48 supplements the charging section by prescription of the mode of computat ion of gain on transfer. In CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 (SC), on a dissolution of the firm, the goodwill of the firm was valued at Rs. 1,50,000, and on the transfer of the goodwill to the new firm along with other assets, the value of the goodwill was assessed to capital gains. Having held that goodwill is an asset of the business, the issue considered was wheth