An asset that did not cost the assessee anything or was not capable of being estimated a cost could never be subjected to taxation under the scheme of capital gains tax under the Income Tax Act, 1961.

SABYASACHI MUKHARJI, J.

( 1 ) IN this reference under Section 256 (1) of the I. T. Act, 1961, the following question has been referred to this court :" Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs. 3,05,343, being the amount realised by the assessee by sale of import entitlements to M/s. Martin and Harris Pvt. Ltd. ? "

( 2 ) THIS reference relates to the assessment year 1966-67. In October, 1965, the Govt. of India promulgated what was called the "national Defence Remittance Scheme" so that foreign exchange might become available for the country's defence and other essential requirements. Under the scheme, Indian Nationals (abroad) were allowed to remit money from foreign countries on and after October 26, 1965, by way of gifts, remittances for family maintenance, transfer of capital, etc. Neither the remitters nor the recipients were liable to income-tax on such amounts. It was also assured that the source of such remittances from abroad would not be questioned. And to add to all these, it was also provided that the recipient of the remittance or his nominee would, in such cases, be also given transferable import licence of the value of 60% of the rupee equivalent of such remittance. On December 31, 1965, the Govt. of India gave a clarification that the amounts received by the transfer of such import licence would be treated as a long-term capital gain. In December, 1965, the assessee obtained in India by way of remittance under this scheme a sum of Rs. 2,44,737 and thereby also secured an entitlement to import goods of the value of 60% thereof. Without, however, making use of the entitlement to import goods into this country, the assessee sold the same to M/s. Martin and Harris (P.) Ltd. for a sum of Rs. 3,05,343. In the assessment proceedings, the assessee claimed that 60% of the rupee value of the remittance from abroad was the cost of acquisition of the import entitlement and offered the excess of Rs. 1,58,589 of his sale realisation over that to be taxed as capital gain. The ITO held that the cost of acquisition was nil and hence brought to tax the entire amount realised by the sale of the entitlement. It is important to bear in mind this aspect that the ITO held that, in view of the nature of the asset, the cost of acquisition was nil.

( 3 ) THERE was an appeal before the AAC. He too rejected the assessee's contention that 60% of the amount remitted represented the cost of the import entitlement and concurred with the ITO that, as the assessee had not to spend anything at all for securing the entitlement, its cost of acquisition was nil and that everything realised by the assessee in the sale thereof was hence in the nature of profit to be assessed as long-term capital gain.

( 4 ) THE assessee went up in appeal before the Tribunal. In the original grounds of appeal before the Tribunal, consistently with the case urged before the lower authorities, the assessee persisted only with his contention that his cost of acquisition in respect of the import entitlement was to be reckoned at 60% of the value of the remittance and not nil as taken by the authorities below. However, the assessee filed subsequently an additional ground of appeal urging that in the view taken by the lower authorities that the import licence did not cost anything to the assessee, the provisions of Section 45 of the I. T. Act, 1961, would not apply at all to the transfer of such a capital asset. The Tribunal allowed the additional ground to be raised, as it was a pure question of law to be decided on facts already on record and no investigation of fresh facts would be necessary for the purpose.

( 5 ) AFTER referring to the various contentions of the parties and discussing the nature of the asset and the alternative contention of the assessee, the Tribunal expressed that view that the right obtained by the assessee under the import licence did not cost him anything and hence

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