The main legal point established in the judgment is the interpretation of the provisions of the Incometax Act, particularly regarding the computation of capital gains, the definition of 'cost of acquisition', and the treatment of employee benefits under S.40 (a) (v).

1. A Division Bench of this Court referred this case to the Full Bench since the Revenue pressed for an examination of the correctness of the decisions of several High Courts in India on the construction of S 40(a)(v) of the Incometax Act and the Division Bench thought it appropriate that the question be examined by a Full Bench.

2. The two references arise nut of the same order of the Tncometax Appellate Tribunal, Cochin Bench. One of the references is at the instance of the Commissioner of Incometax and the other at the instance of the assessee. These arise from the order of the Tribunal disposing of the appeal for the assessment year 1971-72.

3. The assessee is a limited company. The company had considerable properties at Calicut and Mangalore. These were in the possession of the assessee from 1920 onwards. The assessee had claimed depreciation for the factory buildings and this had been allowed in the previous years. During the account ing year 1970-71 some properties were sold. The assessee showed capital gains computing the capital gains on the land and the capital gains on the factory buildings separately. The question of capital gains on the land is not relevant for the purpose of these references. The references concern only capital gains on the buildings. The sale price in respect of Calicut Weaving Factory was Rs. 20,000/-. The original value of the building was Rs. 10.000/- and there was an additional expenditure of Rs. 979/-. Depreciation bad been allowed on the value of the buildings in the earlier years. The assessee showed a capita) loss of Rs. 78/- on the sale of the buildings at Calicut. This was by revaluing the buildings as on 1-1-1954. The stand taken by the assessee was that it bad the option under S.55(b) of the Incometax Act either to adopt the written down value of the building or the value of the building as on 1-1-1954 and it chose the latter. It is on this basis that the assessee showed a loss of Rs. 78/-. The Incometax Officer took the view that the assessee does not have the right to substitute the value as on 1-1-1954 because the assets were depreciable assets, that S.50(1) was a special provision in respect of depreciable assets and the provision allowing the option was not applicable to such depreciable assets. The Incometax Officer substituted the original value and arrived at a capital gain of Rs. 9021/-.

4. The Mangalore buildings were sold for Rs. 2,25,000/-. The original cost as adjusted came to Rs. 76.680/- In the case of these buildings also depreciation had been claimed and allowed in the previous years. Here again the assessee revalued the buildings as on 1-1-1954 and on that basis showed the capital gains at Rs 44, 713/-. The Incometax Officer held as in the case of Calicut buildings that it was not open to the assessee to opt for the value as on 111954 in respect of depreciable assets. He deducted the original cost of acquisition and arrived at a capital gain of Rs. 1.46.320/- in respect of the said buildings. The Appellate Assistant Commissioner agreed with the Incometax Officer and held that the assessee did not have the right to substitute the value as on 111954 in respect of a depreciable asset. The assessee appealed to the Tribunal. On this question no ground was taken by the assessee but he filed an additional ground and that was admitted. The Tribunal also held the view that in respect of depreciable assets the assessee did not have the right to substitute the value as on 111954. It is from this that the following question arose and was consequently referred:

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee did not have right of substituting the market value as on 1-1-1954 in respect of depreciable assets."?

5. Now we will consider the question referred at the instance of the Commissioner of Incometax. One of the employees of the assessee company was one Mr. Thomas. He had been allowed annual house rent