The cost of acquisition of a capital asset acquired before January 1, 1954, is the cost of acquisition to the assessee or the fair market value of the asset on January 1, 1954, at the option of the assessee.

Gokal Chand Mital, J.

1. In the previous year relating to the assessment year 1975-76, Didar Singh sold ancestral agricultural land measuring 3 acres, 3 kanals and 2 marlas for a consideration of Rs. 1,76,625. In the return filed for declaring capital gains, he showed the cost of the agricultural land at Rs. 30,000 per acre as on February 28, 1970, in view of the fact that the agricultural land was brought within the definition of "capital asset" contained in Section 2(14) of the Income-tax Act, 1961 (for short "the Act"), by virtue of the amendment brought on April 1, 1970. The Income-tax Officer did not agree with the assessee and held that the cost price as on January 1, 1954, had to be considered and not as on February 28, 1970. This he did in view of Section 55(2) of the Act.

2. On appeal, the Appellate Assistant Commissioner agreed with the assessee and found the price fixed by him to be reasonable. The Income-tax Appellate Tribunal, Chandigarh, agreed with the appellate order and dismissed the appeal filed by the Revenue.

3. At the instance of the Revenue, the Tribunal has referred the following question for opinion :

"Whether the Appellate Tribunal has been right in law in holding that the cost of acquisition or the value should be ascertained as on February 28, 1970, for the purposes of capital gains in view of the provisions of Section 2(14) of the Income-tax Act as amended with effect from April 1, 1970?"

4. By the Finance Act of 1970, which came into effect from April 1, 1970, the definition of "capital asset" contained in Section 2(14) of the Act was amended and in place of Clause (iii), a new clause was substituted as a result of which agricultural land which fell within the purview of Sub-clauses (a) and (b), came within the ambit of capital asset and became amenable to capital gains tax which hitherto were not amenable to capital gains tax. The word "transfer" in relation to a capital asset is defined in Section 2(47) and includes "sale". Section 45 of the Act defines "capital gains" and is the charging section. Section 48 of the Act provides how to compute income chargeable under the head "Capital gains". Section 49 provides for determining cost with reference to certain modes of acquisition including succession and inheritance. Section 55(2) of the Act provides for the cost of acquisition in relation to a capital asset with reference to Sections 48 and 49 of the Act. Section 55A provides for making a reference to the Valuation Officer at the instance of the Income-tax Officer if it is found necessary, subject to the circumstances mentioned in that provision Here, reproduction of the relevant provisions of Section 55(2), as it stood at the time of the assessment year in question, has become necessary :

"Section 55(2)--For the purposes of Sections 48 and 49, cost of acquisition, in relation to a capital asset,-- (i) where the capital asset became the property of the assessee before the 1st day of January, 1954, means the cost of acquisition of the asset to the assessee or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee ;

(ii) where the capital asset became the property of the assessee by any of the modes specified in Sub-section (1) of Section 49, and the capital asset became the property of the previous owner before the 1st day of January, 1954, means the cost of the capital asset to the previous owner or the fair market value of the asset on the 1st day of January, 1954, at the option of the assessee."

5. Admittedly, the assessee acquired the land before January 1, 1954, by inheritance and the case would fall under Section 55(2)(ii) of the Act and the cost of the capital asset has to be taken as on the date of inheritance or the fair market value as on January 1, 1954, at the option of the assessee. The assessee did not opt for the value on the date of death of his father, and, therefore, the fair market value as on January 1, 1954, has to be taken. Th