Per R.N. Singhal, Accountant Member - These are cross appeals; hence. they are disposed of by this consolidated order.

2. In assessee’s appeal first and foremost ground is directed against the rejection of Its main contention in regard to capital gains. For this point. relevant facts lie in a very narrow compass. The assessee company is the wholly owned subsidiary of Karamchand Premchand Pvt. Ltd. KPPL for short). In July and August 1973 KPPL and its nominees acquired all the 1,11,000 equity shares of Arvalli Investments Pvt. Ltd. (‘Arvalli’ for short) at a total cost of Rs. 1, 11,00,000, that was the value and the paid up value of the said shares. Consequently, Arvalli became a wholly owned subsidiary of KPPL. In December 1973 the said 1,11,000 shares were transferred by KPPL to the assessee for a total consideration of Rs. 55,36,680. Consequently, Arvalli became a wholly owned subsidiary of the assessee. In June 1986, Arvalli went into voluntary liquidation and in July 1987 the assessee received assets of the value of Rs. 93,24,000 from Arvalli. The Assessing Officer computed capital gains in the hands of the assessee by invoking the provisions of section 46(2) of the Income-tax Act by taking the excess of the value of assets received (viz., Rs. 93,24,000) over the amount paid by the assessee for acquiring the shares of Arvalli (i.e. Rs. 55,36,680). The CIT (Appeals) took note of the assessee’s main contention that capital gains were not to be computed at all in view of section 47(v) but rejected it after a very detailed and learned discussion in his order. He, however, accepted the assessee's alternative contention that in view of section 49(1)(iii)(e) capital gains should be computed by taking the cost in the hands of the previous owner viz., KPPL which was Rs. 1,11,00,000. Obviously on that basis, capital gains would be Nil because the cost to the previous owner was higher than the value of the assets received by the assessee. The assessee is in appeal before the Tribunal against the rejection of its main contention of the provisions of section 47(v) being applicable and the department is in appeal against the direction of the CIT (A) that in pursuance of section 49(1)(iii)(e) cost to the previous owner should be substituted.

3. The learned advocate for the assessee explaining the background highlighted the incidental aspects. He submitted that in the hands of KPPL provisions of section 47(iv) were regarded as applicable and hence loss under the head ‘capital gains’ was not claimed or computed when the shares of Arvalli were transferred to the assessee for a total consideration of Rs. 55,36,680 against original cost (to KPPL Rs. 1,11,00,000). The second incidental point was that in December 1973 the consideration of Rs. 55,36,680 for transfer of shares from KPPL to the assessee was based on a valuation report. He emphasised that the valuation report was from an approved valuer and further that it was based on the principles which have since been approved by the Hon’ble Gujarat High Court in some other cases/matters.

4. After making these incidental points he took us straight to the basic scheme of the Act and emphasised that Chapter IV of the Income-tax Act deals with the computation of total income under different heads of which the head of ‘capital gains’ starts from section 45. Elaborating further he submitted that section 2(24) seeks to enumerate the Items of income and clause (vi) thereof refers only to capital gains chargeable under section 45’. In this context, he submitted that though section 46(2) may be regarded as a charging section but it is only through the modality of section 45 and section 46(2) cannot stand in isolation without the modality of section 45. He further submitted that section 46(2) specifically takes note of the applicability of section 48 which in turn talks of mode of computation and deductions. Elaborating further he submitted that actually, section 49 cases and the CIT (A) has held that