1995 P T D 1257

[211 ITR706]

[Bombay-High Court (India)]

Before V.A. Mohta, I.G. Shah and S.M. Jhunjhunuwala, JJ

GOCULDAS DOSSA AND CO. and others

Versus

J.P. SHAH and others

Writ Petition No. 417 of 1985, decided on 27/04/1994.

(a) Income-tax---

----Capital gains---Computation of capital gains---Cost of acquisition of depreci4ble assets---Scope of section 50---Option of substituting fair market value on prescribed date---Option available to assessee who has purchased depreciable assets---Indian Income-tax Act, 1961, Ss.45, 48, 49, 50, 55.- [Rajnagar Vaktapur Ginning, Pressing and Manufacturing Co. Ltd. v. CIT (1975) 99 ITR 264 (Guj.); CIT v: Upper Doab Sugar Mills (1979) 116 ITR 240 (All.); CIT v: Commonwealth Trust Ltd. (1982) 135 ITR 19 (Ker.) (FB) and India Jute Co. Ltd. v. CIT (1982) 136 ITR 597 (Cal.) dissented from].

Subsection (2) of section 55 of the Income-tax Act, 1961, is a substantive provision granting an option. Subsection (2) sets out the meaning of cost of acquisition in relation to all varieties of capital assets---depreciable or non-depreciable. This provision is for the purposes of sections 48 and 49. The object of the option given in section 55(2) is to afford some protection to the assessee against assessment of illusory capital gain as a result of inflation and decline in rupee value; clause (2) of section 50 provides that where under any provision of section 49 read with subsection (2) of section 55, the fair market value as on that date is taken into account at the option of the assessee, the cost of acquisition shall be the said value, as reduced by the depreciation allowed to the assessee after the said date and. as adjusted. It is obvious that clause (2) of section 50 will apply only after the option is already exercised and that the said subsection is not the source of option. Examination of the scheme of capital gains as a whole will indicate that the only source of such option was section 55(2). Section 50 though a special provision is not a complete code in itself and in no way affects the assessee's option given under section 55(2). The fact that specific reference is made in section 50(2) to taking the cost of acquisition of the asset as the fair market value on January 1, 1964, cannot possibly lead to the conclusion that in the case of an assessee who has acquired the asset by purchase, the option conferred by section 55(2)(i) of taking the fair market value on January 1, 1964, as the cost of acquisition is taken away. It is significant to notice that section 50 enacts that only the provisions of sections 48 and 49 are subjected to the modifications contained in section 50. The option of substitution is conferred by section 55(2) which is not made subject to section 50 and thus where the option is exercised the capital gains have to be computed in accordance with the provisions of section 48. It would be improper to interpret section 50(l) read with section 55(2)(i) by reference to section 50(2).

Under the Indian Income Tax Act of 1922 all the provisions relating to capital gains were contained in section 12B. With simplification in view, those provisions are divided into separate sections 45 to 55 of the Income-tax Act, 1'961. Some changes have been enumerated from the old Act, but they do not include any change with regard to the right of purchaser-assessee to take the fair market value of the asset on January 1, 1954, as its deemed cost of acquisition. The Directorate of Inspection of the Income Tax Department has brought out the Income-tax Manual, Part 111, containing short notes on the provisions of the Act as amended up to May 11, 1968, which while explaining the provisions of section 50 make it clear that the assessee has the option of substituting the fair market value as on January 1, 1954, in the place of the cost of acquisition in a case where the assessee or the previous owner became the owner of the property before January 1, 1954. It is further clarified that where such an option is exercised, the fair market value of the asset as on January 1, 1954, would have to be reduced by the depreciation, if any, allowed after January 1, 1954.

Section 55(2) applies to all assets acquired before the relevant date-- depreciable or not and section 50(1) applies only to depreciable assets where the assessee does not or cannot exercise the option of substitution of market price. Section 50(2) applies to depreciable assets for arriving at the cost of acquisition when the assessee exercises the option in cases falling under section 49. The provisions of section 50(2) are not exclusive, they are dependent upon certain conditions of sections 49 and 55(2) to be fulfilled. The only provision which gives an option is incorporated in section 55(2) and nowhere else. Hence it cannot be said that section 55(2) and section 50 operate in the same field. In this view of the matter, the principle of interpretation that special provisions prevail over general cannot be pressed into service. The assessee purchasing a depreciable asset and an assessee acquiring it otherwise can be said to belong to different classes. But the classification has nothing to do with the object sought to be achieved by section 55, viz., to prevent the assessment of illusory capital gain on account of inflationary conditions and decreasing value of money. The classifications between the depreciable and non-depreciable assets and between these two classes of assessees have no nexus to the object of enactment. A contrary interpretation would have the potentiality of making section 50 irrational and, therefore, violative of article 14 of the Constitution. It is settled legal position that, there has to be an attempt to save a piece of legislation, if possible, by reading it down so as to make it constitutional.

As a general practice, a High Court should follow the decision of another High Court in the interest of uniformity considering that the Income- tax Act is an all-India statute. Now this rule of practice has no universal application and does not apply to cases where the decisions have omitted to consider certain provisions of law and are grossly erroneous.

The assessee purchased land, building, plant and machinery prior to January 1, 1964, and sold them in 1980. The assessee had claimed depreciation on building and machinery year after year. While working out the long-term capital gains, the assessee substituted the fair market value of land, building and machinery as on January 1, 1964, as the cost of acquisition by exercising the option under section 55(2). The Income-tax Officer held that the assessee, in view of section 50, did not have that option since it had acquired the property voluntarily by purchase and not in the circumstances mentioned in section 49. The Income-tax Officer further held that the written down value of the said depreciable assets as adjusted alongwith the cost of its improvement would be the correct price for working out the capital gains. On a writ petition:

Held, that the assessee who had purchased a depreciable asset prior to January 1, 1964, was entitled to the option of substituting the fair market value on that date as the cost of acquisition for computing its capital gain.

Rajnagar Vaktapur Ginning, Pressing and Manufacturing Co. Ltd. v. CIT (1975) 99 ITR 264 (Guj.); CIT v. Upper Doab Sugar Mills (1979) 116 ITR 240 (All.); CIT v. Commonwealth Trust Ltd. (1982) 135 ITR 19 (Ker.) (FB) and India Jute Co. Ltd. v. CIT (1982) 136 ITR 597 (Cal.) dissented from.

CIT v. Express Newspapers Ltd. (1964) 53 ITR 250 (SC); Manubhai A. Sheth v. Nirgudkar (N.D.) Second ITO (1981) 128 ITR 87 (Bom.); Sanyasi Rao (A.) v. Government of Andhra Pradesh (1989), 178 1TR 31 (AP; Emil Webber v. CIT (1993) 200 ITR 483 (SC) ref.

(b) Interpretation of statutes---

---- Principle that special provisions override general provisions---Principle not applicable when general and special provisions operate upon different areas.

(c) Precedent---

----Principle that decision of one High Court should be followed by another High Court in the interests of uniformity---Not applicable when decision of the High Court is erroneous.

Soli Dastur with S.J. Mehta and I.M. Munim for the Petitioners.

G.S. Jetley with P.S. Jetley for the Respondents.

JUDGMENT

V.A. MOHTA, J.----Points of some importance are raised in this petition. They are: (1) . Whether an assessee who has himself purchased a depreciable asset prior to January 1, 1954 (date as amended from time to time), is entitled to the option of substituting the fair market value on that date as the cost of acquisition ;or, computing capital gains under the Income-tax Act, 1961 (the Act)? (2) if not, is section 50(2) of the Act arbitrary and, therefore, ultra vires article 14 of the Constitution?

The basic undisputed facts are:

Petitioner No.l, the assessee, is a duly registered partnership firm and petitioners Nos. 2 to 6 are its partners. The relevant assessment year is 1981-82. The assessee had purchased the land, building, plant and machinery of a factory at Pusad in District Yavatmal much prior to January 1, 1964. The building and land were sold by the assessee for Rs.10 lakhs and the plant and machinery also for Rs.10 lakhs by sale deeds dated October 24, 1980. The assessee had claimed depreciation on building and machinery year after year. In the return of income for the relevant assessment year while working out the long-term capital gains, the assessee substituted the fair market value of land, building and machinery as on January 1, 1964, as the cost of acquisition by exercising the option under section 55(2). Respondent No.l, Income -tax Officer, held that the assessee, in view of section 50, did not have that option since it had acquired the property voluntarily by purchase and not in the circumstances mentioned in section 49. The Income-tax Officer further held that the written down value of the said depreciable assets as adjusted, along with cost of its improvement would be the correct price for working out the capital gains and on that basis, issued a demand notice under section 156 for payment of Rs.1,25,016. Respondent No.2, Commissioner of Income-tax upheld the said order. The petitioners have preferred a second appeal before the Tribunal but since the Tribunal cannot decide the issue about the validity of section 50, this petition has been filed.

The Income-tax Officer as well as the Commissioner of Income-tax have based their judgment on the decisions of (i) the Gujarat High Court in the case of Rajnagar Vaktapur Ginning, Pressing and Manufacturing Co. Ltd. v. CIT (1975) 99 ITR 264; and (ii) the Allahabad High Court in the case of CIT v. Upper Doab Sugar Mills (1979) 116 ITR 240. We may hasten to add that subsequently two more High Courts---(i) the Kerala High Court in CIT v. Commonwealth Trust Ltd. (1982) 135 ITR 19 (FB) and (ii) the Calcutta High Court in India Jute Co. Ltd. v. CIT (1982) 136 ITR 597 have also followed the same line.

This petition was heard by the Division Bench of this Court which by order, dated August 12, 1993, referred it to the larger Bench in view of the importance of the questions and wide range of their impact. Having heard Shri Dastur, learned counsel for the petitioners and Shri Jetley, learned counsel for the respondents, it seems to us that the petitioners must succeed on point No.l, for. the reasons that follow.

Directly relevant provisions for computation of capital gains in the case are section 45, 48, 49, 50 and 55. Indirectly relevant provisions are sections 32(1)(iii), 41(2) and 43(6). Section 45 creates a charge on any profits or gains arising from the transfer of a capital asset. Section 48 deals with the mode of computation and deductions. The income chargeable as "capital gains" is to be computed by deducting from the full value of the consideration, the amounts like (i) expenditure incurred wholly and exclusively in connection with such transfer, (ii) cost of acquisition of the asset, and (iii) cost of improvement, if any, thereto. Section 48 is the main general provision and applies to all varieties of assets, irrespective of their nature and date of acquisition. Section 49 deals with the cost of acquisition with reference to certain specified modes of acquisition like gift, succession, etc. If the capital asset became the property of the assessee by any of these modes, then the cost of acquisition shall be deemed to be the cost to the previous owner of the property who had acquired it. It is thus clear that section 49 cannot be read in isolation and will have to be read with section 48. Section 48 contains main provision and in cases governed by section 49, the cost of acquisition shall be deemed to be the cost to the previous owner.

The controversies mainly centre round the provisions of sections 50 and 55. We reproduce them for ready reference:

"50.Special provision for computing cost of acquisition in the case of depreciable assets: --Where the capital asset is an asset in respect of which a deduction on account of depreciation has been obtained by the assessee in any previous year either under this Act or under the Indian Income-tax Act, 1922(11 of 1922), or any Act repealed by that Act, or under executive orders issued when the Indian Income-tax Act, 1886 (2 of 1886), was in force, the provisions of sections 48 and 49 shall be subject to the following modifications:

(1)The written down value, as defined in clause (6) of section 43, of the asset, as adjusted, shall be taken as the cost of acquisition of the asset.

(2)Where under any provision of section 49, read with subsection (2) of section 55, the fair market value of the asset on the 1st day of January, 1964, is to be taken into account at the option of the assessee, then, the cost of acquisition of the asset shall, at the option of the assessee, be the fair market value of the asset on the said date, as reduced by the amount of depreciation, if any, allowed to the assessee after the said date, and as adjusted."

55.Meaning of `adjusted' `cost of improvement' and `cost of acquisition'.---(1) For the purposes of sections 48, 49 and 50,---

(a) `adjusted', in relation to written down value or fair market value means diminished by any loss deducted or increased by any profits assessed, under the provisions of clause (iii) of subsection (1), or clause (ii) of subsection (1A) of section 32 or subsection (2) or subsection (2A) of section 41, as the case may be, the computation for this purpose being made with reference to the period commencing from the 1st day of January, 1964, in cases to which clause (2) of section 50 applies,

(b) `cost of any improvement', in relation to a capital asset,---

(i) Where the capital asset became the property of the previous owner or the assessee before the 1st day of January, 1964, and the fair market value of the asset on that day is taken as the cost of acquisition at the option of the assessee, means all expenditure of a capital nature incurred in making any additions or alterations to the capital asset on or after the said date by the previous owner or the assessee, and

(ii) in any other case, meansexpenditure of a capital nature incurred in making any additions or alterations to the capital asset by the assessee after it became his property, and where the capital asset became the property of the assessee by any of the modes specified in subsection (1) of section 49, by the previous owner,

but does not include any expenditure which is deductible in computing the income chargeable under the .head `Interest on securities', `Income from house property', `Profits and gains of business or profession', or `Income from the other sources', and the expression `improvement' shall be construed accordingly.

(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, 1964, 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, 1964, at the option of the assessee;

(ii) where the capital asset became the property of the assessee by any of the modes specified in subsection (1) of section 49, and the capital asset became the property of the previous owner before the 1st day of January, 1964, 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, 1964, atthe option of the assessee;

(iii) where the capital asset became the property of the assessee on the distribution of the capital assets of a company on its liquidation and the assessee has been assessed to income-tax under the head `Capital gains' in respect of that asset under section 46, means the fair market value of the asset on the date of distribution;

(iv) (Omitted by the Finance Act, 1906, with effect from April 1, 1966);

(v) where the capital asset, being a share or a stock of a company, became the property of the assessee on---

(a) the consolidation and division of all or any of the share capital of the company into shares of larger amount than its existing shares.

(b) the conversion of any shares of the company into stock,

(c) therecon version of any stock of the company into shares,

(d) the sub-division of any of the shares of the company into shares of smaller amount, or

(e) the conversion of one kind of shares of the company into another kind, means the cost of acquisition of the asset calculated with reference .to the cost of acquisition of the share or stock from which such asset is derived.

(3)Where the cost for which the previous owner acquired the property cannot be ascertained, the cost of acquisition to the previous owner means the fair market value on the date on which the capital asset became the property of the previous owner:'

Section 50 contains special provision for computing the cost of acquisition in the case of depreciable assets. It stipulates that where depreciation has been obtained in the case of a capital asset, the provisions of sections 48 and 49 stand modified. Clause (1) of section 50 states that the written down value defined in section 43(6) and "as adjusted" (defined in section 55(1)(a)), will have to be taken into account as the cost of acquisition of the transferred asset. The above modification applies to both sections 48 and 49. Hence, the written down value of a depreciable capital asset shall be taken as the cost of acquisition under section 48 and also under section 48 read with section 49, as the case may be. This subsection applies to (i) section 48 in respect of a depreciable asset acquired before January 1, 1964, and where the' option of substituting the market price as on the date is not in fact exercised though available, and (ii) section 49 where the asset became the property of the previous owner before that date and the option is not exercised. In the latter case, the written down value as adjusted will be the cost of acquisition and not the cost of acquisition of the previous owner. Clause (2) of section 50 provides that where under any provision of section 49 read with subsection (2)of section 55, the fair market value as on that date is taken into account at the option of the assessee, the cost of acquisition shall be the said value, as reduced' by the depreciation allowed to the assessee after the said date and as adjusted.' Words to be noted in clause (2) are "the fair market value as on the said date is to be taken into account at the option of the assessee". It is obvious that clause (2) will apply only after the option is already exercised and that the said subsection is not the source of option. Examination of the scheme of capital gains as a whole will indicate that the only source of such option is section 55(2) and this is indicated unmistakably in the very first part of section 50(2). Thus it will be seen that section 50 though a special provision is not a complete code unto itself for computing capital gains and in no way affects an assessee's option given under section 55(2).

Subsection (1) of section 55 is a definition provision and does not contain any substantive provision. However, subsection (2) of section 55 is a substantive provision of granting option. Subsection (2) sets out the meaning of cost of acquisition in relation to all varieties of capital assets---depreciable or non-depreciable. This provision is for the purposes of sections 48 and 49 because ultimately the computation of capital gains has to be as per section 48. For example, deductibility of the cost of transfer is only under section 48. Section 50 does not contain exhaustive provisions for the computation of capital gains. Subsection (2) only deals with capital assets which became the property of the assessee or the previous owner before January 1, 1964, and grants the option to the assessee either to have the actual cost of acquisition of the asset or the fair market value of the asset on the said date as the cost of acquisition. Thus it contains a general right in the matter of option irrespective of the type of asset which is transferred. We notice nothing in section 50(1) read with section 48(ii) which would confine the wide scope of section 55(2)(i) to the case of a non-depreciable asset where the assessee has acquired it by purchase. Therefore, in our view, the provisions of section 55(1) being applicable to sections 48, 49, 50 and 55(2) being the only source of the option, it is clear that where the depreciable asset became the property of the assessee either by purchase or under the modes specified in section 49, the assessee has the option.

Close scrutiny of section 50(1) would reveal that its principal function is to ensure that the assessee does not get a double deduction, viz., -the entire cost of acquisition, part of which is already allowed by way of depreciation. It, on one hand, provides that where an assessee has been allowed depreciation he does not claim as its cost the actual amount spent on acquiring the asset even though he has obtained depreciation in respect thereof; and, on the other hand, it enjoins that not only the written down value as computed under section 43(6) but as adjusted in the manner provided in section 55(1)(a) is to be taken as the cost as against the actual cost. Thus the actual written down value is increased by the depreciation which is brought to charge under section 41(2). This is so because as such excess allowance of depreciation has been subjected to tax, the cost of the asset cannot be pegged at the original written down value as defined under section 43(6), but must be increased to the extent that the assessee has paid tax on the depreciation which is withdrawn under section 41(2). It will not be out of place to mention that section 55(1)(a) also provides for reducing the written down value by balancing allowance under section 32(1)(iii) where the sale price realised is less than the written down value as defined by section 43(6)---an aspect which does not call for attention and detailed analysis in this case. It has to be borne in mind that the function of section 41(2) is to take back depreciation which is shown by subsequent events to have been wrongly allowed as observed by the Supreme Court in the case of CIT v. Express Newspapers Ltd. (1964) 53 ITR 250. (at page 254):

" .... the difference between the price fetched at the sale and the written down value is deemed to be the escaped profits for which the assessee is made liable to tax. As the sale price is higher than the written down value, the difference represents the excess depreciation mistakenly granted to the assessee."

It is for this reason that written down value is adjusted as per section 50, clause (1).

The object of the option given in section 55(2) is to afford some protection to the assessee against assessment of illusory capital gain which is not in economical sense but is a result of inflation and decline in the rupee value. This is apparent from the fact that the initial date January 1, 1954, which was taken from the old Indian Income-tax Act, 1922, has been forwarded periodically. As inflation had been on the rise the date was changed to January 1, 1964, with effect from the assessment year 1978-79 by the Finance (No.2) Act, 1977, and January 1, 1974, with effect from the assessment year 1987-88 by the Finance Act, 1986. At present the said date has not only been advanced to April 1, 1981, but even indexation is provided with a view to safeguarding against the illusory assessment of capital gains. Keeping in mind the purpose behind conferment of option, we are unable to locate any justifiable reason for not making available the option to an assessee who has purchased a depreciable asset and after using the same, sold it. There is nothing in section 50(2) which leads to a contrary conclusion though there is no escape from the conclusion that language employed is somewhat clumsy.

Section 50(2) deals with the case of an assessee who has acquired an asset otherwise than by purchase and in one of the modes specified in section 49 such as gift. In such a case, it provides that where the donor had acquired the asset before January 1, 1964, the cost of acquisition of the asset to the donee is to be taken as the fair market value of the asset on January 1, 1964, as reduced by depreciation if any allowed to the donee-assessee after January 1, 1964, and, as adjusted. The fact that specific reference is made in section 50(2) to taking the cost of acquisition of the asset as the fair market value on January 1, 1964, cannot possibly lead to the conclusion that in the case of an assessee who has acquired the asset by purchase, the option conferred by; section 55(2)(i) of taking the fair market value on January 1, 1964, as the cost p of acquisition is taken away. It is significant to notice that section 50 enacts that only the provisions of sections 48 and 49 are subjected to the modifications contained in section 50. The option of substitution, as discussed earlier, is conferred by section 55(2) which is not made subject to section 50 and thus where the option is exercised, the capital gains have to be computed as per provisions of section 48.

Section 50(2)---which deals with the special case of assessees who have acquired asset otherwise than by purchase---has no relevance to the present case and it would be improper to interpret section 50(1) read with section 55(2)(i) by reference to section 50(2). As discussed earlier the object of section 50(2) seems to be to provide for deduction of the fair market value on January 1, 1964, by the amount of depreciation allowed to the donee-assessee after January 1, 1964, because, as per section 55(1)(a) the fair market value has to be adjusted by the amount assessed under section 41(2) with reference to the period commencing from January 1, 1964. Thus, a reduction is made under section 50(2) and nullified subsequently by the adjustment prescribed under section 55(1)(a).

Under the Indian Income-tax Act of 1922 all the provisions relating to capital gains were contained in section 12B. With simplification in view, those provisions are divided into separate sections 45 to 55 of the Act. Difference in the capital gains in the case of purchase and in the case of gift can be too much if calculated as suggested by the Revenue. It is a common case that under the old Act even an assessee who had himself purchased the depreciable asset would be entitled to take as its cost of acquisition the fair market value on January 1, 1954. It does not appear that the new Act intended to make such a major departure having heavy impact on the purchaser-assessee and draw distinction in the matter of opinion between him and the donee or successor- assessee. Notes to clauses 45 to 55 of the Bill (which were made sections 45 to 55 by the Act) only state that the clauses embodied provisions of the existing section 12B which is split up for the sake of simplicity and are logically rearranged. Some changes have been enumerated from the old Act, but they do not include the change with regard to the right of purchaser-assessee to take the fair market value of the asset on January 1, 1954, as its deemed cost of acquisition. Indeed, it is stated therein that a completely uniform procedure is provided now for taking the fair market value irrespective of the mode of acquisition of an asset.

There is yet one other fact which deserves attention. The Directorate of Inspection of the Income-tax Department has brought out the Income-tax Manual, Part III, containing short notes on the provisions of the Act as amended up to May 11, 1968, which while explaining the provisions of section 50 make it clear (at page 51) that the assessee has the option of substituting the fair market value as on January 1, 1954, in the place of cost of acquisition in case the assessee or the previous owner who became the owner of the property before January 1, 1954. 1t is further clarified that where such option is exercised, the fair market value of the asset as on January 1, 1954, would have to be reduced by the depreciation, if any, allowed after January 1, 1 1954. Thus, it was accepted by the Revenue itself that all the relevant provisions of the old Act on the subject have got incorporated in the new Act and the right of substituting the fair market value as the cost is general. It appears that, only in the process of division of section 12B and placement of the consolidated provisions into various independent sections in the new Act, complicated language came to be used and improperly division came to be made. Section 50 is divided into two clauses and in order to determine what is the adjustment to be made and what is the cost of acquisition one has to refer to section 55.

Section 55(2) applies to all assets acquired before the relevant date depreciable or not and section 50(1) applies only to depreciable assets where the assessee does not or cannot exercise the option of substitution of market price. Section 50(2) applies to depreciable assets for arriving at the cost of acquisition when the assessee exercises the option in cases falling and under section 49. The provisions of section 50(2) are not exclusive, they are dependent upon certain conditions of sections 49 and 55(2) to be fulfilled. The only provision which gives an option is incorporated in section 55(2) and nowhere else. Hence, it cannot be said that section 55(2) and section 50 operate in the same field. In this view of the matter, the principle of interpretation that a special provision prevails over general cannot be pressed into service. The conclusion is thus inevitable that section 50(1) only aims at preventing the grant of double deduction. Section 50 makes sections 48 and 49 subject to the modifications in section 50 but does not make the option under section 55(2) subject to section 50.

It is true that the High Courts of Gujarat, Allahabad, Kerala and Calcutta in the four decisions (supra) have taken a view which is contrary to the above. The main judgment is of the Gujarat High Court which has been followed by other High Courts, inter alia, on the ground of maintaining consistency. It seems to us and we observe this with great respect--- that the attention of the Courts was not drawn either to the provisions of section 41(2) of the Act or the provisions of section 12B of the old Act or the Income-tax Manual, Part III. It is pertinent to notice that some of the decisions in terms recognize the anomaly, but it is sought to be explained on the theory of benefit conferred by grant of depreciation. These decisions proceed on the assumption that the grant of depreciation would have conferred an additional benefit on the assessee, which as indicated above, is not correct. Section 41(2) entails levy of balancing charge and ensures that there is no such benefit and if the amount in excess of written down value is realised, the same is subjected to tax.

One of the foundations of the distinction between the assessee who acquires the asset by purchase and the assessee who acquires by modes specified in section 49 is the voluntary and involuntary nature of obtaining the asset. It is said that while the former type is voluntary, the latter type is involuntary. Apart from the fact that that feature cannot have nexus with the object of the levy, the very assumption is not necessarily correct. Even in the case of a gift the consent of the donee is necessary and even a legatee may decline a legacy.

One of the factors which has influenced some of the above decisions is the fact that while section 55(1) refers to section 50 in the opening part, section 55(2) does not. The reason. for the reference to section 50 in section 55(1) seems to be that section 50 is not an independent provision and only modifies section 48 and it is the modified section 48 that is brought within the scope of section 55(2). Section 55(1) refers to section 50 because the word "as adjusted" is mentioned only in section 50. It is pertinent to notice that section 55(1) is a definition section which defines "cost of improvement" and this definition is wholly irrelevant in section 50. The possible reason why section 55(2) does not refer to section 50 is that section 55(2) deals with the meaning of cost of acquisition under section 48 and grants an assessee an option between the actual cost (in the case of depreciable assets as amended by section 50) and the fair market value. This option is only relevant for the purposes of section 48 wherein the computation is made for determining the gain chargeable under section 45.

Some of the High Courts have taken a view that section 50 is a special provision and will, therefore, prevail over the general provision of section 55(2). We have discussed earlier that both these provisions operate upon different and independent areas. The principle that the special overrides the general can apply only when the field is overlapping which is not the case here. As demonstrated earlier, section 55(2) is the only source of option. Section 50(2) is not the source of option. Section 50 specifies that only sections 48 and 49 are subject to the modifications mentioned therein. The option given in section 55(2) is not made subject to section 50. It appears that it was not brought to the notice of Courts that the question of the purchaser- assessee being entitled to the option or not has to be determined only on the basis of section 50(1) read with sections 48 and 55(2) and not section 50(2).

No doubt, the assessee purchasing a depreciable asset and an assessee acquiring it otherwise can be said to belong to different classes but we are unable to see what that classification has to do with the object sought to be achieved by the provision, viz., to prevent the assessment of illusory capital gain on account of inflationary conditions and decreasing value of money. It would make no difference whether the capital asset which gave rise to the capital gain has been acquired by the assessee either by purchase or by gift. The classification between the depreciable and non-depreciable assets and between these two classes of assessees have no nexus to the object of enactment.' Contrary interpretation has the potentiality of making section 50 irrational and, therefore, violative of article 14 of the Constitution. It is settled legal position that, there has to be an attempt to save a piece of legislation, if possible, by reading it down so as to make it constitutional. No doubt, wordings employed in section 50(2) are clumsy. One way of. reading it, is to disregard the reference to section 49 because the right to substitute the fair market value as the cost of acquisition springs from section 55(2) and not section 49. Such exercise of reading down and modifying the provisions has been undertaken in some cases like Manunhai. A. Sheth v. N.D. Nirgudkar (1981) 128 ITR 87 (Bom.) and A. Sanyasi Rao v. Government of Andhra Pradesh (1989) 178 ITR 31 (AP). It seems necessary to do so in this case also.

Learned counsel for the Revenue supported the view taken by the four High Courts and strenuously urged that even if the other view is possible, we should as per general practice fall in line with those cases in the interest of uniformity considering that the Act is an all-India statute. Now, this rule of practice has no universal application and does not apply to cases where the decisions have omitted to consider certain provisions of law and are grossly erroneous. As indicated earlier, it seems to us that certain important provisions and aspects were not brought to the notice of those Courts and, hence, it would be wrong to follow them even though fully satisfied about their incorrectness.

Reliance was placed by the Revenue also on the decision of the Supreme Court in the case of Emil Webber v. CIT (1993) 200 ITR 483, which lays down that the definition of "income" in section 2(24) is inclusive and that anything which can properly be called income is taxable under the Act unless exempted under one or the other provisions of the Act. The principle laid down in the said decision cannot be doubted. We fail to see how it will apply to the matter at hand. The question is of interpretation of the scheme of computation of capital gains under the Act as a whole.

To conclude, the assessment order passed by the Income-tax Officer (and confirmed by the Commissioner of Income-tax) and notice of demand of taxes dated September 13, 1984 for Rs.1,25,016 based thereupon are quashed and set aside and the respondents are restrained from proceeding with the recovery of the tax demanded. Needless to clarify that the appeal before the Tribunal is now rendered infructuous and has to be disposed of as such.

The petition allowed and rule made absolute in the above terms. No costs.

M.B.A./955/T.F.Petition allowed.