Judgment G.S.Singhvi, J. 1. The Income-tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short, the Tribunal) has, in compliance of the direction given by this Court in ITC No. 89 of 1985, referred the following question of law for its opinion : "Whether, on the facts and circumstances of the case, the Tribunal was right in law in accepting the contention of the assessee-company regarding substitution of value as on 1st Jan., 1954, for purposes of computation of capital gains ?" 2. The assessee is a limited company which was incorporated in the year 1943 for generation and supply of electricity in the town of Bhatinda (Punjab). The undertaking of the assessee was taken over by the Punjab State Electricity Board (for short, the Board) in January, 1982 under Section 6(1) of the Indian Electricity Act, 1910 , as amended by the Indian Electricity (Amendment) Act, 1959 r/w Sub-clause (1) of Clause (9) of the Bhatinda Electric Licence, 2003 (Bikrami). The dispute relating to compensation payable to the assessee became subject-matter of an arbitration. By an award dt. 27th Aug., 1976, the arbitrator held that the assessee is entitled to compensation amounting to Rs. 7,88,000. For the asst. yr. 1964-65 (finance year 1963-64), the AO framed first assessment on 26th Sept., 1968 by taking into consideration the compensation payable to the assessee as Rs. 6,69,208 and determined the profit under Section 41(2) of the IT Act, 1961 (for short, the Act) at Rs. 3,76,735. The assessees contention that neither any profit under Section 41(2) nor any capital gains under Section 45 of the Act had accrued to it was rejected by the AO. The AAC allowed the appeal of the assessee and held that the taking over of the assets of the assessee by the Board did not amount to sale of immovable property for the purpose of computing profit under Section 41(2) of the Act because no sale deed was executed and thus, no profit taxable under Section 41(2) had accrued to the assessee. The Tribunal reversed the order of the AAC and directed him to compute the correct profit under Section 41(2) of the Act. The Tribunal reversed the order of the AAC and directed him to compute the correct profit under Section 41(2) of the Act. The reference sought by the assessee was decided by this Court in favour of the Revenue with the observation that even though, no sale deed had been executed, the taking-over of the undertaking of the assessee amounted to sale within the meaning of Section 41(2) of the Act. 3. In the meanwhile, the AAC, vide his order dt. 27th Sept., 1973, held that neither any profit under Section 41(2) nor any capital gains under Section 45 of the Act accrued to the assessee in the year under consideration. That order was challenged by the Revenue before the Tribunal. By an order dt. 29th Jan., 1976, the Tribunal restored the matter to the AO and directed him to compute the profits under Section 41(2) and capital gains under Section 45 in accordance with law. In the consequential proceedings drawn by him, the AO determined the profits at Rs. 1,82,173 and capital gains at Rs. 2,71,795 for the purpose of tax. The Commissioner of Income-tax (Appeals) [for short, CIT(A)], vide his order dt. 22nd March, 1983, partly allowed the appeal of the assessee and held that no taxable profit under Section 41(2) had accrued to the assessee. He, however, rejected the assessees challenge to the computation of capital gains under Section 45 of the Act. 4. The Revenue as well as the assessee filed appeals against the order of the CIT(A). The Tribunal, vide its order dt. 31st Oct., 1984, allowed the assessees appeal and dismissed the one filed by the Revenue. Paragraphs 25 and 26 of that order which contains the reasons assigned by the Tribunal for accepting the assessees appeal, read as under : "25. Easily to understand and for the sake of simplification, since the assets are not itemised which are sold in the form of undertaking with other rights and liabilities and no depreciation as such has been claimed or allowed on the same as such and since the undertaking as a whole has been acquired for which total price without bifurcation either by the arbitrator or by the Board or by the assessee is made, Section 41(2) profit, in the light of Gujarat High Court decision reported in Artex Manufacturing Co. v. CIT (1981) 131 ITR 559 (Guj), in which Supreme Court decision in CIT v. Mugneeram Bangui & Co. (1965) 57 ITR 299 (SC) was followed, was rightly held to be not taxable by the CIT(A). His action, therefore, in this regard is confirmed. 26. For substitution of value as on 1st Jan., 1954, as well as for the purpose of computation of capital gains, since the undertaking as a whole has been sold out on which no depreciation as such has been allowed, and if depreciation on certain assets has been allowed, the same are not itemised, therefore, special provisions made under Section 55 of the Act shall be applicable. The assessee is entitled to substitute the value as on 1st Jan., 1954, of the undertaking as a whole for computation of capital gains. The ITO will, therefore, after granting an opportunity to the assessee to substitute its value as on 1st Jan., 1954, recompute the capital gains." 5. Shri Rajesh Bindal relied on the judgment of the Supreme Court in Commonwealth Trust Ltd. v. CIT (1997) 228 ITR 1 (SC) and argued that the question referred by the Tribunal should be answered in favour of the Revenue. 6. We have carefully gone through the order of the Tribunal and the judgment of the Supreme Court in Commonwealth Trust Ltd. v. CIT (supra). Their Lordships of the Supreme Court considered the conflicting views expressed by the High Courts of Allahabad, Calcutta, Gujarat and Kerala on the one hand and Bombay High Court on the other hand and approved the one expressed by the majority of the High Courts. The relevant extracts of the judgment of the Supreme Court are reproduced below : "The basic question that involves in the present case is if an assessee, who has acquired a capital asset before 1st Jan., 1954, otherwise than by any of the modes mentioned in Section 49 and sold it after 1st Jan., 1954, is also entitled to have the quantum of taxable capital gains computed in the manner provided by Clause (i) of Sub-section (2) of Section 55 of the Act ? The High Courts of Gujarat, Allahabad, Calcutta and Kerala have, however, held that this could not be so as Section 50(1) being a special provision for computing the cost of acquisition in the case of depreciable assets, it would override the general provisions of Section 55(2) which according to these High Courts would be applicable to cases of non-depreciable assets or depreciable assets where depreciation had not been claimed. The Bombay High Court, on the other hand, has not followed this line of reasoning. xxxx Viewed from this angle, Section 50(1) has no dependence on the provisions of Section 55(2). There is no mention of "fair market value" in Section 50(1) and besides that the adjustments stated there are with reference to the written down value only, which has nothing to do with the fair market value. We conclude, therefore, that in the present case where the capital asset is depreciable and the assessee has availed of deduction on account of depreciation, the cost of acquisition shall have to be determined in terms of the provisions of Section 50 r/w Section 48. All the High Courts including the Bombay High Court are of the view that Section 50(2) does not apply to any capital asset other than that which has been acquired by any of the modes mentioned in Section 49. It does not apply to the case of a person who has himself purchased the asset which has enjoyed the depreciation allowance. To us it appears Section 50 is in absolute terms specially providing for fixing the cost of acquisition in the case of depreciable assets only. It is difficult to accept the view of the Bombay High Court when it brings into operation Article 14 of the Constitution and the judgment proceeds more on the basis of equitable considerations than the clear provision of law. The Bombay High Court has even read down and modified the provisions, which would appear to be rather unnecessary. We uphold the views of the Gujarat, Allahabad and Calcutta High Courts and of the Kerala High Court in the impugned judgment. The impugned judgment of the High Court whereby question No. 2 has been answered in favour of the Revenue is, therefore, uphold and the appeal insofar as it relates to question No. 2 is accordingly dismissed." 7. We uphold the views of the Gujarat, Allahabad and Calcutta High Courts and of the Kerala High Court in the impugned judgment. The impugned judgment of the High Court whereby question No. 2 has been answered in favour of the Revenue is, therefore, uphold and the appeal insofar as it relates to question No. 2 is accordingly dismissed." 7. By applying the ratio of the aforementioned judgment to the facts of the case in hand, we hold that the AO had correctly determined the profits and the capital gains and the CIT(A) and the Tribunal committed a serious error by directing recomputation of the capital gains by substituting the value of the assets of the assessee as on 1st Jan., 1954. 8. In the result, the question referred by the Tribunal is answered in favour of the Revenue and against the assessee.