JUDGMENT S.H. KAPADIA, J.

1. This civil appeal is directed against the judgment of Delhi High Court in Income tax Reference under Section 256(1) of the Income Tax Act, 1961 ("1961 Act") for the assessment year 1970-71.

2. The issue which arises for determination in this civil appeal is whether transfer of Banking Undertaking on the facts and circumstances of this case gave rise to taxable capital gains under Section 45 of the 1961 Act.

3. Punjab National Bank Ltd. was set up in 1895 in an area which now falls in Pakistan. It was nationalized as Punjab National Bank (PNB) by Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. On 19.7.1969 PNB Ltd. on nationalization vested in Punjab National Bank. PNB Finance Ltd. is the appellant herein. On nationalization it received compensation of Rs. 10.20 cr. This compensation was calculated on the basis of capitalization of last 5 years profits. The said compensation was received during the accounting year ending 31.12.1969 corresponding to the assessment year 1970-71.

4. During the assessment year 1970-71, appellant had to compute capital gains under Section 48 by deducting from the sale consideration the cost of acquisit