Back
1964 Supreme(AP) 216
Andhra Pradesh High Court
Judges : KUMARAYYA, SATYANARAYANA RAJU
Commissioner of Income Tax, A.P., Hyderabad - Appellant
Versus
M/s.Krishna and Sons, Kurnool - Respondent
Decided On : 10-30-64
The right to ply a bus on a route is not a capital asset and cannot be taxed as a capital gain under section 12-B of the Income-tax Act.
Headnote:
CAPITAL GAINS - SALE OF BUS - COMPUTATION - DEEMED PROFITS - CAPITAL ASSET - ROUTE VALUE - TRANSFERABILITY OF PERMIT - INCOME FROM OTHER SOURCES - [SECTION 2(4-A), 10(2)(VII), 12-B, 59, 61 OF MOTOR VEHICLES ACT]
Fact of the Case:
The assessee, a Hindu undivided family, purchased a bus for Rs. 14,500 and plied it on a route under a permit. Later, they sold the bus for Rs. 23,000, resulting in a profit of Rs. 8,500. The Income-tax Officer treated the entire profit as taxable under section 10(2)(vii) and the balance as "income from other sources." The assessee contended that only Rs. 3,000 represented the sale value of the bus, and the balance was route value, which was not taxable as it was not a capital asset.
Finding of the Court:
The court held that the excess of Rs. 17,000 over the deemed profit of Rs. 6,000 could not wholly be treated as a capital gain liable to tax under section 12-B. The court found that the assessee had obtained something in excess of the pure value of the bus, which was for some other consideration, namely, the route value or relinquishment of the right to ply the bus. The court held that this excess was not a capital asset and could not be taxed as a capital gain.
Issues: Whether the entire excess of Rs. 17,000 over the deemed profit of Rs. 6,000 could be treated as a capital gain liable to tax under section 12-B.
Ratio Decidendi: The court held that the definition of "capital asset" in section 2(4-A) excludes certain types of assets, including the right to ply a bus on a route. The court found that the right to a permit is not an inherent right of a bus owner and that the issue of a permit is discretionary with the Regional Authority. The court also found that the transfer of a permit is void and unenforceable without the permission of the transport authority. Therefore, the court held that the assessee did not have a personal property in the route and that the transfer thereof did not give a right to the transferee. The court concluded that the route value was not a saleable capital asset in the hands of the assessee and that any amount received in consideration thereof was not a capital gain within the meaning of section 12-B.
Final Decision: The court answered the question in the negative, holding that only a sum of Rs. 8,500 could be treated as capital gain liable to tax under section 12-B of the Act.
( 1 ) THE following question has been referred for decision to this court under section 66 (1) of the Indian Income-tax Act, 1922 :-"whether on the facts and in the circumstances of the case, the excess of Rs. 17,000 over the deemed profit of Rs. 6,000 held to be taxable under section 10 (2) (vii) could wholly be treated as a capital gain liable to tax under section 12-B of the Act. "the assessee, a Hindu undivided family, purchased a bus A. P. Q. 354 in June, 1954 for a sum of Rs. 14,500. He plied the same for a number of years on Kurnool bellary route under a permit duly obtained. On 5th March, 1958 he sol d it for a sum of Rs. 23,000. On that day, the written down value of the bus, accord ing to the income-tax record, was nil. For the assessment year 1959-1960 of which the previous year was the calendar year ending with 31st December, 1958 the Income-tax Officer in relation to this transaction brought to tax a sum of Rs. 14,500 as deemed profits under section 10 (2) (vii) and the balance which in his opinion represented consideration for the relinquishment of right to ply the bus on the route as " income" coming under the head " income from other sources. " The contention of the assessee before the Income-tax Officer was that, out of the total consideration only a sum of Rs. 3,000 represented the sale value of the bus and the balance the route value. His further contention was whereas the sale value of the bus could be brought to tax as deemed profits as contemplated by the proviso to section 10 (2) (vii) the balance representing the route value could not be brought to tax as it was not an income, the assessee having no proprietary interest in the route. It was neither a revenue nor a trading receipt as the Income-tax Officer was inclined to assume nor was it a capital gain within the meaning of section 12-B. The Appellate Assistant Commissioner agreed with the income-tax Officer that a sum of Rs. 14,500 was liable to tax as " deemed profits", the written down value of the bus being nil and depreciat ion allowed up-to-date having amounted to Rs. 14,500. But he did not agree with him that the sale consideration of the route in a sum of Rs. 8,500 could be a trading or revenue receipt. He held that it was a capital gain.
( 2 ) THE Appellate Tribunal held that a sum of Rs. 8,500 which represented the difference between the sale consideration and the original cost of the bus constituted capital gain ; that a sum of Rs. 6,000 computed as the reasonable value of the bus at the time should be taken as deemed profits within the meaning of the second proviso to section 10 (2) (vii) and that the balance, namely, Rs. 8,500 could not be brought to tax under any provision of the Act. Thus the said two amounts aggregating to Rs. 14,500 were brought to tax under two heads : (i) deemed profits under section 10 (2) (vii) and (ii) capital gains under section 12-B.
( 3 ) IN this reference we are, however, not called upon to answer any question in relation to deemed profits, for the sum of Rs. 6,000 stands undisputed as the extent of the deemed profits. All that has to be determined by us is the extent of the capital gain resulting from the transaction. The question is whether the entire amount in excess of the deemed profits (i. e.) a sum of Rs. 17,000 ought to be treated as capital gain or only a portion thereof. The profits and gains of business and capital gains are indeed two distinct concepts as known to the Income-tax Act. Whereas the former arises out of the business activities, the latter accrues because capital assets are sold away at a higher value than what they did originally cost to the assessee. The sources from which they are derived are different and their method of computation also is different. In fact, as per the scheme of the Income-tax Act the various heads of income enumerated in section 6 are dealt with under specific and distinct sections and these sections are mutually exclusive. That is the reason why wh
