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1985 Supreme(Kar) 477
IN THE HIGH COURT OF KARNATAKA AT BANGALORE
Mohammad Sharif and S.A. Hakeem, JJ.
Syndicate Bank Ltd. —Appellant
Vs.
Additional Commissioner of Income-tax —Respondent
Income Tax Reference Case Nos. 138 to 140 of 1975
Decided on : 01-03-1985
Advocate appeared:
Mr. G. Sarangan, for the Appellant
Mr. K. Srinivasan, H. Raghvendra Rao, for the Respondent
The business undertaking of the assessee acquired by the Government of India was held to be a capital asset, and the lump sum compensation awarded to the assessee could not be apportioned among the various assets constituting the undertaking.
Headnote:
Capital Gains - Business Undertaking - I.T. Act, 1961, s. 256(1) - BCATU Act - The Tribunal held that the business undertaking of the assessee acquired by the Government of India was a capital asset and that capital gains would arise upon its transfer. The Tribunal also held that the lump sum compensation awarded to the assessee could not be apportioned among the various assets constituting the undertaking. The Tribunal set aside the orders of the lower authorities and directed the ITO to give the assessee an opportunity to exercise a clear option under s. 55(2) of the I.T. Act, 1961.
Fact of the Case:
The assessee, a public limited company, had its banking business undertaking nationalized by the Government of India. The compensation of Rs. 3.6 crores awarded to the assessee for the acquisition of its business undertaking was the subject of dispute. The ITO computed the long-term capital gain at Rs. 65,61,682 accrued to the assessee. The AAC held that the compensation could not be apportioned and the only alternative for the Department would be to take the capital gain as 'nil'. The Tribunal set aside the orders of the lower authorities and directed the ITO to give the assessee an opportunity to exercise a clear option under s. 55(2) of the I.T. Act, 1961.
Finding of the Court:
The Tribunal held that the business undertaking of the assessee acquired by the Government of India was a capital asset and that capital gains would arise upon its transfer. The Tribunal also held that the lump sum compensation awarded to the assessee could not be apportioned among the various assets constituting the undertaking. The Tribunal set aside the orders of the lower authorities and directed the ITO to give the assessee an opportunity to exercise a clear option under s. 55(2) of the I.T. Act, 1961.
Issues: The nature of the business undertaking of the assessee acquired by the Government of India as to whether it was a capital asset and the capital gain accruing or arising to the assessee upon transfer of that business undertaking.
Ratio Decidendi: The business undertaking of the assessee acquired by the Government of India was held to be a capital asset, and the lump sum compensation awarded to the assessee could not be apportioned among the various assets constituting the undertaking. The Tribunal directed the ITO to give the assessee an opportunity to exercise a clear option under s. 55(2) of the I.T. Act, 1961.
Final Decision: The Tribunal's decision was upheld, and the ITO was directed to give the assessee an opportunity to exercise a clear option under s. 55(2) of the I.T. Act, 1961.
Jagannatha Shetty, J.—The Income Tax Appellate Tribunal has, under s. 256(1) of the I.T. Act, 1961, referred as many as nine questions, all relating to the question of capital gains which accrued or arose to the assessee as a result of payment of compensation of Rs. 3.6 crores by the Government of India for having taken over the assessee's business undertaking.
2. The assessee is a public limited company under the name "Syndicate Bank Ltd.". It was carrying on banking business with its head office at Manipal. The business undertaking of this company along with 13 other like undertakings were first nationalised by the Government of India by promulgating an Ordinance called "the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance (8 of 1969)". The validity of that Ordinance was challenged before the Supreme Court, and when it was pending consideration, the Ordinance was replaced by an Act called "The Banking Companies (Acquisition and Transfer of Undertakings) Act (22 of 1969)". The Supreme Court struck down that Act as unconstitutional in Rustom Cavasjee Cooper Vs. Union of India (UOI), AIR 1970 SC 564, on the ground that while determining the compensation payable for compulsory acquisition of the undertaking, the Government of India did not take into consideration the important components of the undertaking, such as, the goodwill and the value of the unexpired period of lease.
3. After the decision of the Supreme Court in Rustom Cavasjee Cooper Vs. Union of India (UOI), AIR 1970 SC 564 , the Government of India came forward with another Ordinance called "The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1970", again taking over all the said banking undertakings. That Ordinance was again replaced by the Act called "The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (Act 5 of 1970)" (which is hereinafter called as the "BCATU Act"). It was by this BCATU Act that the entire banking business undertaking of the assessee has been nationalised with effect from July 19, 1969.
4. Before proceeding further, we may have a glimpse of the salient provisions of the BCATU Act. Section 4 provides that the undertakings of the existing banks shall vest in corresponding new banks. The corresponding new bank of the assessee has been termed as "Syndicate Bank", that is, the same old name of the assessee with the deletion of the word "Ltd.". The assessee retains the word "Ltd.", but has been deprived of its banking business.
5. Section 5 of the BCATU Act provides that the undertaking of each existing bank shall be deemed to include all assets, rights, powers, authorities and privileges and all property movable and immovable, cash balances, reserve funds, investments and all other rights and interest in, or arising out of, such property as were immediately before the commencement of the Act in the ownership, possession, power or control of the existing bank, in relation to the undertaking, whether within or without India, and all books of accounts, registers, records and all other documents of whatever nature relating thereto and shall also be deemed to include all borrowings, liabilities and obligations of whatever kind then subsisting of the existing bank in relation to the undertaking, etc.
6. Section 6 provides for payment of compensation. It reads :
"Every existing bank shall be given by the Central Government such compensation in respect of the transfer, under section 4, to the corresponding new bank of the new undertaking of the existing bank as is specified against each such bank in the Second Schedule."
7. Under s. 12(2), every officer or other employee of an existing bank shall become, on the commencement of the Act, an officer or other employee, as the case may be, of the corresponding new bank and shall hold his office or service in that bank on the same terms and conditions and with the same rights thereto.
8. The Second Schedule to the BCATU Act provides for co
