Income received on transfer of a capital asset, which is not connected with the business of the assessee and the cost of acquisition of which cannot be determined, is not taxable as business income or capital gains.

( 1 ) THE assessee, admittedly, was carrying on business in respect of some items other than white cement. It obtained a licence for setting up manufacturing business of white cement. Instead of setting up a business, the assessee had transferred the licence to some other concern. However, the assessee had some interest by way of shares held in the said concern and some of the directors were common. On account of transfer of the said licence, the assessee received a sum of Rs. 10 lakhs. In the return for the year 1986-87, this amount was shown but exemption was claimed by the assessee on the ground that this is not taxable either as income from business or as capital gains. It had treated the same as a capital receipt, which is not chargeable to tax. The Assessing Officer treated the same as capital gains since it was not in dispute that the licence was treated as a capital asset. The assessee preferred an appeal. The Commissioner (Appeals) had held that this amount cannot be treated to be capital gains but it was definitely an income from business and was chargeable to tax. On appeal before the learned Tribunal by the assessee, the learned Tribunal had held that it was not business income since the assessee was not carrying on business in dealing with licences. Since the Revenue did not prefer any appeal against the findings of the Commissioner (Appeals) that it was business income and not capital gains, therefore, the learned Tribunal refrained from going into the question whether it was capital gains or not and had exempted the amount from being taxed.

( 2 ) THE Revenue had sought for reference on two questions, which are as follows :" (i) Whether, on the facts and in the circumstances of the case, and on correct interpretation of Section 28 (iv) of the Income-tax Act, 1961, the Tribunal was justified in law in holding that the receipt of Rs. 10 lakhs cannot be brought to tax as business profit ? (ii) Without prejudice to question No. 1 above, whether, on the facts and in the circumstances of the case and having regard to the fact that the Assessing Officer brought Rs. 10 lakhs to tax as capital gains, being consideration received by the assessee for transfer of the letter of intent, the Tribunal was justified in law in not adjudicating on the assessability of the amount, thus received under the head 'capital gains'. "

( 3 ) THE Tribunal had refused to state the case under Section 256 (1) of the Income-tax Act, 1961. An application under Section 256 (2) was preferred before this court. The learned Division Bench of this court had directed the Tribunal to draw up a statement for reference of the second question since been referred as quoted above.

( 4 ) IN this background, Mr. Jaydeb Saha, learned counsel for the Revenue, had pointed out that though the first question had not been referred yet by reason of the second question, the content of the first question can also be gone into by this court on reference. It is not the question, which is referred to the court to which the jurisdiction of this court is confined on a reference of Section 256 (1 ). It has to look into the order of reference and the statement of case and find out the extent and scope of the question referred. Even though no appeal was preferred by the Revenue yet by reason of Section 254, Sub-section (1), the Tribunal could go into that question and it was open to the Revenue to take all the grounds either to defend or challenge the order as the case may be even without preferring any cross-objection or appeal. The finding of the learned Tribunal is perverse since it had not gone into the said question. In the present facts and circumstances of this case, the consideration received out of the transfer of a capital asset was definitely a capital gain assessable to tax. Once some amount is received on transfer of a capital asset, the same is definitely chargeable to tax. He had sought to distinguish the decision in CIT v. B. C. Srinivasa Sett