The main legal point established in the judgment is that the cost of acquisition should be envisaged in the case of route permits acquired by the assessee, and it is for the assessee to show that it has improved the value of route permits after acquisition.

Paripoornan, J.

At the instance of an assessee to Income-tax. the Income tax Appellate Tribunal has referred the following two questions of law for the decision of this Court:

1. Whether. on the facts and in the circumstances of the case. the Tribunal was right in holding that it was possible to envisage a cost of acquisition with regard to the route permits acquired by the assessee and consequently in holding that the claim of the assessee that no tax on capital gains will be attracted to the sale of the route permits is not sustainable?

2. Whether. on the facts and in the circumstances of the case. the Tribunal was right in holding that the claim of the assessee that the cost of improvement of the route permits is not ascertainable and that consequently no tax on capital gains is attracted will be sustainable only if it is found that the assessee had improved the route permits after they were acquired by the assessee?"

2. The respondent is the Revenue. We are concerned with the assessment year 1975-75. The previous year ended on 30-6-1973. The assessee is a registered firm. It is engaged in the business of motor-transport. During the relevant accounting period. the assessee sold six vehicles for Rs.4.56.000/-. The written down value of these vehicles as on 1-7-1972 was only Rs.1.18.961/-. The assessee claimed that the value of the route permits for the six vehicles came to Rs.3.29.500/- and that this was not assessable to tax on capital gains. It was so stated. since according to the assessee. the route permits had no cost of acquisition and their value of improvement cannot be ascertained. The route permits for these six vehicles were originally obtained by the predecessor in interest of the assessee namely M/s.P.S.N. Motors (P) Ltd. The permits were issued about 20 years earlier. On 1-7-1971 the buses were transferred to the assessee-firm for the written down value. The partners of the assessee-firm were the share holders of M/s. P.S.N. Motors (P) Ltd.- the transferor. The assessee-firm did not pay anything towards the route value. This was relied upon to show that there was no cost of acquisition for the route permits. The old buses were replaced with new ones. Thereafter. the assessee operated the vehicles only for two years. During the assessment year 1973-74. the assessee-firm incurred a loss of Rs.72.484/-. For the assessment year 1974-75. the firm incurred a loss of Rs.89.677/-. In reckoning the said loss. profit under S.41(2) and the capital gains arising out of the sale of the buses were not taken into account. The Income Tax Officer held that the assessee had no power to transfer the route and the sale proceeds really represent the value of the buses. In appeal. the Commissioner of Incometax (Appeals) held that regard being had to the fact that the assessee had sold away the buses within two years of their acquisition and that during these years the assessee incurred a loss. the routs have no value at all and the sale proceeds represented only the price of vehicles and not of the route. In further appeal. the Incometax Appellate Tribunal held that the materials adduced by the assessee themselves showed that the sale consideration did not represent the value of the vehicles only. It was held that a portion of the consideration must have been on account of the route value. The plea of the assessee was that the value of the route permits is similar to the value of goodwill and so cannot be brought to tax. in the light of the Supreme Court decision in C./.7. v. B.C. Srinivasa Setty (1281.T.R.294 S.C. ). The Revenue contended that this is not a case of transfer of a route permit obtained by the assessee for the first time to say it was totally built up by that person. but it is a case where the assessee obtained the vehicles along with the route permits. issued to his predecessor in interest. that the vehicles along with the route permits were acquired at a cost and so a reasonable allocation of the considerati