An asset must be capable of having a cost of acquisition as contemplated under S.48 of the Income Tax Act for capital gains tax to be levied.

1. At the instance of the Revenue, the Income tax Appellate Tribunal has referred the following question of law for the decision of this Court:

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that no tax on capital gains can be levied in respect of the transfer of route permits, which were acquired by the assessee for the first time?"

2. The respondent-assessee is a private limited company. It is a transport operator. We are concerned with the assessment year 1974-75 for which the previous year ended on 30-6-1973. During the relevant accounting period, the assessee sold 12 buses along with pucca route permits. As on 1-7-1972 the written down value of the 9 buses was only Rs.1,52,021/-. That assessee claimed that out of the consideration received for the sale of 9 buses, Rs.2,50,000/- was the value of the route permits, that this was analogous to good will, that there was no cost of acquisition with regard to the route permits, that it is a self-generated asset and so no capital gains accrued or arose for the levy of tax. The Income Tax Officer held that the entire sale proceeds represented the value of buses. According to him, the route permits can be transferred only with the permission of the Regional Transport Authority and the assessee had no power to transfer the route permits. Therefore, no value could be attached to the route. He did not, therefore, exclude any portion of the consideration (Rs.2,50,000/-) from the capital gains. In appeal, the Commissioner of Income tax (Appeals) held that the sale price of the vehicles did include certain route value. He rejected the plea of the assessee that the route value is a self-generated asset. According to him, the assessee incurred expenditure to obtain the permits and the expenses incurred constituted the cost of acquisition. He estimated the value of the route permit per bus at a flat rate of Rs.5000/-. The Income Tax Officer was directed to assess a sum of Rs.45,000/- being the route value of 9 buses after deducting the cost of acquisition. The matter was taken in appeal by the assessee before the Appellate Tribunal. The Appellate Tribunal, after placing reliance on the decision of the Andhra Pradesh High Court in Addl. C.I.T. v. Ganapathiraju Jegi Sanyasi Raju (119 I.T.R. 715) held that tax on capital gains can be assessed in relation to transfer of route permits which the assessee had acquired from other parties at a cost and capital gains is not exigible in the case of to transfer of route permits which were acquired by the assessee for the first time, as no cost of acquisition can be envisaged with regard to such permits. Since details were lacking in this behalf, the Appellate Tribunal remitted the matter to the Income Tax Officer for fresh decision, in the light of the above finding. On motion made by the Revenue, the Income Tax Appellate Tribunal has referred the question of law, formulated herein above, for the decision of this Court.

3. We heard counsel for the Revenue, Mr.P.K.R.Menon, as also counsel for the assessee, Mr Jose Joseph. Counsel for the Revenue contended that the Appellate Tribunal was in error in drawing a dichotomy between the transfer of route permits by the assessee, acquired from other, parties at a cost, and transfer of route permits by the assessee which were obtained by him for the first time. It was also argued that the route permits cannot be considered to be analogous to good will to say that there will be no cost of acquisition or that it is a self-generated asset and since when no cost at all can be conceived for the acquisition of the assets, it is not possible to compute the capital gains as per the provisions of the Income tax Act. Counsel for the Revenue mainly placed reliance on the decision of the Madras High Court in K.Balasubramonia Nair v. C.I.T. (119 I.T.R. 504) and C.I.T. v. Shri Venkateswara Bus Union (119 I.T.R.507) to contend that the cases of transfer of route permits