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1994 Supreme(Mad) 641
High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE GULAB C GUPTA & THE HONOURABLE MR. JUSTICE THANIKKACHALAM
Anamalai Bus Transport Private Limited - Appellant
Versus
Commissioner of Income Tax - Respondents
TC No. 1150, 1151, 1301, 594, 595 and 655 of 1981
Decided On : 18 August 1994
The acquisition of the assessee's bus transport business by the Government of Tamil Nadu was a compulsory acquisition under a law for the time being in force and hence taxable under section 41(2) of the Income-tax Act, 1961.
Headnote:
CAPITAL GAINS - COMPULSORY ACQUISITION - ACQUISITION UNDER LAW - COMPENSATION - FULL VALUE OF CONSIDERATION - CAPITAL ASSETS - ROUTE PERMITS - COST OF ACQUISITION - STORES - EXCESS VALUE.
Fact of the Case:
The assessee, a transport company, had its bus transport business acquired by the Government of Tamil Nadu under the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971. The assessee received compensation for the acquisition. The Income-tax Officer assessed the assessee to capital gains tax on the compensation received. The assessee contended that the acquisition was compulsory and hence not taxable under section 41(2) of the Income-tax Act, 1961. The assessee also contended that the compensation was not the full value of consideration and that the cost of acquisition of the route permits should be deducted from the compensation.
Finding of the Court:
The Tribunal held that the acquisition was compulsory and hence taxable under section 41(2) of the Income-tax Act, 1961. The Tribunal also held that the compensation was the full value of consideration and that the cost of acquisition of the route permits could not be deducted from the compensation.
Issues: 1. Whether the acquisition of the assessee's bus transport business by the Government of Tamil Nadu was a compulsory acquisition under a law for the time being in force? 2. Whether the compensation received by the assessee was the full value of consideration for the purpose of computing capital gains? 3. Whether the cost of acquisition of the route permits could be deducted from the compensation received by the assessee?
Ratio Decidendi: 1. The acquisition of the assessee's bus transport business by the Government of Tamil Nadu was a compulsory acquisition under a law for the time being in force. The Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971, under which the acquisition was made, was a law for the time being in force. The acquisition was therefore taxable under section 41(2) of the Income-tax Act, 1961. 2. The compensation received by the assessee was the full value of consideration for the purpose of computing capital gains. The compensation was determined by agreement between the parties and represented the full value of the assets transferred by the assessee to the Government. 3. The cost of acquisition of the route permits could not be deducted from the compensation received by the assessee. There was no evidence to show that the assessee had incurred any cost in acquiring the route permits.
Final Decision: The court answered the questions referred to it in the affirmative and against the Department. The court also rejected the questions referred to it at the instance of the assessee.
THANIKKACHALAM J.
At the instance of the assessee as well as the Department, the Tribunal referred the following questions under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for our opinion Questions referred to us in Tax Cases Nos. 1150 and 1151 of 1981
"1. Whether the Tribunal was right in law in holding that the acquisition of the transport division of fleet operators under the Tamil Nadu Acquisition Act XXXVII of 1971 (hereinafter referred to as 'Acquisition Act'), is a compulsory acquisition and can be termed as acquisition under a 'law for the time being in force' ?
2. Whether the Tribunal was right in holding that as the acquisition took place in the previous year relevant to the assessment year 1972-73, the fact that the compensation was determined in the subsequent assessment year will not affect the assessability in the year in which acquisition took place, viz., 1972-73 ?
3. Whether the Tribunal was right in holding that notwithstanding that section 3 of the Acquisition Act itself does not make any mention of permits while listing the assets that vest with the Government, yet there was a transfer of unexpired permit within the meaning of section 2(47) ?
4. Whether the Tribunal was right in its conclusion that the compensation of Rs. 56, 82, 378.47 determined in subsequent previous year as payable to the assessee for the vesting of the undertaking with the Government should be taken as the full value of consideration for computation of capital gains under section 48 and other purposes and that the deduction made for gratuity liability therefrom should be ignored?
5. Whether the Tribunal was right in holding that the sum of Rs. 14, 714 representing the excess value of stores and cost had been correctly assessed to capital gains in the assessment year 1972-73 ? "Question referred to us in Tax Case No. 1301 of 1981
" Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the application fees and other incidental expenses incurred in connection with the acquisition of route permits cannot be treated as the expenditure which constituted the 'cost of acquisition' of the route permits and hence no capital gains could be brought to tax on the transfer of such route permits ?"*
These references relate to the assessment years 1972-73 and 1973-74 corresponding to the financial years 1971-72 and 1972-73. The assessee- company was carrying on mainly transport business and up to March 1, 1972, the assessee had both passenger transport and goods transport business. By virtue of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 (Acquisition Act XXXVII of 1971) (hereinafter referred to as
"the Tamil Nadu Acquisition Act), the Government of Tamil Nadu nationalised many of the important passenger and transport routes. Under G. O. No. 231 dated March 15, 1972, the Government of Tamil Nadu acquired the assessee's bus transport business under the provisions of section 3(4) of the Tamil Nadu Acquisition Act and paid a total compensation of Rs. 39, 77, 212. The assessee before the Income-tax Officer contended that the compensation was determined and paid by the Government only in the subsequent assessment years and section 41(2) profits can be assessed in the assessment year under appeal (1972-73). The Income-tax Officer rejected this contention and held that the buses were taken over by the Government Notification No. 101(c) of 1972 dated February 28, 1972, and the vesting of the buses with the Government had taken place for the accounting year relevant to the assessment year under appeal. Accordingly, the Income-tax Officer computed the profitsBefore the Appellate Assistant Commissioner, the assessee contended that the amount received by way of compensation for the buses taken over by the Tamil Nadu Government was a casual and non-recurring receipt and hence section 41(2) profits will not arise. It was further conten
