TMI Blog1981 (11) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains chargeable u/s 45 of the Act and denied depreciation for these assets for their use in the assessee s business in the previous year prior to the takeover by applying s. 32 (1)(iii) of the Act. He also assessed the compensation paid for the unexpired period of the route permits as chargeable either as compensation in lieu of profits and thus a revenue receipt or as short term capital gains eligible to tax at the same rate. 3. On appeal, the AAC disagreed with the ITO by a brief order. In his view the takeover did not amount to a sale within the meaning of s. 32(1)(iii) and hence the assessee was entitled to depreciation. He excluded the application of s. 41(2) on the ground that there was no transfer of individual items of capital assets but only of the business as a running concern. He also held that no capital gains arose because the original cost exceeded the compensation received. He deleted the assessment of compensation for route permits as short term capital gains for the same reason. 4. Before we consider the arguments of both sides, we may set down the facts relating to the takeover. The TNFOSCA Act 37 of 1971 came into force on 4th December 1971. It is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility 30,00,000.00 . Leave liability 3,87,484.41 . . 33,87,484.41 . 91,55,257.25 Less: Part compensation paid . 51,50,000.00 . 40,05,257.25 This recommendation was agreed to by a resolution of the Board of Directors of the assessee-company, which then received the amounts. 5. Since the order of the AAC is too brief ld. counsel for the assessee had to elaborate this contentions which found acceptance by the AAC. His arguments were built up with the following propositions based on the authorities cited below. The relevant provisions of the Act are attracted only when there is a sale of the capital assets of the assessee (a). The ordinary meaning of "sale" is a transaction entered into voluntarily between two persons known as the buyer and the seller by which the buyer acquires property of the seller for an agreed consideration known as price (b). Compulsory acquisition is an involuntary transfer (c). The word "sold" has been defined in the Act to include compulsory acquisition i.e., "sold" means both voluntary and involuntary transfers (d). But compulsory acquisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... See pages 30 to 56 of the Paper Book filed by the assessee for statements showing comparative data and working sheets. (j) See s.31(1) of the TNFOSCA Act, 1971. (k) Cf. Banking Companies (Acquisition and Transfer of Undertakings) Act (22 of 1969). National Company Ltd. (Acquisition Transfer of Undertaking Act) (42 of 1980). The Bird Co. Ltd. (Acquisition and Transfer of Undertakings and other properties) Act (67 of 1980) (l) See the case of Laxmi Insurance Co. Ltd vs.CIT (1971) 80 ITR 575 (Del) also the case of CIT vs.National Insurance Co. Ltd. (1978) 113 ITR 37 (Cal) also the case of State of U.P. vs.Ata Mohd. AIR 1980 (SC) 1785. (m) See M.M. Pathak vs.Union of India AIR 1978 SC 803. 6. The arguments of the ld. counsel for the revenue was made up of the following propositions supported by the authorities given below. The relevant sections are attracted, when any capital asset is sold (a). "Sold" by definition includes compulsory acquisition (b). In the case of capital gains, the word used is "transfer" and that word also by definition includes compulsory acquisition (c). Even otherwise "transfer means both voluntary transfer and transfer by operation of law (d) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 1971 SC 1594 and U.P. Electric Power Supply Co. Ltd. AIR 1970 SC 21. 7. After a careful consideration of the rival submissions we are of the opinion that the revenue is entitled to succeed on this point. It is common ground that ss.32 (1)(iii), 41(2) and 45 of the Act apply to compulsory acquisition of capital assets. The assessee s attempt to avoid the application of these provisions is based on the contention that the takeover of the passenger transport division does not amount to compulsory acquisition on the twin grounds of compensation being illusory and there being no statutory transfer of the acquired assets to the State or State owned Corporation. But the facts of the case do not support either of these grounds. The assessee has received compensation at the agreed amount in respect of all assets acquired. The schedule to the TNFOSCA Act provides for compensation for the acquired property at market value. The assessee could have gone in for arbitration u/s 5(b) of that Act and the Arbitrator would have been bound to award the market value as compensation. Therefore, is follows that assessee had agreed because the compensation was just as no material has been let in to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Act 42 of 1980 to acquire the National Company Ltd. In the TNFOSCA Act the purpose is slightly different as the properties were intended to be taken over by the State first and then transferred to the State owned Corporation. Therefore, the use of the "vest" alone cannot mean that there was no transfer. Even if there should be any doubt on the recognised meaning of the word "vest" which is usually used to mean transferred to Govt. By operation of law, it is clarified by s. 3(3) by deeming it to be acquired for a public purpose. There is also no substance in the argument that the word "vest" may refer to possession and not title because any restriction on the meaning of the word would depend on the content. After all the word "vest" is only a verb what is vested depends on the subject, for if the object is limited to certain rights only then of course there cannot be a transfer of all rights and title. But it is nobody s case here that what was vested by the provisions of TNFOSCA Act or in fact transferred was only the possession or management or such restricted or limits rights. On the contrary the assessee cannot claim that title in the transport division remained with it aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intervenor brought to our notice two decisions viz. Sarabhai Chemicals Ltd. vs.IAC of IT (1980) 16 CTR (Guj) 315 : (1980) 126 ITR 1 (Guj) and Artex Manufacturing Co. vs.CIT (1981) 21 CTR (Guj) 31 : (1981) 131 ITR 559 (Guj) and Jayantilal Bhoglal Desai vs.CIT (1981) 22 CTR (Guj) 186 : (1981) 130 ITR 655 (Guj) where it was held that the balancing charge and capital gains were not exigibel when the whole undertaking is sold for a lump price. But even in the case of Mugneeram Bangur, the Supreme Court observed that once it was accepted that there was a slump transaction the question that remains is whether any portion of the slump price was attributable to the stock-in-trade in that case to tax of profit thereon. In the same way the question here is that even if a lump sum was paid whether any portion was attributable to the several capital assets in respect of which depreciation had been allowed so as to attract the balancing charge u/s 41(2) of the Act. The answer has to be in the affirmative having regard to the provisions of the TNFOSCA Act and the facts of the case. Sec. 3 of that Act provides for the acquisition of the stage carriages and all other items of equipment exclusively ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swara Bus Union (1979) 12 CTR (Mad) 374 : (1979) 119 ITR 507 (Mad), S.Vaidyanathaswami vs.CIT (1979) 8 CTR (Mad) 88:(1979) 119 ITR 369 (Mad) and Vadilal Soda Ice Factory vs. CIT (1971) 80 ITR 711 (Guj). The contention of the assessee on the other hand is that route permit being capital asset and acquired as such, the compensation received cannot be treated as revenue receipt. The further contention is that there is no taxable capital gains because the cost of acquisition of the asset was nil. Reliance was placed on the decision in Addl. CIT vs. Ganapathy Raju Jegi Sanyasi Raju (1979) 119 ITR 715 (AP). We find that the contention of the revenue that compensation for route permits was in lieu of profits and revenue in nature is not tenable. Though the compensation is based on the unexpired portion of the permits it has no relation to the profitability which differs according to the route. Besides, the consistent view of the High Courts in all the cases cited above is that a route permit is property and, therefore, a capital asset in the TNFOSCA Act which provides additional compensation for it in the schedule treating it as an asset acquired u/s 3. An amount has been fixed in the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X
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