1994 (8) TMI 23 - HC - Income Tax

Accounting Year Attributable To Business Expenditure Capital Gains Cost Of Acquisition Route Permits Transport Operator

Summary

Issues:
1. Liability to capital gains tax on transfer of buses to managing director.
2. Application of section 52(2) of the Income-tax Act.
3. Proper valuation of routes transferred.
4. Allowance of motor vehicle tax as deduction.

Analysis:

Issue 1: Liability to capital gains tax on transfer of buses to managing director
The assessee, a private limited company, transferred 22 buses and route permits to its managing director. The Income-tax Officer contended that the route permits had considerable value, leading to the applicability of capital gains tax under section 52(2) of the Act. However, the Tribunal found that the company did not benefit from the transfer, as the cost of acquisition of the routes was similar to the deemed transfer value. Citing precedent, the Tribunal ruled that the sale value of the route permits cannot be subjected to capital gains tax, as there is no cost of acquisition for acquiring the route permit. Therefore, the Tribunal held that no liability to capital gains tax existed in this transaction.

Issue 2: Application of section 52(2) of the Income-tax Act
The Income-tax Officer invoked section 52(2) to levy capital gains tax based on the perceived value of the route permits transferred. However, the Tribunal disagreed, stating that since the company did not benefit from the transfer, section 52(2) was not applicable. The Tribunal's decision was supported by the Supreme Court's ruling that there is no cost of acquisition for route permits, thereby negating the application of section 52(2) in this case.

Issue 3: Proper valuation of routes transferred
The Appellate Assistant Commissioner had estimated the value of the routes at Rs. 1,10,000, which was confirmed by the Tribunal. The Tribunal found this valuation reasonable and upheld it, indicating that the value determined by the Commissioner was appropriate in the context of the transaction.

Issue 4: Allowance of motor vehicle tax as deduction
The Appellate Assistant Commissioner allowed the deduction of motor vehicle tax paid by the assessee as a business expenditure. The Income-tax Officer had added back a sum of Rs. 34,000, contending it was not related to the company's business post-transfer. However, the Tribunal concurred with the Appellate Assistant Commissioner, emphasizing that the tax paid before the transfer remained a valid business expenditure, irrespective of the subsequent sale of buses. The Tribunal upheld the allowance of the motor vehicle tax as a deduction, rejecting the Income-tax Officer's contention.

In conclusion, the Tribunal ruled against the Department on all issues, including the liability to capital gains tax, application of section 52(2), valuation of routes transferred, and allowance of motor vehicle tax as a deduction. The Tribunal's decision was in favor of the assessee, emphasizing that the company did not benefit from the transaction and that the tax treatment was appropriate based on the circumstances.