TMI Blog2001 (4) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... hether, on the facts and in the circumstances of the case, the capital gain arising out of the transfer of the undertaking of the assessee's banking company is determinable? 4. Whether, on the facts and in the circumstances of the case, the assessee having exercised the necessary option for adoption of the fair market value as on January 1, 1954, within the meaning of section 55(2) of the Act, could justifiably contend that such option should be effective only if the cost of acquisition was determined and found to be lower than the fair market value as on January 1, 1954?" The dispute relates to the assessment year 1970-71. The assessee was originally known as Punjab National Bank Limited. It was carrying on banking business, which was acquired by the Government of India under the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1969, with effect from July 19, 1969. The said acquisition was, however, quashed by the Supreme Court in Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325, on the ground that it violated article 31(2) of the Constitution of India and compensation payable was not equivalent to the market value of the property acquired. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation with respect thereto, no capital gain could be determined. The Appellate Assistant Commissioner, thus, held that since no capital gain could be computed under section 45 of the Act, liability to pay tax on the same did not arise. Being aggrieved by the order of the Appellate Assistant Commissioner, the Revenue took the matter in further appeal to the Tribunal. The Tribunal took the view that an "undertaking" is different from its components though the undertaking includes all its assets, rights, powers, authorities. privileges, liabilities, etc., but when an "undertaking" is acquired as a composite or a compact unit, it cannot be said that its different ingredients are separately acquired ; what is acquired in such a case is the "undertaking" as a composite unit and, therefore, merely because it includes stock-in-trade and goodwill, it cannot be held that it is not a capital asset as defined in section 2(14) of the Act. The Tribunal observed that a capital asset means property of any kind held by an assessee, whether or not connected with its business or profession, and, therefore, the "undertaking" of the assessee acquired by the Government was a capital asset wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not debar it from pleading at any subsequent stage that there was no cost of acquisition and hence the assessee was not assessable for capital gains, as the right to exercise the option is conferred on the assessee solely for its benefit. It is asserted that conditional exercise of the option and declaration of value of the undertaking as on January 1, 1954, was immaterial in so far as the question of determination of cost of acquisition of the asset was concerned. On the other hand, Mr. Sanjiv Khanna has contended that the assessee's undertaking was a capital asset; the compensation payable for its acquisition is slump compensation; it would not be possible to apportion the compensation to various items/assets constituting the "undertaking" and the same cannot be attributed to the cost of various individual assets, as is being pleaded by the assessee in order to show that it is not possible to evaluate the cost of acquisition of various individual assets of the undertaking. With reference to the assessee's letter dated September 30, 1970, and July 17, 1972, it is pointed out that it was never the case of the assessee before the Income-tax Officer that it was not possible to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the exemptions statutorily provided, the exempted properties would also otherwise fall within the defined meaning. The term "property", though has no statutory meaning but is of widest import and subject to any limitations which the context may require, it signifies every possible interest which a person can acquire, hold or enjoy (see Ahmed G.H. Ariff v. CWT [1970] 76 ITR 471 (SC)). According to Stroud's Judicial Dictionary of Words and Phrases (sixth edition), "property" is a comprehensive term indicative of every possible interest which a party can have. In Rustom Cavasjee Cooper's case [1970] 40 Comp Cas 325 (SC), it was also observed that the expression "property" has a wide connotation and (page 354) "it includes not only assets, but the organisation, liabilities and obligations of a going concern as a unit". In view of the wide meaning of the expression "capital asset" in section 2(14) of the Act and "property" as understood in its ordinary wide connotation, we have no hesitation in holding that the business undertaking of the assessee was a "capital asset". In fact, learned counsel for the assessee did not dispute before us that the "undertaking" of the assessee was a "c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the expression "undertaking" in section 4 of the Banking Companies (Acquisition and Transfer of Undertaking) Act, 1969, clearly means a going concern with all its rights, liabilities and assets as distinct from the various rights and assets which compose it. In Halsbury's Laws of England it is said that (page 354): "Although various ingredients go to make up an undertaking, the term describes not the ingredients but the completed work from which the earnings arise". A support is lent to this view by the decision of the Karnataka High Court in Syndicate Bank's case [1985] 155 ITR 681, wherein, following the observations of the Supreme Court in CIT v. Mugneeram Bangur and Co. (Land Department) [1965] 57 ITR 299, the court held that if the sale is of a whole concern and no part of the agreed price is indicated against different and definite items having regard to their valuation on the date of sale, the aggregate price cannot be apportioned of capital assets in specie. We, accordingly, answer the second question in the affirmative, in favour of the Revenue and against the assessee. We now take up the most crucial question in the reference, namely, whether on the acquisition of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of the assessee is that the undertaking being a self-generated asset, it is not possible to conceive its cost of acquisition. On the contrary, the stand of the Revenue is that the assessee having itself determined the fair market value of its undertaking as on January 1, 1954, shows that the cost of acquisition is determinable. Though a similar issue did arise before the Karnataka High Court in Syndicate Bank's case [1985] 155 ITR 681 and the Madras High Court in Indian Bank's case [1985] 153 ITR 282, both the High Courts did not answer this question because the Tribunal had not recorded any finding on that aspect. It is common ground that the transfer and vesting of the assessee's entire undertaking under the Banking Companies Act took place as a going concern, with all its rights, liabilities and assets, for a total sum of Rs.10.20 crores, as specified in the Second Schedule. It was a slump sale for a lump sum amount. The precedent nearest to the point is found in a recent decision of the Supreme Court in Artex Manufacturing Co.'s case [1997] 227 ITR 260, wherein a question arose whether section 41(2) or section 45 of the Act would be attracted in a case of slump sale in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities below having undertaken that exercise, the issue is neither raised nor does it arise out of the order of the Tribunal. This issue has to be re-examined by the Tribunal or at its instance by the Income-tax Officer in the light of the decisions of the apex court in Artex Manufacturing Co's case [1997] 227 ITR 260 and the settled principles of valuation. The decision of the Supreme Court in B. C. Srinivasa Setty's case [1981] 128 ITR 294 and of this court in Bawa Shiv Charan Singh's case [1984] 149 ITR 29, we respectfully feel, are distinguishable on the facts inasmuch as in the case of the goodwill generated in a new business it is not possible to determine the date when it comes into existence and in the case of tenancy rights its value fluctuates from day-to-day, depending upon the uncertain demand and supply of the comparable premises and a host of other unpredictable factors, which, as noted above, is not the case here. Coming to the last question, to appreciate the controversy involved, it would be useful to notice the relevant provision. Sub-section (2) of section 55 defines the expression "cost of acquisition" in relation to a capital asset, for the purposes of secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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