TMI Blog2008 (11) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 1895 in an area which now falls in Pakistan. It was nationalized as Punjab National Bank (PNB) by Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. On 19.7.1969 PNB Ltd. on nationalization vested in Punjab National Bank. PNB Finance Ltd. is the appellant herein. On nationalization it received compensation of Rs. 10.20 cr. This compensation was calculated on the basis of capitalization of last 5 years profits. The said compensation was received during the accounting year ending 31.12.1969 corresponding to the assessment year 1970-71. 4. During the assessment year 1970-71, appellant had to compute capital gains under Section 48 by deducting from the sale consideration the cost of acquisition as increased by the cost of improvement and expenses incurred in connection with the transfer. Under the law then prevailing, assessee could index the cost of acquisition by applying cost inflation index which became indexed cost of acquisition. 5. Incidentally, it may be noted that by an amendment to Section 50B inserted by the Finance Act, 1999 w.e.f. 1.4.2000, cost of acquisition is now notionally fixed in case of "slump" sale. Under the said arrangement, assessee i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the undertaking ascertained either on the basis of historical cost of acquisition of the capital asset (banking undertaking) or having its value ascertained as on 1.1.1954, whichever is higher but could not exercise it as the cost of acquisition in this case was not computable. In the alternative, appellant-assessee herein submitted fair market value of the undertaking as on 1.1.1954. By letter dated 30.9.1970, assessee claimed a capital loss. The AO held that since the assessee had submitted its own computation of the fair market value of the undertaking as on 1.1.1954 the only question he was required to consider was the correctness of the figure of capital loss submitted by the assessee vide its covering letter dated 30.9.1970. In this connection, it may be noted that compensation of Rs. 10.20 cr. was paid to the assessee from which assessee claimed deduction of Rs. 17,22,73,246 (market value of the undertaking as on 1.1.1954 fixed at Rs. 10,41,51,625 plus cost of improvement fixed at Rs. 6,81,21,621). This is how the assessee contended that it had in the above transaction suffered a capital loss of Rs. 7.02 cr. This calculation was not accepted by the AO who proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing into account the value of plant, machinery and dead stock as computed by the valuer. The Tribunal held that, the surplus arising on the sale was taxable under Section 41(2) of the Act and not as capital gains. The High Court reversed that finding of the Tribunal and held that the surplus was taxable as capital gains under Section 45 and not under Section 41(2). At the instance of the Revenue, this Court on an appeal held that on the facts and in the circumstances of the case Section 41(2) was applicable as the amount of Rs. 11,50,400, being the consideration, stood arrived at by taking into consideration the value of the plant, machinery and dead stock. It was further held that, the surplus resulting from transfer of plant, machinery and dead stock was either taxable as income under Section 41(2) or as capital gains under Section 45. It was held that since income was chargeable to tax under Section 41(2), the impugned decision of the High Court that such income was chargeable to tax as capital gains was erroneous. 13. In order to decide the applicability of the judgment of this Court in Artex Manufacturing Co. (supra) we need to examine the scope of Section 41(2). At the out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account the value of plant, machinery and dead stock as computed by the valuer and, consequently, it was held that the surplus arising on the sale was taxable under Section 41(2) of the Act and not as capital gains. In the circumstances, the judgment of this Court in the case of Artex Manufacturing Co. (supra) was not applicable to the present case. Further, this Court in the case of CIT v. Electric Control Gear Manufacturing Co. (1997) 227 ITR 278 has held that whether the business of the assessee stood transferred as a going concern for slump sale price, in the absence of evidence on record as to how the slump price stood arrived at, Section 41(2) had no application. It is interesting to note that the judgment in the case of Electric Control Gear Manufacturing Co. (supra) is given by the same Bench which decided the case of Artex Manufacturing Co. In fact, both the judgments are reported one after other in 227 ITR at pp. 260 and 278 respectively. In the present case, as can be seen from the impugned judgment of the Delhi High Court, the judgment of this Court in Electric Control Gear Manufacturing Co. (supra) is missed out. That judgment has not been considered by the High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, such a case would not fall within Section 45. In the present case, the Banking Undertaking, inter alia, included intangible assets like, goodwill, tenancy rights, man power and value of banking licence. On facts, we find that item-wise earmarking was not possible. On facts, we find that the compensation (sale consideration) of Rs. 10.20 cr. was not allocable item- wise as was the case in Artex Manufacturing Co. (supra). 18. For the aforestated reasons, we hold that on the facts and circumstances of this case, which concerns assessment year 1970-71, it was not possible to compute capital gains and, therefore, the said amount of Rs. 10.20 cr. was not taxable under Section 45 of the 1961 Act. Accordingly, the impugned judgment is set aside. 19. Before concluding, we may state that in this case, Section 55(2)(i) did not operationalize. Under Section 55(2), fair market value as on 1.1.1954 could have substituted the figure of cost of acquisition provided the figures of both "cost of acquisition" and "fair market value as on 1.1.1954" were ascertainable. The letter dated 30.9.1970 does not indicate the choice. Even the working done by the AO based on capitalization of last 5 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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