TMI Blog1978 (2) TMI 66X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision was upheld in appeal by the Appellate Assistant Commissioner. But in further appeal before the Tribunal it was ruled that there was no capital gains liable to be taxed. The question is whether the view taken by the Tribunal is right in law. The decision of the Tribunal is fully supported by two decisions of this court. The first one settling the principle dealing with goodwill has also considered the question of " capital gains " on the sale or transfer of " goodwill ". The decision is in Commissioner of Income-tax v. K. Rathnam Nadar [1969] 71 ITR 433 (Mad). The identical question that is before us relating to " import entitlement " was considered by this court in Commissioner of Income-tax v. T. Kuppuswamy Pillai Co. [1977] 106 ITR 954 (Mad) and following the earlier decision of this court it was held that unless the asset had cost something in terms of money for its acquisition, it was not possible to conceive of capital gains as envisaged by the statute, that though an asset of a capital nature had been transferred, capital gains as visualised by the statute had not resulted and that no tax on that basis was, therefore, leviable. The view taken by this court has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , as the former deals with " capital gains on distribution of assets by companies in liquidation " and the latter with " transactions not regarded as transfer ". It is admitted before us that there is a transfer and that the transfer is of a capital asset. But what is urged is that there is no capital gains if the scheme of the Act and sections 45, 48, 49 and 55 are taken into account. Turning now to section 48, we find the mode of computation and deductions. The section states : " The income chargeable under the head ' Capital gains ' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts namely :-- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto." Section 49 deals with cases mentioned therein wherein the capital asset became the property of the assessee for the various reasons and in the circumstances mentioned in clauses (i) to (iv) of that section. To refer to one or two of these clauses now, we would like to advert to a case where the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gains. Other provisions have also been made as in the case of succession and inheritance or when properties are bequeathed by providing for the value of the property being determined, though there has really been no cost to the assessee in terms of money in the matter of acquisition of the capital assets. Specific provisions in this regard and the absence of any provision in cases of capital assets in the nature of what we may term " import entitlement " or for that matter " goodwill " seem to indicate an inconsistency in the scheme of the Act which is irreconcilable. It is not possible to find out the intent and the rationale in the apparent discrepancy of treating capital assets acquired under gifts in a manner entirely different from capital assets in the form of import entitlements, which also are acquired without the investment of any money. The view, therefore, has been taken that it is not only the charging section that should be taken into account but the whole scheme of the Act must be looked into and when the Act is viewed in that manner, it has to be taken that the legislature did not intend to impose any capital gains on goodwill or on import entitlement merely by reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd in the later decision in Commissioner of Income-tax v. T. Kuppuswamy Pillai Co. [1977] 106 ITR 954 (Mad). That judge also is now of the view that in the circumstances which the Karnataka Chief justice has mentioned in the passage we are now going to read, it is better to leave things where they are, particularly in view of the fact that the department had not questioned any of those decisions in appeal and when they did appeal, they chose to withdraw the appeal from Rathnam Nadar's case [1969] 71 ITR 433 (Mad) and what is more important is that the legislature has not moved, realising that the statute has been interpreted in a particular way, not by one court but by several courts, to amend the statute to bring out clearly the intention of the statute if that intention was different from what this court has attributed to the statute. Now, we shall turn to the passage, from the judgment of the Karnataka High. Court in Commissioner of Income-tax v. B. C. Srinivasa Setty [1974] 96 ITR 667, 670, 671 : " There is more than one reason for us to follow the ratio of the decision in Rathnam Nadar's case [1969] 71 ITR 433 (Mad). No doubt, two views are possible on the question. Whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thnam Nadar's case [1969] 71 ITR 433 (Mad) was rendered in the year 1969. We asked Sri Rajasekharamurthy as to whether the department had preferred appeals against the judgments of the High Courts of Calcutta, Delhi and Kerala. He took time for making his submissions after contacting the departmental authorities. He stated that no appeals were preferred by the department against the judgment of the High Courts of Calcutta and Kerala and that he has no information whether an appeal has been filed against the judgment of the High Court of Delhi. Sri Rajasekharamurthy submitted that though the appeal against the judgment in Rathnam Nadar's case [1969] 71 ITR 433 (Mad) was dismissed as not pressed, the department has not accepted the correctness of the decision in the said case and that he has been instructed to urge before us that the ratio of the Gujarat case (Commissioner of Income-tax v. Mohanbhai Pamabhai [1973] 91 ITR 393) should be followed as laying down the correct law. In the circumstances set out above, we can safely draw the inference from the conduct of the department in not preferring appeals against the judgments of the High Courts of Calcutta and Kerala, and further in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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