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Issues Involved:
1. Whether the undertaking of the assessee-company acquired by the Government of India was a capital asset within the meaning of section 2(14) of the Income-tax Act, 1961. 2. Whether the Tribunal was right in holding that the 'undertaking' as a composite unit was different from its components. 3. Whether the capital gain arising out of the transfer of the undertaking of the assessee's banking company is determinable. 4. Whether the assessee could contend that the option for adoption of the fair market value as on January 1, 1954, 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. Summary: Issue 1: Capital Asset Definition The court held that the business undertaking of the assessee was a "capital asset" within the meaning of section 2(14) of the Income-tax Act, 1961. The term "capital asset" has a wide connotation and includes property of any kind held by the assessee, except what has been expressly excluded by clauses (i) to (iv) thereunder. The court noted that the expression "property" includes not only assets but also the organization, liabilities, and obligations of a going concern as a unit. Issue 2: Composite Unit vs. Components The Tribunal's view that an "undertaking" is different from its components was upheld. The court noted that the term "undertaking" includes all assets, rights, powers, authorities, privileges, liabilities, etc., and when acquired as a composite unit, it cannot be said that its different ingredients are separately acquired. The court observed that the compensation specified in the Second Schedule to the Banking Companies Act is a lump sum amount and not apportioned item/asset-wise. Issue 3: Determinability of Capital Gain The court addressed whether the capital gain arising from the acquisition of the assessee's undertaking was determinable. It was noted that the cost of acquisition is a crucial factor for computing capital gains. The court referred to the Supreme Court's decision in CIT v. B. C. Srinivasa Setty, which held that for subjecting the transfer of an asset to income-tax under the head "Capital gains," it is imperative to ascertain the "cost of acquisition" of the asset. The court found that the cost of acquisition of the assessee's undertaking is determinable and remanded the matter to the Assessing Officer to recompute the capital gains. Issue 4: Option for Fair Market Value The court held that the assessee could justifiably contend that the option for adoption of the fair market value as on January 1, 1954, 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 court noted that the right of choice is conferred on the assessee solely for its benefit and the freedom of choice is available to the assessee till the income chargeable under the head "Capital gains" is computed. Conclusion: The court answered the first three questions in favor of the Revenue and against the assessee, and the fourth question in favor of the assessee and against the Revenue. There was no order as to costs.
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