1991 (5) TMI 34 - HC - Income Tax

Summary

Issues:
1. Controversy over the levy of capital gains tax on the value of route permits sold along with buses.
2. Assessment of whether the sale consideration included the value of route permits.
3. Determination of whether route permits are capital assets acquired free of cost.

Analysis:
The judgment pertains to a case involving the assessment year 1974-75, where a private limited company sold its fleet of buses along with 24 route permits to another company. The primary issue was the levy of capital gains tax on the value of route permits sold. The Income-tax Officer initially held that the entire price realized represented the sale price of buses, without attributing any value to the route permits. However, the Tribunal disagreed, stating that the route permits were acquired free of cost and no capital gain could be computed, further affirming the reasonableness of the value placed on them by the assessee.

The court was presented with three questions for consideration. The first question revolved around whether the Appellate Tribunal was correct in deleting additions under section 41(2) of the Income-tax Act and capital gains made by the Income-tax Officer. The second question focused on whether the Tribunal was right in rejecting the Revenue's contention regarding the nature of the price payable under the agreement. The third question concerned the Tribunal's decision on the route permits being capital assets acquired free of cost.

The Revenue argued that the sale consideration constituted profit within the purview of the Income-tax Act and was thus taxable. They contended that the cost of acquisition of route permits, even if nil, should be considered for capital gains tax. The court examined conflicting judicial opinions on the taxation of gains from the sale of route permits, citing relevant judgments from different High Courts and the Supreme Court.

Ultimately, the court aligned with the view of the High Court of Kerala and the Supreme Court, holding that route permits acquired for the first time should be treated as self-generated assets not subject to capital gains tax. The judgment favored the assessee, ruling in their favor against the Revenue on all questions referred, emphasizing the interpretation of the Income-tax Act and relevant precedents.