1986 (6) TMI 25 - HC - Income Tax

Summary

Issues:
1. Allocation of sale proceeds between buses and route permits.
2. Validity of the method used by the assessee to estimate the consideration for route permits.
3. Permissibility of allocation of consideration between buses and route permits without specific allocation in the agreement.

Analysis:
The case involved a reference under section 256(2) of the Income-tax Act, 1961, regarding the allocation of sale proceeds between buses and route permits. The assessee had sold buses with permits, claiming that a portion of the sale price represented consideration for transfer of route permits. The Income-tax Officer treated the entire sale price as consideration for the buses, but the Appellate Assistant Commissioner and the Tribunal accepted the assessee's contention that the sale included both buses and route permits.

The Tribunal held that while the sale involved both buses and route permits, the contract did not specify separate prices for each. The assessee estimated the value of buses and route permits based on an illustrative case and claimed that the consideration was for both. The court referred to a previous judgment where it was acknowledged that sale prices for buses often include the value of route permits due to their earning capacity.

The court emphasized that the absence of specific allocation in the agreement did not negate the fact that consideration was paid for both buses and route permits. It noted that the Revenue did not dispute the reasonableness of the allocation made by the assessee. Therefore, the court upheld the assessee's allocation of consideration between buses and route permits as correct.

The Revenue argued for remitting the matter to the Tribunal for allocation, but the court rejected this, stating that the Revenue had not challenged the allocation's reasonableness earlier. As the sale was composite and the consideration covered both buses and route permits, the court ruled in favor of the assessee on all three questions, directing the Revenue to bear the costs.

In conclusion, the judgment clarified that even without explicit allocation in the agreement, consideration for the sale of buses often includes the value of route permits. The court upheld the assessee's method of estimating the consideration for route permits and affirmed the validity of allocating consideration between buses and route permits without specific allocation in the agreement.