1976 (9) TMI 37 - HC - Income Tax

Summary

Issues Involved:
1. Whether the compulsory acquisition of an electric supply undertaking by the State Government constitutes a transfer liable to capital gains tax u/s 12B of the Indian Income-tax Act, 1922.
2. Whether an undertaking acquired as a going concern constitutes a capital asset within the meaning of section 12B of the Indian Income-tax Act, 1922.

Summary:

Issue 1: Compulsory Acquisition as Transfer Liable to Capital Gains Tax
The Tribunal addressed whether the compulsory acquisition by the Kerala Government of the Cannanore Tellicherry Electric Supply Undertaking and by the Andhra Pradesh Government of the Ellore Electric Supply Undertaking constitutes a transfer liable to capital gains tax u/s 12B of the Indian Income-tax Act, 1922. The court referred to previous decisions, including Wilfred Pereira Ltd. v. Commissioner of Income-tax [1964] 53 ITR 747 (Mad) and Commissioner of Income-tax v. United India Life Assurance Company Ltd. [1966] 62 ITR 610 (Mad), which held that compulsory acquisition by the Government constitutes a transfer and is taxable as capital gains. The court concluded that the compulsory acquisition falls within the scope of "transfer" u/s 12B, and thus, the first question was answered in the affirmative and against the assessee.

Issue 2: Undertaking as Capital Asset
The second issue was whether the entire undertaking acquired as a going concern constitutes a capital asset within the meaning of section 12B of the Indian Income-tax Act, 1922. The court noted that the term "capital asset" is defined broadly in section 2(4A) as "property of any kind." The Supreme Court's interpretation in R. C. Cooper v. Union of India [1970] 40 Comp Cas 325, 353, 354 (SC) was cited, which clarified that "property" includes an undertaking as a going concern. Therefore, the court held that an undertaking acquired as a whole is indeed a capital asset. The second question was also answered in the affirmative and against the assessee.

Additional Points:
The court dismissed the contention regarding the exclusion of consumable stores from the computation of capital gains, as this issue was not raised before the Tribunal. The Commissioner was awarded costs, with counsel's fee fixed at Rs. 250 in each reference.