1978 (5) TMI 4 - SC - Income Tax

Acquisition of undertaking under the Madras Electricity Supply Undertakings (Acquisition) Act, 1954 - surplus arising from such acquisition - acquisition was a transfer came within the scope of section 12B of the Income-tax Act - liable to capital gains tax

Issues Involved:
1. Whether the compulsory acquisition of property falls within the scope of section 12B of the Indian Income-tax Act, 1922.
2. Whether any part of the compensation was attributable to the goodwill of the company.
3. Whether the Tribunal was justified in not determining the amount of compensation attributable to the goodwill and in further not determining the capital gains, if any, arising out of such acquisition.

Issue-Wise Detailed Analysis:

1. Compulsory Acquisition and Section 12B of the Indian Income-tax Act, 1922:
The primary issue was whether the compulsory acquisition of the appellant's property by the State Government falls within the scope of section 12B of the Indian Income-tax Act, 1922, thereby rendering any surplus arising from such acquisition liable to tax under that section. The appellant contended that a compulsory acquisition does not constitute a "transfer" within the meaning of section 12B(1) because a transfer implies a voluntary act. However, the court rejected this argument, stating that the term "transfer" in legal parlance is broad and includes both voluntary and involuntary transfers. It was emphasized that the legislative history of section 12B supports the inclusion of compulsory acquisitions within its ambit. The court concluded that the deletion of the proviso excluding compulsory acquisitions from the definition of "transfer" in the 1956 amendment clearly indicates the legislative intent to include such acquisitions. Therefore, the High Court's judgment affirming this interpretation was upheld, and the appeal was dismissed.

2. Attribution of Compensation to Goodwill:
The appellant argued that part of the compensation received should be attributable to the goodwill of the company, which should not be subject to capital gains tax. The Tribunal had dismissed this contention on several grounds, including the absence of goodwill in the balance sheet, lack of proof that the government acquired any goodwill, and the appellant's failure to provide evidence regarding the valuation of goodwill. The High Court agreed with the Tribunal, noting that the appellant did not raise the issue of goodwill as a capital asset before the Income-tax Officer or the Appellate Assistant Commissioner. The court emphasized that the question of whether goodwill had any value is a mixed question of law and fact, and since no evidence was presented, the appellant's contention could not be accepted. Consequently, the High Court's judgment on this issue was affirmed, and the appeal was dismissed.

3. Determination of Compensation Attributable to Goodwill:
The appellant also contended that the Tribunal erred in not determining the amount of compensation attributable to the goodwill and in not determining the capital gains arising from such acquisition. The Tribunal had found that the appellant did not provide any material to support the valuation of goodwill. The High Court upheld the Tribunal's decision, stating that the appellant's failure to present evidence precluded any determination of the compensation attributable to goodwill. The court also dismissed the appellant's claim that it was misled by the Tribunal's remarks during the hearing, noting that the Tribunal had clarified in its order that no such assurance was given. Therefore, the High Court's judgment on this issue was also affirmed, and the appeal was dismissed.

Conclusion:
Both appeals were dismissed, and the High Court's judgments were confirmed. The appellant was ordered to pay the Commissioner's costs in the appeals.

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