1984 (2) TMI 149 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of the value of route permits on capital gains.
2. Determination of whether the sale proceeds constituted the value of the buses or the route permits.
3. Consideration of whether the route permits had a cost of acquisition and if improvements to their value could be ascertained.

Issue-wise Detailed Analysis:

1. Taxability of the Value of Route Permits on Capital Gains:
The assessee argued that the value of the route permits should not be assessable to tax on capital gains because the route permits had no cost of acquisition and their value of improvements could not be ascertained. The assessee relied on various judicial precedents, including CIT v. B.C. Srinivasa Setty, where it was held that no tax on capital gains can be levied when no cost of acquisition can be conceived for the asset. The Tribunal, in its order, noted that the sale proceeds arising from the transfer of a route permit obtained by the assessee for the first time could not attract capital gains tax. However, if the route permits were acquired at a cost, a reasonable allocation of the consideration between the buses and the route permit would be necessary.

2. Determination of Whether the Sale Proceeds Constituted the Value of the Buses or the Route Permits:
The Commissioner (Appeals) held that the sale proceeds constituted the price of the vehicles and not the route permits. The assessee contended that the value received on the transfer of the buses and the route permits indicated that a portion of the sale consideration represented the value of the routes. The Tribunal agreed with the assessee, stating that the consideration realized could not have been for the buses alone, as the value received was significantly higher than the depreciated value of the buses. The Tribunal also noted that the department had allocated a portion of the sale consideration to the route value in a related case, indicating that the route had its own value.

3. Consideration of Whether the Route Permits Had a Cost of Acquisition and If Improvements to Their Value Could Be Ascertained:
The Tribunal noted that the route permits were originally obtained by the predecessor in interest of the assessee, and the assessee did not pay anything towards the route value when acquiring the permits. The Tribunal rejected the contention that no cost of acquisition could be envisaged for the route permits, stating that the cost of acquisition could be envisaged even if the assessee did not actually pay for the permits. The Tribunal also considered the argument that the cost of subsequent improvements to the route permits could not be ascertained, relying on the decision of the Bombay High Court in Evans Fraser & Co. Ltd. The Tribunal held that the assessee could escape the liability to tax on capital gains only if it was shown that the assessee had improved the value of the route permits after acquiring them. Since the matter had not been investigated from this angle, the Tribunal restored the matter to the ITO for a fresh assessment, including a reasonable allocation of the sale proceeds between the buses and the route permit.

Conclusion:
The appeal was treated as allowed in part for statistical purposes, with the matter remanded to the ITO for a fresh assessment according to the Tribunal's observations. The ITO was instructed to investigate whether the assessee had improved the value of the route permits after acquisition and to determine a reasonable value allocation for the route permits.