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TMI Blog1979 (9) TMI 113X X X X Extracts X X X X X X X X Extracts X X X X ..... lutely and free from al encumbrances and (s). 5 provided for compensation for acquiring those assets. Sec. 15(1) provided for that the stage carriages, so acquired may be transferred by the Government permit in respect of such stage carriage shall be deemed to have been transferred in favour of such corporation and remain valid for the unexpired portion thereof. In laying down the principles of compensation under s. 5 in the schedule, it was specified that in addition to the compensation to the assets acquired, an amount of Rs. 100 for a period for less than 15 days and an amount of Rs. 200 for every completed month or part of a month exceeding 15 days of the unexpired period of the permit shall also be given. Therefore when the Government took over assets of the Annamalai Bus Transport corporation Pvt. Ltd., the compensation payable was determined at Rs. 56,82,378,47 which included a sum of Rs. 4,23,900 representing the amount due for unexpired portion of the route permits. By a Government Order dt. 22nd Jan., 1972, the Government decided to form a separate company for the management of the bus transport system in Coimbatore and that company was the present assessee before us. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking the assessment for the asst. yr. 1973-74 he was of the view that the permit compensation represented expenses for acquisition of permits and clearly in the nature of capital and cannot be allowed as a deduction. He was also of the view that this asset was not entitled to any depreciation. Thereafter, he reopened the assessment for the proceeding asst. yr. 1972-73 also and disallowed the deduction of Rs. 21,200. 4. The assessee appealed. For the asst. yr. 1973-74, the AAC held that the payment in respect of the permits was not made for the purpose of bringing into existence any capital assets and, therefore, the assessee was right in writing off the value of unexpired permit as a business expenditure and accordingly it was allowable as a deduction. For the asst. yr. 1972-73 however, the AAC held that the payment was a capital payment for depriving the fleet owners of his source of income and hence a part of that compensation cannot be treated as revenue expenditure. He also held that the alternate claim for depreciation treating it as a capital asset was not sound as it did not come within the scope of s. 32(1) of the Act. 5. Both the assessee and the Revenue have appealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the accounts maintained by the assessee did not establish any such out going. It was submitted that the expenditure in question satisfied all the tests of capital expenditure since it formed part of fixed capital and not circulating capital, it was incurred while setting up a corporation and not while running the business, it was an once-for-all payment and not a recurring payment, and it was not transient benefit but an enduring benefit which need not be everlasting. Reliance was placed on the Supreme Court decision in the case of K.T.M.T.M. Abdul Kayoom and Anr. (1962) 44 ITR 689 (SC) and it was submitted that unless the assessee was a dealer in permits the amount spent for requiring them could not be treated as revenue expenditure. The following decisions were cited to show that route permits were considered to be property and capital asset: (i) A. Vimalan (1984) 94 ITR 21 (Mad). (Ii) N. Ramaswamy Udayar 1977 CTR (Mad) 125 : (1979) 116 ITR 493 (Mad). (Iii) Erode Transports Pvt. Ltd. (1969) 71 ITR 283 (Mad) (iv) S. Vaidyanathaswami (1979) 8 CTR (Mad) 88 : (1979) 119 ITR 369 (Mad). It was pointed out that the receipt of compensation by Annamalai s Bus Transport Corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Before considering the nature of the asset, we have to analyse the transaction in respect of which the assessee incurred the expenditure. It is clear that there was the privity of contract between the assessee and the erstwhile fleet owners while acquiring the unexpired permits. Under the Tamil Nadu Act No. 37/1971 as well as Act. No. 12/1973 it was the Government of Tamil Nadu which first acquired all the stage carriages and other assets of the fleet owners. It was also the Government of Tamil Nadu which paid the compensation to the fleet owners for such acquisition. Significantly, the unexpired permits were not one of the assets which were to be acquired by the Government, obviously because the Government itself would not require any permit to run the buses. Therefore, the compensation which was paid by the Government included an amount statutorily fixed for the unexpired portion of the permits not but because the permits were acquired but because the fleet owners were deprived of the benefits of those permits by a statutory transfer to the corporation to be set up by the Government. When we come to the assessee-corporation, we find that the Government transferred the stage carr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee for acquiring the undertaking which could be identified as the compensation paid in respect of the unexpired permits should be treated as capital or revenue. As we have been earlier the assessee did not pay this amount directly to the erstwhile operator for acquiring the permit as it stood transferred to the assessee by operation of law. Hence there was no expenditure incurred directly for acquiring a permit which could be considered as an expenditure incurred for running the business and allowed as a revenue expenditure. The assessee's claim that it was a pre-paid expenses also does not stand scrutiny, for pre-paid expense vouchers only payments in advance in respect of expenditure which had not yet accrued. For instance, if the assessee had paid rent for the building in advance for five years then it could debit only the annual rent which had accrued in the profit and loss account and carry forward the balance as an asset in the carry forward the balance as an asset in the balance-sheet. In the present case, the entire amount had to be paid because it had accrued as a liability at the time when the undertaking had been transferred by the Government to the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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