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TMI Blog1978 (5) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... vanced to October 15, 1956. The appellant's undertaking was accordingly acquired by the Government and its properties were taken over on the date of vesting. Mangalore was then a part of the State of Madras. Section 5 of the Acquisition Act, 1954, provided for payment of compensation to a licensee whose undertaking was taken over by the Government. Three modes of fixation of compensation were provided for by that section, called Basis A, Basis B and Basis C. Section 6 gave to the undertaking concerned the option to choose any one of these three modes. According to Basis A, the licensee was entitled by way of compensation to the payment of an amount equal to 20 times the average net annual profits of the undertaking during the period of five consecutive accounting years immediately preceding the date of vesting. The appellant opted for compensation on Basis A, one of the consequences of which, as provided by the Act, was that the entire property belonging to the undertaking, including the fixed assets, vested in the State Government under section 6. Applying Basis A, the appellant was paid compensation in the sum of Rs. 18,42,312. In the course of the appellant's assessment for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs (Acquisition) Act, 1954, the Tribunal was justified in law in holding that no part of the compensation was attributable to the goodwill of the company ? (ii) Whether the Tribunal was justified in law 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 ?" By its judgment dated November 19, 1971, the High Court answered both the questions against the appellant but granted to it a certificate of fitness to appeal to this court, which has given rise to Civil Appeal No. 2006 of 1972. We will take up Civil Appeal No. 2160 of 1972 first for our consideration. It involves for consideration the decision of the question whether the compulsory acquisition of property falls within the scope of section 12B of the Indian Income-tax Act, 1922, so as to render any surplus arising from such acquisition liable to tax under that section. Capital gains were charged for the first time by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which inserted section 12B in the Indian Income-tax Act, 1922. It taxed capital gains arising after March 31, 1946. The levy of capital gai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amplitude. Earl Jowitt, in The Dictionary of English Law, says: "In the law of property, a transfer is where a right passes from one person to another, either (1) by virtue of an act done by the transferor with that intention, as in the case of a conveyance or assignment by way of sale or gift, etc., or (2) by operation of law, as in the case of forfeiture, bankruptcy, descent, or intestacy." Roland Burrows on Words and Phrases, volume V, contains a statement under the caption "Transfer on Sale" at page 331, that even a transfer of land under compulsory powers is a transfer "on sale". It is unnecessary for us to consider the question whether a compulsory acquisition of property is a "sale" within the meaning of section 12B(1) and indeed, it is needless, for the present purpose to go that far. We are concerned with the narrower question whether a compulsory acquisition of property can amount to a "transfer" within the meaning of section 12B(1) and upon that question it is important to bear in mind that the word transfer is comprehensive and is regarded generally as comprehending within its scope transfers both of the voluntary and involuntary kinds. Without more, therefore, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force on April 1, 1957, section 12(B)(1) of the Act of 1922 read thus: " 12B. Capital gains.--(1) The tax shall be payable by an assessee under the head 'Capital gains' in respect of any profits or gains arising from the sale, exchange or transfer of a capital asset effected after the 31st day of March, 1946, and before the 1st day of April, 1948; and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange or transfer took place ...... Provided further that any transfer of capital assets by reason of the compulsory acquisition thereof under any law for the time being in force relating to the compulsory acquisition of property for public purposes or any distribution of capital assets on the total or partial partition of a Hindu undivided family, or on the dissolution of a firm or other association of persons, or on the liquidation of a company, or under a deed of gift, bequest, will or transfer on irrevocable trust shall not, for the purposes of this section, be treated as sale, exchange or transfer of the capital assets:....." The proviso which we have extracted above shows that the word "transfer" which occurred in sub-section (1) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer was only this that the compulsory acquisition of its undertaking did not amount to a "transfer" within the meaning of section 12B(1) of the Act of 1922. No case was made out that, alternatively, goodwill is not a capital asset. The appellant did not contend before the Appellate Assistant Commissioner also that goodwill is not a capital asset and, therefore, at least to the extent to which compensation was attributable to the goodwill the capital gains tax was not attracted. The appellant did contend before the Tribunal that, apart from its tangible assets, the State Government had taken over the goodwill attaching to the business and the appellant's right to the management of that business and the amount referable to these items had to be deducted in computing the capital gains. The Tribunal answered this contention by holding that-- (a) goodwill as understood in law had no real significance in the present case and could not have been acquired by the Government; (b) it was not one of the assets shown in the balance-sheet; (c) there was no proof to show that the Government actually took over any goodwill; (d) if the case of the appellant was that even if it was no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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