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TMI Blog2003 (5) TMI 46X X X X Extracts X X X X X X X X Extracts X X X X ..... by the West Bengal State Electricity Board. The cost of such acquisition was to be valued under section 7A of the Indian Electricity Act. The said section 7A of the Indian Electricity Act provides that if there is an agreement between the parties the undertaking would be treated to have been valued at the fair market price, in default, the matter has to be referred to an arbitrator and then the award would be treated to be the fair market value of the undertaking. There was no agreement between the parties. The matter was referred to the arbitrator. An award was passed. This award was subjected to litigation that went up to the apex court. Ultimately, the apex court appointed an arbitrator. The arbitrator awarded a sum of Rs. 1,02,82,000. This was subjected to assessment, which went up to the Tribunal. The Tribunal assessed the said amount both to capital gains and to income from business, having regard to section 41(2) of the Income-tax Act, 1961. The undertaking was valued at Rs. 88 lakhs by an order of the learned Tribunal passed on May 15, 2000. Subsequently, the assessee filed an application under section 254(2) of the Income-tax Act, 1961. Relying on CIT v. West Coast Chemica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... land can be ascertained from the balance-sheet as at page 48 of the paper book an amount is admitted by the assessee itself. Having admitted the valuation, the assessee is estopped from contending that the valuation is different from what has been shown in the balance-sheet. According to him, the value of the land has been indicated therein. Therefore, if that amount is deducted from the price received, the balance would be the amount received on account of depreciable assets and then the calculation is to be followed by computing the difference between the book value and the written down value. The excess receipt comprising the book value would be chargeable to capital gains and the difference between the written down value and the book value would be treated to be an income within the meaning of section 41(2) for being charged under the head "Income from business". He had relied on the decision in CIT v. Artex Manufacturing Co. [1997] 227 ITR 260 (SC) and CIT v. B.M. Kharwar [1969] 72 ITR 603 (SC), in order to support his contention. He had distinguished in Mugneeram Bangur's case [1965] 57 ITR 299 (SC); Electric Control Gear Manufacturing Co.'s case [1997] 227 ITR 278 (SC) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is determinable. This is not in dispute. Therefore, it was rightly subjected to capital gains. This has not been disputed by the assessee and rightly. But in order to compute the income from business, the cost of non-depreciable assets is to be excluded since section 41(2) relates to depreciable assets alone. If there are materials from which it can be ascertained that a particular figure or amount is attributable to depreciable assets or to non-depreciable assets and by calculation the figure attributable to depreciable assets could be arrived at, then there would be no difficulty in computing the income from business by deducting the book value or the written down value, as the case may be, for the purpose of assessment. An income can be assessed only after computation. Unless the computation can be made, no tax can be assessed. In this case, this undertaking was transferred and the market value was determined by the arbitrator, who had awarded a slump price without attributing any part of the amount to any particular head. What amount was payable on account of non-depreciable assets and what amount was payable on account of depreciable assets cannot be determined unless there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f account different items were shown against different heads of plant, machinery and dead stock, etc., in the assessee's books of account. The cost of acquisition and the written down value were reflected therein. These were revalued by Hargovandas Girdharlal at the time of transferring the assets to the private limited company. In the said revaluation, the valuation of each item was shown separately. This revaluation was made by the assessee itself. Thus, from the fact, it was clearly ascertainable as to what amount reflected the difference between the written down value and the valuation at which it was transferred enabling the authority to determine the profit/income out of it. Upon such specific facts, the apex court in B.M. Kharwar's case [1969] 72 ITR 603 had held that section 41(2) was applicable on the surplus amount, namely, the difference between the written down value of the plant, machinery and dead stock as per the assessee's books and the value of the same as revalued by Hargovandas Girdharlal. In Doughty v. Commissioner of Taxes [1927] AC 327, the Privy Council was concerned with the facts that there was a sale of entire assets including goodwill in lieu of allotment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks was the cost price as it stood in the books of the vendors. If on the basis of the materials a particular price can be attributable to a particular item, then the excess amount would be chargeable to tax under the head it comes. Until it can be so done, the same cannot be charged to tax on income from business since it would include some profits, which were not income from business. With these observations in Artex Manufacturing Co.'s case [1997] 227 ITR 260 (SC); Mugneeram Bangur and Co.'s case [1965] 57 ITR 299 (SC) was distinguished where the price attributable to a particular item was indicated attracting the application of section 41(2). In the circumstances, the appeal is allowed to the extent that the slump price would not be subjected to tax under the head "Income from business" under section 41(2). In these circumstances, we hereby set aside the order dated August 31, 2000, passed in M.A. No. 49(Cal) of 2000 in I.T.A. No. 77 (Cal) of 1996 and allow the said application under section 254(2) to the extent it relates to tax on income from business. We, however, confirm that part of the order, which deals with the principle relating to capital gains and hold that the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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