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TMI Blog1996 (4) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... amounted to the assets of the assessee being sold within the meaning of sections 32 and 41 of the Income-tax Act or transfer within the meaning of section 2(47) of the Act ? 3. Whether, on the facts and circumstances of the case, the payment of compensation for acquisition of the transport division of the assessee-company amounted to a slump transaction in respect of which balancing charge under section 41(2) and capital gains under section 45 could not be levied ?" The assessee is a public limited company running the business of transport of passengers and goods. On January 17, 1972, the passenger transport division of the assessee-company was taken over by the Government of Tamil Nadu by a notification issued under section 2 of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 (Tamil Nadu Act 37 of 1971), hereinafter referred to as the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act. The Income-tax Officer in the assessment order for the assessment year 1972-73 held that by virtue of the vesting of the stage carriages owned or operated by the assessee, with the Government absolutely, there was a compulsory acquisition of the capital assets o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee that when the passenger transport division was taken over, it amounted to a slump sale and, therefore, the assessment of the balancing charge under section 41(2) did not arise, was not accepted by the Appellate Tribunal. The Tribunal noticed the provision of section 3 of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act and the negotiations arrived at between the parties and came to the conclusion that this is not a case in which it could not be said that no part of the compensation received was not attributable to the individual assets acquired. The Tribunal, therefore, held that the provisions of section 41(2) of the Act were rightly attracted and the assessment of capital gains under section 45 of the Act was correct in law. The assessee challenged the order of the Appellate Tribunal and sought for a reference and the Appellate Tribunal, as already stated, has stated a case and referred the questions of law set out above. Mr. S. A. Balasubramanian, learned counsel for the assessee, submitted that the taking over of the bus transport division by the Government of Tamil Nadu from the assessee under the Tamil Nadu Fleet Operators Stage Carriages (Acquisiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heshari Prakashan Ltd. [1992] 196 ITR 438, and submitted that when the entire business was sold as a whole and the value of the liability was adjusted, the character of the transaction as a slump sale is not changed and it is not permissible to levy the balancing charge under section 41(2) of the Act. He also referred to the decision of the Karnataka High Court in the case of Syndicate Bank Ltd. v. Addl. CIT [1985] 155 ITR 681, and submitted that if there was a transfer as a whole concern and no part of the price can be allocated to the capital assets in specie, what is taxable in such a case would be the gain in respect of the transaction and nothing else. Lastly, he relied upon the decision of the Supreme Court in CIT v. Electric Control Gear Mfg. Co. [1997] 227 ITR 278, wherein the Supreme Court has held that where there is nothing to indicate the price attributable to the assets like machinery, plant, etc., the provisions of section 41(2) of the Act would not apply. Therefore, he would submit that the case of the assessee would fall squarely within the decision of the Supreme Court in the case of Electric Control Gear Mfg. Co. [1997] 227 ITR 278. Mr. C. V. Rajan, learned stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid Act also provides for the vesting of building, workshops and other places, etc. A mere look at the provisions of section 3 of the Tamil Nadu Act 37 of 1971 indicates that the Tamil Nadu Act was passed for the acquisition of the stage carriages of fleet operators holding fifty or more stage carriage permits and for certain other matters connected therewith in the State and the preamble to the Tamil Nadu Act also mentions that the Tamil Nadu Act was passed in public interest to acquire all passenger transport divisions of fleet operators holding fifty or more stage carriage permits and the Act was passed with an intention to give effect to article 39(b) and (c) of the Constitution of India. The Act is protected under article 39(b) and (c) of the Constitution of India. The Supreme Court in the case of State of Tamil Nadu v. L. Abu Kavur Bai, AIR 1984 SC 326 ; [1984] 1 SCC 515, upheld the validity of the Tamil Nadu Stage Carriages and Contract Carriages (Acquisition) Act, 1973, and in our view, the decision of the Supreme Court in L. Abu Kavur Bai, AIR 1984 SC 326, would equally apply to the provisions of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971. Follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt on and from that date. The Government of Tamil Nadu also set up a Corporation called Pandian Roadways and transferred the properties to it on January 17, 1972. The Government of Tamil Nadu decided to pay compensation of Rs. 51.50 lakhs initially on March 21, 1972, pending negotiations. There were negotiations between the chairman and managing director of the assessee and a committee of the secretaries to the Government which recommended payment of compensation as follows (Rs.) (Rs.) Value of 346 buses 80,00,000.00 Value of 16 other vehicles 1,50,000.00 Value of land 4,36,877.66 Value of buildings 12,62,464.00 Value of unexpired permits 93,400.00 Value of spares etc., 26,00,000.00 1,25,42,741.66 ------------------------ Less Gratuity liability 30,00,000.00 ---------------------------------------------------------------------- Leave liability 3,87,484.41 33,87,484.41 91,55,257.25 Less Part compensation paid 51,50,000.00 ----------------------- 40,05,057.25 ----------------------- It is relevant to notice that the assessee-company has accepted the compensation and arbitration proceedings were not resorted to. Section 3 of the Act provides for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we are of the opinion that the compensation received by the assessee is attributable to the various assets acquired by the Government of Tamil Nadu under Act 57 of 1971. In this factual background, various decisions relied upon by learned counsel for the assessee is well as learned counsel for the Revenue have to be considered. In the decision in CIT v. Artex Manufacturing Co [1997] 227 ITR 260, the Supreme Court considered the question of applicability of the balancing charge under the provisions of section 41(2) of the Act in detail and after noticing various decisions of the apex court as well as High Courts, the Supreme Court laid down the following test. The test laid down by the Supreme Court is that even when there is a slump sale and the sale is of the business as a going concern, what has to be seen is whether any portion of the slump price is attributable to the assets transferred and if, on the basis of the facts, it can be found that a particular price is attributable to a particular item, the excess amount is chargeable to tax under section 41(2) of the Act. It is in the light of the test laid down by the Supreme Court that the factual situation of this case has to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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