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TMI Blog1995 (7) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... , on July 18, 1969. For the assessment year 1970-71, the assessee worked out a capital loss of Rs. 19,19,539 originally and subsequently at a revised figure of Rs. 29,06,396. This was based on the value of the undertaking as on December 31, 1968. The Income-tax Officer, in working out the capital gains, reduced the cost of acquisition of the assets by a sum of Rs. 19,78,065 which represented what was called " rebated interest ". On account of a peculiar system of noting outstandings adopted by the assessee from year to year where an account was not active for a period such as six months or more, the interest accruing to this account was not debited (sic) to the profit and loss account but to a separate account called " rebated interest account ". According to the assessee, this represented actual interest accrued but was not in the method of account followed merely debited (sic) to the profit and loss account direct. The Income-tax Officer held that this interest had not been credited and could not be taken account of since there was uncertainty of realisation of the disputed loans and advances. On appeal, the Appellate Assistant Commissioner held that the sum of Rs. 19,78,065 shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , adopted by the assessee from year to year, where if an account is not active for a period such as six months or more, the interest accruing to his account is not debited (sic) to the profit and loss account but to a separate account called rebated interest account. As and when the accounts get worked on again, the interests accruing or received are transferred to the profit and loss account and accounted for as income. The credit is given to a suspense account. This is not a bad debt or even an amount not recoverable. Learned counsel further pointed out that since the assessee is adopting the mercantile system of accounting, the above said income credited and the assessee has also paid tax on such income. For these reasons, it was stated that the Tribunal was correct in holding that the assessee is entitled to deduction of Rs. 19,78,065 from the assessment of that year. We have heard both learned standing counsel appearing for the Department as well as learned counsel appearing for the assessee. The fact remains that consequent on the nationalisation of banks and acting under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, the banking business of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome which had accrued to the appellant. In CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294, the Supreme Court, while considering the provisions of sections 2(14), 45, 48(ii), 49, 50, 55(2), (3) of the Income-tax Act, held as under : " Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by section 45 must fall under the governance of its computation provisions. A transaction to which those provisions cannot be applied must be regarded as never intended by section 45 to be the subject of the charge. This inference flows from the general arrangement of the provisions in the Income-tax Act, where under each head of income the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of the computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and the computation provisions together constitute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is sub-section (2) of section 55. None of the provisions pertaining to the head ' Capital gains ' suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded. The elements which create it have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain." Therefore, for levying capital gain tax under section 45 read with section 48, capital gain has got to be ascertained after deducting from the total value of the undertaking the cost of acquisition and the cost of improvement. If there is no cost of acquisition, then there could be no question of levying capital gain tax under section 45 of the Act. A similar question came up for consideration before the Karnataka High Court in Syndicate Bank Ltd. v. Addl. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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