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TMI Blog1982 (10) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,30,00,000 being the compensation received for the taking over of the undertaking and, therefore, there was no capital gains at all. Aggrieved by the order of the AAC, the Revenue filed an appeal before the Income-tax Appellate Tribunal. The Tribunal allowed the said appeal and upheld the order of the ITO computing the capital gains at Rs. 55,166. Aggrieved by the order of the Income-tax Appellate Tribunal the assessee has sought and obtained a reference to this court on the following two questions of law : "(a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that on a true interpretation of the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, the Malaysian branches were not vested and, hence, the compensation relates only to Indian assets ? (b) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the written down value of the asset as on July 18, 1969, should be considered as the cost of acquisition for the purpose of determining capital gains ?" The ITO, on the basis of certain audit reports, reopened the assessment for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he depreciation of Rs. 38,750 allowed in the original assessment, for the year 1970-71 was not justified and that the assessee is entitled to depreciation on the proportionate written down value of the Malaysian assets for the year 1972-73. Aggrieved by the order of the Tribunal, the Revenue has sought and obtained a reference to this court on the following questions of law : " (1) Whether, on the facts and in the circumstances of the case, it was rightly held that the written down value as on December 31, 1968, being the last day of the accounting year preceding the accounting year relevant to the assessment year 1970-71 and not as on the date of nationalisation, viz., July 18, 1969, should be taken for the computation of capital gains? (2) Whether, on the facts and in the circumstances of the case, it has been rightly held that the assessee would be entitled to depreciation in respect of Malaysian assets for the assessment years 1970-71 and 1972-73 ?" For a proper appreciation of the questions referred in these cases, it is necessary to refer to certain facts in detail. M/s. Indian Bank Ltd., was doing banking business in India, Ceylon, Singapore and Malaysia. The Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue on December 31, 1968, and if so done, it will enhance the capital gains to Rs. 4,59,451. On the basis of the said audit report, the assessment for the year 1970-71 was reopened under s. 147(b) of the I.T. Act, 1961, and reassessment order was passed refixing the capital gains at. Rs. 4,59,451. While making the original assessment for the year 1972-73, the assessing authority had held that since the assessee has not given particulars regarding the written down value of the Malaysian assets, depreciation will be given in relation to those assets only after furnishing the particulars by the assessee and that the depreciation given in the earlier years have also to be withdrawn since no particulars have been furnished in those years as required under s. 32. Thus, on the facts stated above, three questions arise for consideration : (1) Whether the ITO was justified in reducing the cost of the undertaking by Rs. 2,66,099 by way of adjustment on account of adopting the book value of the fixed assets instead of the written down value as on December 31, 1968, in the original assessment for the year 1970-71? (2) Whether the written down value as on July 18, 1969, should be taken as the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having been taken as a going concern would ordinarily include the goodwill and the value of long-term leases, if any, but the goodwill of the banks and the value of the unexpired period of leases have not been shown as one of the items in the Schedule to be valued and, therefore, the compensation should be determined for the undertaking as a whole and not in respect of some of its assets alone. Taking note of the decision of the Supreme Court, Parliament enacted the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (Act 5 of 1970), laying down a different principle for payment of compensation. Section 6 of the Act provided that every existing bank shall be given by the Central Government such compensation in respect of the transfer as is specified against each such bank in the Second Schedule. The Second Schedule has provided for a lump sum compensation in respect of each of the existing banks taken over. In relation to the Indian Bank Ltd., a lump sum compensation of Rs. 2,30,00,000 was awarded for the entire undertaking taken over. That the said sum is the sale price of the undertaking for the purpose of determining the capital gains is not in dispute. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arrive at the written down value as adjusted for purposes of s. 50. The learned counsel for the assessee would rely on s. 55(2) of the I.T. Act, 1961, and say that s. 55(2) can be invoked only when an individual capital asset is transferred and not when an undertaking as such is transferred. But we do not see any substance in the said contention as the expression " capital asset " will definitely include an undertaking. Therefore, the cost of acquisition of an undertaking can only be determined by applying the provisions of s. 55(2) read with ss. 48, 49 and 50. In this case, the cost of acquisition of the undertaking is taken by the assessing authority to include the depreciation which has been granted in relation to the depreciable assets up to December 31, 1968, and, therefore, that should be deducted to find out the written down value of those assets, for purposes of s. 50. Section 43(6) defines " written down value " in the case of assets acquired before the previous year as the actual cost to the assessee less all depreciation actually allowed to him under the Act. Therefore, the assessing authority appears to be quite justified in excluding the sum of Rs. 2,66,099 from the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter of fact, in the original assessment, the ITO allowed depreciation on Malaysian assets on a proportionate basis in the absence of particulars. It is true, the item-wise particulars of the written down value of each of the assets were not available with the assessee. But once it is conceded that the entire assets have been used only for business purposes, depreciation on Malaysian assets can be allowed on a proportionate basis as has been done by the ITO at the stage of the original assessment. It is no doubt true, s. 34 says that the deductions referred to in s. 32(1) shall be allowed only if the prescribed particulars have been furnished and, in this case, the assessee is not in a position to furnish the particulars. But having regard to the fact that the Malaysian assets have not been valued separately, depreciation can be given on a proportionate basis. Having given depreciation on the Malaysian assets on a proportionate basis, the assessing authority is not justified in withdrawing the benefit merely on the basis that item-wise particulars have not been furnished. We are inclined to agree with the view taken by the AAC and the Tribunal on this aspect of the case. Thus, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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