9911796707
TMI Blog1976 (9) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... the net income from bus service at Rs. 15,000. He did not allow any depreciation since the buses were sold in the relevant previous year. He also determined the profit under s. 41(2) of the I.T. Act, 1961, taking into view the following facts. Out of the two buses, the bus bearing No. APV 2673 was purchased on September 1, 1960, for Rs. 45,285, whereas the other bus bearing No. APV 1832 was purchased on March 16, 1959, for Rs. 47,061. The aggregate value of the two buses came to Rs. 92,347. The written down value of the bus APV 2673 as on April 1, 1963, was Rs. 19,636 and that of the bus APV 1832 was Rs. 16,132. Thus, the aggregate written down value of the two buses was Rs. 35,768. Since the two buses were sold for Rs. 96,000, the ITO worked out the profit under s. 41(2) at Rs. 56,579, i.e., Rs. 92,347 minus Rs, 35,768. The balance amount of Rs. 3,653, being the difference between the original capital value of Rs. 92,347 and the sale price of Rs. 96,000, was, according to the ITO, capital gains. However, since this amount of capital gains was below Rs. 5,000, he ignored it for the purpose of assessing the income to tax. On appeal to the AAC by the assessee, the following conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and reformulate the questions as follows : " (1) Whether, on the facts and in the circumstances of the case, route permits are capital assets ? (2) If answer to question No. 1 is in the affirmative, whether the value of the route permits can be taken into account for computation of capital gains ? " In order to arrive at our conclusions, it is necessary to refer to some of the provisions of the I.T. Act as well as the Motor Vehicles Act. " Capital asset " has been defined in s. 2(14) to mean property of any kind held by an assessee, whether or not connected with his business or profession. The emphasis for the purpose of this judgment is on the words " property of any kind ". The rest of the definition is not necessary for the purpose of this judgment. Section 2(47) defines " transfer ", in relation to a capital asset, to include the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. Section 41(2) provides : " Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 61, a permit shall not be transferable from one person to another except with the permission of the transport authority which granted the permit and shall not without such permission operate to confer on any person to whom a vehicle covered by the permit is transferred any right to use that vehicle in the manner authorised by the permit." Under r. 247 of the Motor Vehicles Rules, when the holder of a permit desires to transfer the permit to some other person under s. 59(1), he shall, together with the person to whom he desires to make the transfer, make joint application in writing to the transport authority by which the permit was issued, setting forth the reasons for the proposed transfer. Such joint application shall be accompanied by a treasury receipt for one hundred rupees. Under r. 248 on receipt of an application under r. 247, the transport authority may require the holder and the other party to state in writing whether any premium, payment or other consideration arising out of the transfer, is to pass or has passed between them and the nature and amount of any such premium, payment or other consideration. It may be pointed out that, under s. 68G of the Motor Vehicl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IR 1954 SC 728, one of the grounds on which the U.P. State Road Transport Act was held to be unconstitutional was that it violated the fundamental rights guaranteed under art. 19(1)(g) of the Constitution and that it was an invalid piece of legislation as it purported to acquire the interest of the appellant before the Supreme Court in a commercial undertaking without making any provision for compensation as is required under art. 31(2) of the Constitution. In para. 24, at page 739, B.K. Mukherjea J. (as he then was), speaking for the Supreme Court, observed : " We now come to the second point which is in a manner connected with the first and the question is : If the effect of prohibition of the trade or business of the appellants by the impugned legislation amounts to deprivation of their property or interest in a commercial undertaking within the meaning of article 31(2) of the Constitution, does not the legislation offend against the provision of that clause inasmuch as no provision for compensation has been made in the Act ? It is not seriously disputed on behalf of the respondents that the appellants' right to ply motor vehicles for gain is, in any event, an interest in a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will where goodwill as such has no cost of acquisition, but at the time when the goodwill is transferred, it has come to acquire some value, particularly in the case of a business which has been started by the transferor himself. In Seshasayee Brothers Ltd. v. CIT [1961) 42 ITR 568, the question before the Madras High Court was whether, when the licence obtained to start manufacture of Vanaspathi products was surrendered for consideration and there was excess of realisation over expenses, the excess could be taxed as capital gains and whether it could be said to be a casual receipt. At page 575, it was observed : " That the licence which the partnership, of which the assessee company was a member, was a valuable asset and a capital asset in its hands could admit of no doubt. That capital asset was sold for a sum of rupees one lakh. Rs. 41,000, which the assessee received represented its share of that receipt. It was a capital receipt in its hands, and, in our opinion, the Assistant Commissioner was right in the view he took, that being a capital receipt it fell within the scope of section 12B of the Act. It was not assessable to tax as a trading receipt. Before the Tribunal a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and could be considered to be allowable as revenue expenditure. The facts were that 'P', a chartered accountant, who carried on his profession in the name of D. V. Co., by a deed dated November 30, 1948, took 'A' as a partner reserving to himself the goodwill. The partnership was dissolved with effect from December 31, 1950. Clause 2 of the deed of dissolution provided that the business shall be carried on in that name by 'A' alone, that the goodwill belonged to 'P' alone and that he had agreed to sell the same to 'A' and as consideration for and in full satisfaction of the purchase price of the goodwill, 'A' shall pay to 'P', his wife and his son, successively during their respective lives, 8 annas in the rupee of the net profits of the business to be carried on in the name of ' D. V. Co.'. It was held by the majority of the learned judges that the transaction under the deed of dissolution was a licence and not a sale of the goodwill and the payments were in the nature of royalty and had to be treated as admissible deductions. It was further held that the acquisition of the goodwill of a business is, without doubt,acquisition of a capital asset, and, therefore, its purchase p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 'cost of acquisition' and the 'cost of improvement' referred to in section 48(ii) for the purpose of computation of 'capital gains' under section 48. Without computation of 'profits or gains' no tax can be levied under section 45 of the Act. Therefore, the amount received by the assessee towards the value of goodwill was not assessable to tax under section 48 of the Income-tax Act, 1961." N. D. P. Namboodripad J., delivering the judgment of the Full Bench, pointed out that the Madras High Court in CIT v. Rathnam Nadar [1969] 71 ITR 433 had taken the same view as was being taken by the Full Bench of the Kerala High Court. The Calcutta High Court in CIT v. Chunilal Prabhudas Co. [1970] 76 ITR 566 had proceeded upon the footing that goodwill was not a capital asset. But it was pointed out by the Full Bench of the Kerala High Court that in the light of the decision of the Supreme Court in Devidas Vithaldas Co. v. CIT [1972] 84 ITR 277, it was not possible to say that goodwill was not a capital asset. The Full Bench of the Kerala High Court also pointed out that the same view, as was taken by the Madras High Court, was also taken by the Delhi High Court in Jagdev Singh Mumick v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 and the decision of the Delhi High Court in Jagdev Singh Mumick v. CIT [1971] 81 ITR 500. At page 670 of the report, Govinda Bhat C.J., delivering the judgment of the Division Bench, observed that : " The decision of the Madras High Court in CIT v. Rathnam Nadar [1969] 71 ITR 433 raised a substantial question of law of general importance. Against the said judgment the department preferred an appeal to the Supreme Court in C.A. No. 1504/70. It was submitted by Sri Ramamani, learned counsel for the assessee, that the said appeal was heard before a Tax Bench of the Supreme Court on March 5, 1973, and March 6, 1973, and was dismissed is not pressed. The correctness of that statement was not disputed by Sri Rajasekharamurthy, learned counsel for the department. Long before the date of hearing of C.A. No. 1504/70, before the Supreme Court the High Court of Gujarat in CIT v. Mohanbhai Pamabhai [1973] 91 ITR 393, dissenting from the view of the High Courts of Madras and Calcutta, had taken a contrary view. In the said decision,it was held that the charging provision in section 45 is not confined to those cases where the capital asset has cost something to the assessee in terms of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connotation in view of the fact that it occurred in a legislative head conferring legislative power and it included a capital gain. It would be wrong to interpret the word in the light of any supposed English legislative practice. It must be borne in mind that the Indian I.T. Act is an Act providing for tax on incomes and the relevant entry in the First List, i.e., Union List in the Seventh Schedule to the Constitution of India, is entry No. 82, which deals with taxes on income other than agricultural income. It is undoubtedly true that, under entry No. 86, taxes on the capital value of the assets can be levied by Parliament. Entry No. 86 is in these terms: " Taxes on the capital value of the assets, exclusive of agricultural land, of individuals and companies; taxes on the capital of companies. " Since Parliament came to enact the I.T. Act of 1961, after the Constitution came into force, it was open to it,, in an Act, dealing with tax on the capital value, to provide for tax on such capital value. For the reasons stated by the Madras High Court in CIT v. Rathnam Nadar [1969] 71 ITR 433, which reasoning has appealed to the Calcutta High Court, Kerala High Court, Delhi High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
