Capital gains on slump acquisition of a going concern can be computed where cost is ascertainable; fair market value option remains available.

A going-concern banking undertaking was treated as a capital asset because the Income-tax Act defines capital asset broadly to include property of wide amplitude. The undertaking was also regarded as a composite unit acquired as a whole, with assets and liabilities vested together and consideration fixed on a lump-sum basis. Capital gains on the slump acquisition were held computable where the constituent costs and dates could be ascertained on evidence, since valuation difficulty alone does not defeat the charge. The assessee could still exercise the statutory fair market value option under section 55(2) until capital gains computation was made.

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Issues: (i) whether the banking undertaking acquired by the Government constituted a capital asset under the Income-tax Act, (ii) whether the undertaking had to be treated as a composite unit distinct from its individual components, (iii) whether capital gains could be computed on the slump acquisition of the undertaking, and (iv) whether the assessee could invoke the fair market value option under section 55(2) only after the cost of acquisition was ascertained.

Issue (i): whether the banking undertaking acquired by the Government constituted a capital asset under the Income-tax Act.

Analysis: The expression "capital asset" is of wide amplitude and includes property of any kind held by an assessee except the specific exclusions. An undertaking carried on as a going concern, with its assets, liabilities, rights, powers and privileges, answers that description because the statutory notion of property is comprehensive and extends to the organisation of the business as a unit.

Conclusion: The undertaking was a capital asset, and this issue was answered against the assessee and in favour of the Revenue.

Issue (ii): whether the undertaking had to be treated as a composite unit distinct from its individual components.

Analysis: The transfer under the banking acquisition law vested the undertaking as a whole, along with all its assets and liabilities, and the compensation was fixed as a lump sum without item-wise apportionment. On that basis, the subject of acquisition was the business undertaking as a completed unit and not separate assets treated individually for valuation of the consideration.

Conclusion: The undertaking was rightly treated as a composite unit, and this issue was answered against the assessee and in favour of the Revenue.

Issue (iii): whether capital gains could be computed on the slump acquisition of the undertaking.

Analysis: The charge under capital gains depends upon the possibility of computing the cost of acquisition and applying the computation machinery. A slump transfer of a going concern does not, by itself, make computation impossible; the dates and costs of the constituent components were capable of evaluation on evidence, and the difficulty in working out valuation did not destroy the charge to tax. The rule excluding assets with no conceivable cost of acquisition was confined to situations where the date or cost could not be ascertained at all.

Conclusion: Capital gains were capable of determination, and this issue was answered against the assessee and in favour of the Revenue.

Issue (iv): whether the assessee could invoke the fair market value option under section 55(2) only after the cost of acquisition was ascertained.

Analysis: The choice under section 55(2) is a statutory option conferred for the assessee's benefit, and it may be exercised till the capital gains computation is made. The assessee is entitled to choose between the original cost and the fair market value as on the relevant date, and that choice is not lost merely because the original cost is also being investigated.

Conclusion: The assessee could validly exercise the option in the manner contended, and this issue was answered in favour of the assessee and against the Revenue.

Final Conclusion: The reference was answered substantially in favour of the Revenue on the core capital gains questions, while the assessee succeeded on the statutory option under section 55(2).

Ratio Decidendi: An acquired going-concern undertaking can be a capital asset whose slump transfer does not escape capital gains taxation merely because valuation is difficult, so long as the cost of acquisition is capable of being ascertained on evidence; the assessee's statutory option as to fair market value remains available until computation is made.

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