1996 (4) TMI 11 - HC - Income Tax

Compensation for Acquisition of Bus Business Deemed Sale under Income-tax Act

Southern Roadways Limited Versus Commissioner Of Income-Tax

The court affirmed that the compensation received for the compulsory acquisition of a bus transport undertaking constituted a sale and transfer under the ... Capital Gains, Balancing Charge, Compulsory Acquisition Issues Involved:1. Compulsory acquisition under Article 31(2A) of the Constitution.2. Acquisition as a sale or transfer under Sections 32 and 41 of the Income-tax Act.3. Compensation as a slump transaction under Sections 41(2) and 45 of the Income-tax Act.Detailed Analysis:Issue 1: Compulsory Acquisition under Article 31(2A) of the ConstitutionThe court examined whether the taking over of the bus transport undertaking by the Government of Tamil Nadu amounted to a 'compulsory acquisition' as defined in Article 31(2A) of the Constitution, thus attracting the provisions of Sections 41(2) and 45 of the Income-tax Act. The court held that under the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971, the assets of the transport division vested with the Government absolutely and free from all encumbrances upon notification. This was deemed a compulsory acquisition within the meaning of 'sold' under Sections 32 and 41 and 'transfer' under Section 2(47) of the Act. The court referenced the Supreme Court decision in State of Tamil Nadu v. L. Abu Kavur Bai, which upheld the validity of similar acquisition acts, to conclude that the provisions of Sections 41(2) and 45 of the Income-tax Act were applicable.Issue 2: Acquisition as a Sale or Transfer under Sections 32 and 41 of the Income-tax ActThe court considered whether the acquisition of stage carriages amounted to the assets being sold or transferred within the meaning of Sections 32 and 41 of the Income-tax Act. The Tribunal had previously concluded that the compulsory acquisition constituted a sale and transfer. The court agreed, noting that the compensation paid by the Government was attributable to the individual assets acquired. This conclusion was supported by the fact that the compensation was determined based on the market value of the assets as per the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act. The court also noted that the assessee had accepted the compensation without resorting to arbitration, indicating that the compensation was indeed for the individual assets.Issue 3: Compensation as a Slump Transaction under Sections 41(2) and 45 of the Income-tax ActThe court addressed whether the payment of compensation amounted to a slump transaction, which would mean that balancing charges under Section 41(2) and capital gains under Section 45 could not be levied. The court rejected this argument, stating that the compensation received by the assessee was attributable to specific assets. The court referenced the Supreme Court decision in CIT v. Artex Manufacturing Co., which established that even in a slump sale, if the compensation can be attributed to specific assets, the provisions of Section 41(2) would apply. The court found that the compensation in this case was indeed attributable to the individual assets and thus, the provisions of Sections 41(2) and 45 were applicable.Conclusion:- First Question of Law: Answered in the affirmative and against the assessee.- Second Question of Law: Answered in the affirmative and against the assessee.- Third Question of Law: Answered in the affirmative and against the assessee.The court affirmed the Tribunal's decision that the compensation received was attributable to the individual assets, thereby attracting the provisions of Sections 41(2) and 45 of the Income-tax Act. The assessee was ordered to pay the costs of the reference, with counsel fees fixed at Rs. 500.