1962 (4) TMI 111 - HC - Income Tax

Sale of Motor Vehicle Act permits deemed taxable revenue income; court rules in favor of tax liability

Ex-Soldiers' Motor Transport Co. Versus Commissioner of Income-Tax, U.P.

Ex-Soldiers' Motor Transport Co. Versus Commissioner of Income-Tax, U.P. - [1963] 47 ITR 913 Issues:Interpretation of revenue income from the sale of permits under the Motor Vehicles Act for a transport business.Analysis:The case involved determining whether a sum of Rs. 10,000 received by the assessee from the sale of permits granted by the Regional Transport Authority was revenue income liable to tax under the Income-tax Act. The assessee operated a business of plying motor vehicles and was assessed for the relevant year with a credit entry of Rs. 10,000 in its accounts, representing the sale proceeds of permits to third parties. The Income-tax Officer initially treated this amount as revenue income, adding it to the total income for tax assessment. However, the Appellate Assistant Commissioner considered the amount as capital receipt, as the purchasers acquired an enduring benefit of a trading license. The Tribunal overturned the decision, concluding that the sum was revenue receipt. The High Court analyzed the transaction, emphasizing the substance over the form, and determined that the amount was income earned in connection with the business, not a capital receipt.The court highlighted that the permits were not marketable commodities and could not be legally obtained by anyone without the authority's discretion under the Motor Vehicles Act. The assessee merely transferred the permits to third parties, enabling them to operate vehicles on specified routes, while the assessee refrained from plying vehicles itself. This change in business operation did not increase the assessee's capital but altered the mode of earning profits. Referring to relevant case law, the court distinguished cases involving transfer of legal rights to assets from the present scenario, where the permits were not legal rights owned by the assessee. The court cited Commissioner of Excess Profits Tax v. Shri Lakshmi Silk Mills Ltd. and Raghuvanshi Mills Ltd. to support its conclusion that the sum of Rs. 10,000 was revenue receipt subject to tax assessment.In conclusion, the High Court answered the question in the affirmative, stating that the sum of Rs. 10,000 was revenue income liable to tax. The court directed the assessee to pay the department's costs and fixed the counsel's fee accordingly. The judgment emphasized the nature of the transaction and the impact on the assessee's business operations, ultimately determining the taxability of the amount received from the sale of permits under the Motor Vehicles Act.