1994 (8) TMI 21 - HC - Income Tax

Transport Division Acquisition Upheld Under Tamil Nadu Act, Compensation, Permit Transfer, Capital Gains, Acquisition Costs

The court affirmed that the acquisition of the transport division under the Tamil Nadu Acquisition Act was compulsory, regardless of being voluntary or ... Capital Gains, Cost Of Acquisition, Route Permits, Transport Business Issues Involved:1. Compulsory acquisition under the Tamil Nadu Acquisition Act.2. Assessability of compensation in the year of acquisition.3. Transfer of unexpired permits under section 2(47).4. Computation of capital gains and deduction for gratuity liability.5. Assessment of excess value of stores to capital gains.6. Application fees and incidental expenses as cost of acquisition for route permits.Issue-wise Detailed Analysis:1. Compulsory Acquisition under the Tamil Nadu Acquisition Act:The Tribunal held that the acquisition of the transport division of fleet operators under the Tamil Nadu Acquisition Act XXXVII of 1971 is a compulsory acquisition and can be termed as acquisition under a 'law for the time being in force.' The court affirmed this position, stating that whether the acquisition is voluntary or compulsory, the legal consequences remain the same.2. Assessability of Compensation in the Year of Acquisition:The Tribunal concluded that since the acquisition took place in the previous year relevant to the assessment year 1972-73, the fact that the compensation was determined in the subsequent assessment year does not affect the assessability in the year in which the acquisition occurred, i.e., 1972-73. The court upheld this view, emphasizing that the vesting of assets with the Government took place within the accounting year relevant to the assessment year 1972-73.3. Transfer of Unexpired Permits under Section 2(47):The Tribunal held that notwithstanding the absence of a mention of permits in section 3 of the Acquisition Act, there was a transfer of unexpired permits within the meaning of section 2(47). The court supported this interpretation, noting that the transfer includes extinguishment, which has the widest amplitude, and the rights of the assessee for the unexpired permits were extinguished when the Government issued the notification and paid compensation.4. Computation of Capital Gains and Deduction for Gratuity Liability:The Tribunal determined that the compensation of Rs. 56,82,378.47 should be taken as the full value of consideration for the computation of capital gains under section 48 and other purposes, and the deduction made for gratuity liability should be ignored. The court agreed, stating that the compensation received represents the full value of consideration without allowing any deductions for gratuity liability.5. Assessment of Excess Value of Stores to Capital Gains:The Tribunal assessed the excess value of stores at Rs. 15,714 to capital gains for the assessment year 1972-73. The court upheld this assessment, rejecting the assessee's contention that the compensation payable was not determined in the accounting year relevant to the assessment year 1972-73.6. Application Fees and Incidental Expenses as Cost of Acquisition for Route Permits:The Tribunal held that the application fees and other incidental expenses incurred in connection with the acquisition of route permits cannot be treated as the expenditure constituting the cost of acquisition of the route permits, and hence no capital gains could be brought to tax on the transfer of such route permits. The court affirmed this position, citing the Supreme Court's decision in CIT v. B. C. Srinivasa Setty and the Andhra Pradesh High Court's decision in Addl. CIT v. Ganapathi Raju Jegi, Sanyasi Raju. The court concluded that since there is no cost of acquisition for acquiring the route permits, the consideration realized on their transfer cannot be subjected to capital gains tax.Conclusion:The court answered the question referred by the Department in Tax Case No. 1301 of 1981 in the affirmative and against the Department. The questions referred by the assessee for the assessment year 1972-73 were rejected, and there was no order as to costs. Counsel's fee was fixed at Rs. 1,000 (one set only).