M.G.S. (P) LTD. v. INCOME TAX OFFICER
[Citation -1984-LL-0728-1]

Citation 1984-LL-0728-1
Appellant Name M.G.S. (P) LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 28/07/1984
Assessment Year 1969-70
Judgment View Judgment
Keyword Tags cost of acquisition • date of acquisition • written down value • state government • capital gain tax • fresh assessment • capital asset • route permit • new business • sale price
Bot Summary: The assessee transferred six buses to Shri Ramaswamy Gowder, proprietor, Sri Ram Transports for a consideration of Rs. 95,000. In respect of the sale of buses he worked out the profit under section 41(2) of the Income-tax Act, 1961, at Rs. 33,791 after deducting the written down value of Rs. 21,209 from the sale price of Rs. 55,000. There is nothing improbable about the six buses of 8 to 10 years old being sold for a consideration of Rs. 55,000 even though their written down value was Rs. 21,209 only. In respect of the assessment to capital gain of Rs. 40,000 allocated as value of the route permits, he applied the ratio of the decision of the Madras High Court in K. Balasubramania Nair v. CIT 1979 119 ITR 504 and held that it is liable to capital gain. In our view, the allocation made between the value of the buses and the value of the route permits at Rs. 55,000 and Rs. 40,000, respectively, is perfectly justified. The value of six buses is taken at Rs. 55,000 as against the written down value of Rs. 21,209. Even if the scrap of these six buses is sold, the assessee will be able to get Rs. 55,000.


assessee transferred six buses to Shri Ramaswamy Gowder, proprietor, Sri Ram Transports for consideration of Rs. 95,000. original assessment made by ITO was set aside by Tribunal to make fresh assessment in light of directions given by Tribunal. Accordingly, fresh assessment has been made by ITO as per his order dated 7-12-1981. In this order, he held that average profit from 1962-63 to 1968-69 works out to Rs. 18,000. It would be reasonable to assume that route permits would be roughly between 2 to 2 1/2 times of net income. He adopted cost of route permits at Rs. 40,000. Deducting this amount from total sale receipts of Rs. 95,000, value of buses sold was taken by him at Rs. 55,000. He held that surplus realised on sale of route permits is assessable as capital gain. Thus, entire amount of Rs. 40,000 being value of route permits was assessed to capital gains. In respect of sale of buses he worked out profit under section 41(2) of Income-tax Act, 1961 ('the Act'), at Rs. 33,791 after deducting written down value of Rs. 21,209 from sale price of Rs. 55,000. Thus, he vrought to tax Rs. 33,791 as as profit under section 41(2) on sale of buses. assessee appealed to Commissioner (Appeals). He agreed with ITO as to allocation of value of old buses and value of route permits at Rs. 55,000 and Rs. 40,000, respectively. There is nothing improbable about six buses of 8 to 10 years old being sold for consideration of Rs. 55,000 even though their written down value was Rs. 21,209 only. In respect of assessment to capital gain of Rs. 40,000 allocated as value of route permits, he applied ratio of decision of Madras High Court in K. Balasubramania Nair v. CIT [1979] 119 ITR 504 and held that it is liable to capital gain. He estimated cost at Rs. 500 in acquiring route permit which will be deducted in computing capital gain. Against same assessee has preferred this appeal. 2. learned counsel for assessee submitted that there is no cost for route permits and as such no capital gain tax can be levied. Since there are two views, view favourable to assessee should be adopted. He also urged that value determined for buses at Rs. 55,000 is high. learned departmental representative supported orders of lower authorities. 3. We have considered rival submissions. In our view, allocation made between value of buses and value of route permits at Rs. 55,000 and Rs. 40,000, respectively, is perfectly justified. value of six buses is taken at Rs. 55,000 as against written down value of Rs. 21,209. Even if scrap of these six buses is sold, assessee will be able to get Rs. 55,000. Thus value taken at Rs. 55,000 for six buses is quite reasonable. Thus, profit computed under section 41(2) is perfectly justified. 4. second question is with regad to capital gains computed with respect to route permits. In Addl. CIT v. Ganpathi Raju Jagi Sanyasi Raju [1979] 119 ITR 715, Andhra Pradesh High Court has held that where when t h e route permit was granted, no amount was paid by operator for purpose of acquiring it and it is only over number of years because of various factors that permit acquires some value, value of route permit cannot be evaluated as on date of acquisition and in such cases, where cost of acquisition of particular capital assets is nil, espectially when capital asset is cretion of assessee by his own efforts, case will be similar to that of sale of goodiwll by assessee and consideration in terms of money realised on transfer of said capital asset cannot be rbought to tax as capital gains. This decision support case of assessee. same High Court in CIT v. Krishna & Sons (unreported) had earlier held that route permit does not represent any property and it cannot be capital asset. contrary view has been taken by Madras High Court in K. Balasubramania Nair's case (supra) and CIT v. Shri Venkateswara Bus Union [1979] 119 ITR 507. we prefer to follow view taken by Andhra Pradesh High Court in above two decisions in preference to decisions of Madras High Court referred to above. wehn route permit was acquired, no price has been paid by assessee. It is transport authority of state Government who grants route permit for running stage carriages. When route permit is granted, no price is paid by assessee. Thus, there was no cost for route permit when it was acquired. When there is no cost for route permit when it was acquired, no capital gain cane be computed when it is sold. In CIT v. B. C. Srinivasa Setty [1981] 128 ITR 294 Supreme Court held that what is contemplated by section 48(ii) is asset in acquisition of which it is possible to envisage cost. It was observed as under: "What is contemplated is asset in acquisition of which it is possisble to envisage cost. intent goes to nature and character of asset, that it is asset which posses inherent quality of being available on expenditure oa money to person seeking to acquire it. It is immaterial that although asset belongs to such class, it may, on facts of certain case, be acquired without payment of money. That kind of case is covered by section 49 and its cost, for purpose of section 48 , is determined in accordance with those provisions. There are other provisions which indicate that section 48 is concerned with asset capable of acquisition at cost. Section 50 is one such provision. So also is sub-section (2) of section 55 , None of provisions pertaining to head 'Capital gains' suggests that they include asset in acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that goodwill generated in new business has been so regarded. elements which created it have already been detailed. In such case, when asset is sold and consideration is brought to tax, what is charged is capital value of asset and not any profit or gain." (p. 300) Thus, it was held by Supreme Court that none of provisions pertaining to head 'Capital gains" suggest that they include asset in acquisition of which no cost at all can be conceived. it was also held that goodwill generated in newly commenced business cannot be described as 'asset' within terms of section 45 of act and, therefore, its transfer is not subject to income-tax under 'Capital gains'. above ratio squarely applied to instant case. In instant case, petitioner has not paid any price for acquisition of route permit. Thus, when it is sold, no capital gain can be computed. Thus, in our view, Commissioner (Appeals) was wrong in holding that value of route permits taken at Rs. 40,000 is liable to capital gain. 5. In result, appeal is partly allowed. *** M.G.S. (P) LTD. v. INCOME TAX OFFICER
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