A N TRANSPORTS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) At the instance of an assessee to Income Tax, the Income Tax Appellate Tribunal has referred the following two questions of law for the decision of this Court:

(2.) . The respondent is the Revenue. We are concerned with the assessment year 1975-75. The previous year ended on 30-6-1973. The assessee is a registered firm. It is engaged in the business of motor-transport. During the relevant accounting period, the assessee sold six vehicles for Rs.4,56,000/-. The written down value of these vehicles as on 1-7-1972 was only Rs.1,18,961/-. The assessee claimed that the value of the route, permits for the six vehicles came to Rs.3,29,500/- and that this was not assessable to tax on capital gains. It was so stated, since according to the assessee, the route permits had no cost of acquisition and their value of improvement cannot be ascertained. The route permits for these six vehicles were originally obtained by the predecessor in interest of the assessee namely M/s. P.S.N. Motors (P) Ltd. The permits were issued about 20 years earlier. On 1-7-1971 the buses were transferred to the assessee firm for the written down value. The partners of the assessee firm were the share holders of M/s. P.S.N. Motors (P) Ltd.- the transferor. The assessee firm did not pay anything towards the route value. This was relied upon to show that there was no cost of acquisition for the route permits. The old buses were replaced with new ones. Thereafter, the assessee operated the vehicles only for two years. During the assessment year 1973-74, the assessee firm incurred a loss of Rs.72,484/-. For the assessment year 1974-75, the firm incurred a loss of Rs.89,677/-. In reckoning the said loss, profit under S.41(2) and the capital gains arising out of the sale of the buses were not taken into account. The Income Tax Officer held that the assessee had no power to transfer the route and the sale proceeds really represent the value of the buses. In appeal, the Commissioner of Income Tax (Appeals) held that regard being had to the fact that the assessee had sold away the buses within two years of their acquisition and that during these years the assessee incurred a loss, the routs have no value at all and the sale proceeds represented only the price of vehicles and not of the route. In further appeal, the Income Tax Appellate Tribunal held that the materials adduced by the assessee themselves showed that the sale consideration did not represent the value of the vehicles only. It was held that a portion of the consideration must have been on account of the route value. The plea of the assessee was that the value of the route permits is similar to the value of goodwill and so cannot be brought to tax, in the light of the Supreme Court decision in C.I.T. v. B. C. Srinivasa Setty (128 I.T.R. 294 S.C.). The Revenue contended that this is not a case of transfer of a route permit obtained by the assessee for the first time to say it was totally built up by that person, but it is a case where the assessee obtained the vehicles along with the route permits, issued to his predecessor in interest, that the vehicles along with the route permits were acquired at a cost and so a reasonable allocation of the consideration between the buses and the routes should be made. The assessee acquired the route permits by way of transfer and so it would normally attract tax on capital gains. The fact that the assessee had not actually paid any consideration for the route permit, nor stated so in any document, will not absolve the assessee from liability to tax, since the ratio of Srinivasa Setty's case (128 I.T.R. 294 S.C.) is applicable only to a case where no cost of acquisition could be envisaged. The Tribunal also relied on the decision of this Court in C.I.T. v. B. C. Jacob ( 1972 KLT 650 ) and held that it is not necessary that the assessee should improve the value of the route permit after the assessee acquired the same for eligibility to tax. On the facts of this case, it was held, that since a portion of the sale proceeds is attributable to the route permit, and a reasonable allocation of the sale proceeds between the buses and the route permits should be made, the matter requires appraisal by the Income Tax Officer. In the above perspective, a remit was ordered. It is, thereafter, at the instance of the assessee, the Appellate Tribunal has referred the above two questions of law for the decision of this Court.

(3.) We heard counsel for the assessee and also counsel for the Revenue. The Tribunal has hot passed any final order. It has only ordered a remit. Whether, at this stage, the questions referred to us should be answered itself is doubtful. Our answer to the question may turn out to be academic, depending upon further evidence and findings of the statutory authorities. Be that as it may, on the facts of this case, we have no doubt that the Appellate Tribunal was justified in stating that cost of acquisition should be envisaged in the case of route permits, as the assessee acquired the same from M/s. P.S.N. Motors (P) Ltd. The assessee had purchased the buses and route permits from M/s. P.S.N. Motors (P) Ltd. It was as early as 1-7-1971. The transfer was for the written down value of the buses. The permits for the routes were obtained about twenty years earlier. The partners of the assessee firm were the shareholders of M/s. P.S.N. Motors (P) Ltd. The Tribunal held that the consideration varied from route to route and that will show that the routes had their own value. The value of the buses fairly compared with the value of the new buses, according to the quotations of M/s. T. V. Sundaram Iyengar & Sons. It was evident that a portion of the sale consideration received by the assessee was for the routes, though it was not so specifically mentioned. The Tribunal held that the value obtained was much more than the possible value of the buses. This is a finding of fact, which has not been assailed in the questions referred to this Court.