COMMISSIONER OF INCOME TAX Vs. SOUTHERN TRANSPORTS

JUDGEMENT

(1.) AT the instance of the revenue, the following two questions have been referred to us for our decision under s. 256(1) of the I.T. Act, 1961 :

(2.) THE assessee in this case is a registered firm by name Messrs. Southern Transports, Madurai. During the assessment year 1961-62, the said firm sold 9 route buses and 2 spare buses to a new company known as Messrs. Southern & Rajamani Transports (P.). Ltd., Madurai, for a total consideration of Rs. 2,60,000. Since the written down value of the said 11 buses as on September 1, 1959, was Rs. 2,67,359, which was higher than the actual value of the buses, the ITO subjected the transaction of sale to a detailed scrutiny. He found that out of the 11 buses transferred, 6 of them had been purchased in 1956, 1957 and 1958, and that, therefore, the sale price of the buses sold appeared to be too low. Having regard to the fact that the new company, to which the buses were sold, is one in which the partners of Southern Transports were shareholders, the ITO felt that the sale value of Rs. 2,60,000 did not represent the actual sale prince paid for the route business as well as the route permits. He, therefore, did not accept Rs. 2,60,000 as the real sale price but fixed the fair market value of the buses at Rs. 3,55,158 by taking the written down value of the 11 buses as on September 1, 1959, and adding thereto development rebate and the initial depreciation allowed in respect of the said buses. He thus determined the capital gains at Rs. 95,158 (Rs. 3,55,158 minus Rs. 2,60,000). THE ITO also felt that the said sum of Rs. 2,60,000 did not include the sale value of the 9 route permits and having regard to the earning capacity of a bus, he determined the capitalised route value at 2 times the average profit and determined the value of the route permits at Rs. 90,234 and after deducting the value of the route permits as on January 1, 1954, which he fixed at Rs. 26,820 he determined the net capital gain in respect of the route permits at Rs. 63,414. Thus, the assessing authority determined the total capital gains at Rs. 1,58,572.