SOUTHERN ROADWAYS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Income-tax Appellate Tribunal, has stated a case and referred the following questions of law for the opinion of this court under Section 256(1) of the Income-tax Act, 1961 :

(2.) THE assessee is a public limited company running the business of transport of passengers and goods. On January 17, 1972, the passenger transport division of the assessee-company was taken over by the Government of Tamil Nadu by a notification issued under Section 2 of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 (Tamil Nadu Act 37 of 1971), hereinafter referred to as the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act. THE Income-tax Officer in the assessment order for the assessment year 1972-73 held that by virtue of the vesting of the stage carriages owned or operated by the assessee, with the Government absolutely, there was a compulsory acquisition of the capital assets of the assessee used in his business amounting to the sale of those assets and accordingly brought to tax the difference between the written down value and the cost of the assets as profits chargeable under Section 41(2) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"). He also brought to tax the difference between the consideration received and the cost of the assets as capital gains chargeable under Section 45 of the Act. Further, the Income-tax Officer did not grant depreciation for those assets for their use in the business prior to the take over by applying the provisions of Clause (ii) of Sub-section (2) of Section 34 of the Act.

(3.) WE have carefully considered the rival submissions of learned counsel for the assessee and learned counsel for the Revenue. In so far as question No. 1 is concerned, we are of the opinion that under the provisions of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, there was a take over of the fleet of stage carriages owned and operated by the fleet operators and on the issue of notification under Section 3 of the said Act, they vested with the Government absolutely and free from all encumbrances. Sub-section (2) of Section 3 of the said Act also provides for the vesting of building, workshops and other places, etc. A mere look at the provisions of Section 3 of the Tamil Nadu Act 37 of 1971 indicates that the Tamil Nadu Act was passed for the acquisition of the stage carriages of fleet operators holding fifty or more stage carriage permits and for certain other matters connected therewith in the State and the preamble to the Tamil Nadu Act also mentions that the Tamil Nadu Act was passed in public interest to acquire all passenger transport divisions of fleet operators holding fifty or more stage carriage permits and the Act was passed with an intention to give effect to article 39(b) and (c) of the Constitution of India. The Act is protected under article 39(b) and (c) of the Constitution of India. The Supreme Court in the case of State of Tamil Nadu v. L, Abu Kavur Bai, , upheld the validity of the Tamil Nadu Stage Carriages and Contract Carriages (Acquisition) Act, 1973, and in our view, the decision of the Supreme Court in L. Abu Kavur Bai, , would equally apply to the provisions of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971. Following the decision of the Supreme Court, cited supra, we hold that there was a compulsory acquisition of the assets within the meaning of the term "sold" found in Sections 32 and 41 and also within the definition of "transfer" in Section 2(47) of the Act, when all the assets of the transport division of the assessee vested with the Government of Tamil Nadu by operation of law upon the payment of compensation. Hence, we hold that there was a compulsory acquisition of assets under the provisions of Tamil Nadu Act 37 of 1971 and it attracts the provision of sections 41(2) and 45 of the Act.