SOUTHERN ROADWAYS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the Tribunal, has stated a case and referred the following questions of law for the opinion of this Court under s. 256(1) of the IT Act, 1961 :

(2.) THE assessee is a public limited company running the business of transport of passengers and goods. On 17th January, 1972, the passenger transport division of the assessee -company was taken over by the Government of Tamil Nadu by a notification issued under s. 2 of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 (Tamil Nadu Act 37 of 1971) (hereinafter referred to as TNFOSCA Act). The ITO in the assessment order for the asst. yr. 1972 -73 held that, by virtue of the vesting of the stage carriage 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 s. 41(2) of the IT 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 s. 45 of the Act. Further, the ITO did not grant depreciation for those assets for their use in the business prior to the take over by applying the provisions of cl. (ii) of sub -s. (2) of s. 34 of the Act.

(3.) DISSATISFIED with the order of the AAC, the Revenue preferred an appeal before the Tribunal. Before the Tribunal, there was a wide range of controversy whether there was a sale when the undertaking was taken over by compulsory acquisition and the compensation paid was illusory etc. The Tribunal, however examined the provisions of TNFOSCA Act and came to the conclusion that the provisions of ss. 32(1)(iii) , 41(2) and 45 of the Act would apply to the compulsory acquisition of the capital assets also. The Tribunal held that the compulsory acquisition of the assets would be regarded as a sale within the meaning of ss. 32 and 41 and also it will be a transfer for the purpose of s. 2(47) of the Act. In so far as the alternative argument advanced on behalf of the assessee that, when the passenger transport division was taken over, it amounted to a slump sale, and, therefore, the assessment of the balancing charge under s. 41(2) did not arise, was not accepted by the Tribunal. The Tribunal noticed the provision of s. 3 of the TNFOSCA Act and the negotiations arrived at between the parties and came to the conclusion that this is not a case in which it could not be said that no part of the compensation received was not attributable to the individual assets acquired. The Tribunal, therefore, held that the provisions of s. 41(2) of the Act were rightly attracted and the assessment of capital gains under s. 45 of the Act was correct in law. The assessee challenged the order of the Tribunal and sought for a reference and the Tribunal, as already stated, has stated a case and referred the questions of law set out above.