K BALASUBRAMANIA NAIR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to this court by the Appellate Tribunal under s. 256(1) of the I. T. Act, 1961 :

(2.) THE ITO computed the profit assessable under s. 41(2) at Rs. 45, 268 which represents the depreciation which had been allowed for the earlier years and which had been recouped by the sale. THE ITO further held that there were capital gains arising to the assessee by the sale of the buses and the amount of capital gains had been computed at Rs. 71, 400. THE assessee appealed against this assessment to the AAC, contending that the assessment as made by the ITO represented in effect the sale of the route permits and that no capital gains could arise therefrom. THE AAC dismissed the appeal. THE assessee appealed to the Appellate Tribunal, contending that the route permits were not capital assets and that even assuming that they were capital assets, the amount of surplus was not liable to be assessed to capital gains. THE Tribunal rejected these submissions. This is how the matter has come to this court by way of this reference.THE Tribunal's findings were that a permit issued to a person is not heritable in the sense that on his death his heirs would automatically use the same, and that under the Motor Vehicles Act the heirs could do so only for the limited period of currency of the permit, and have to get a permit granted in their favour for running the buses subsequently. In the view of the Tribunal, the gain arising to the assessee by the transfer of a route permit was liable to be taxed under s. 45 as it is "property". It was also pointed out that some expenses have to be necessarily incurred for acquiring the route permit in the shape of fees for making the applications, etc., and that, therefore, there is some cost of acquisition. In such a case, in the view of the Tribunal, the assessee would be liable to capital gains tax. It is this conclusion of the Tribunal that is now challenged.Learned counsel for the assessee submitted that the present case is in line with the decision of this court in CIT v. K. Rathnam Nadar and that there is no question of any liability to capital gains in view of that decision. THE decision in Rathnam Nadar's case was rendered in connection with a self-generating asset, viz., the goodwill. In that case, the assessee was carrying on his business and the goodwill grew with the growth of the business. It was, therefore, considered to be a self-generating asset.