COMMISSIONER OF INCOME TAX Vs. VENKATESWARA BUS UNION

JUDGEMENT

(1.) IN the reference under Section 256(1) of the I.T. Act, the following are the questions that require consideration :

(2.) THE assessee was a partnership firm doing business in bus transport with 9 buses and route rights from Tirupati to Kalahasthi. On November 16, 1967, it transferred the buses and the route permits to one Velu Mudaliar for a total sum of Rs. 4,20,000. In its accounts, the assessee allocated the sale price for the buses at Rs. 1,50,000 and the value of the route rights at Rs. 2,70,000. THE ITO did not agree with this allocation and took the market value of the buses as on November 16, 1967, the date of transfer, and worked back the market value by allowing a depreciation at the rate of 15%, By this process he arrived at the sale price of the buses at Rs. 2,69,816 and took the balance of Rs. 1,50,184 as representing the value of the route permits. THE written down value of the buses came to Rs. 1,09,499. THE difference between the sale proceeds of the buses as taken by him, viz., Rs. 2,69,816 and the written down value of Rs. 1,09,499 came to Rs. 1,60,317 and this amount was brought to tax under Section 41(2) of the Act. THE balance of Rs. 1,50,184 was assessed as capital gains on the sale of the route permits.

(3.) HOWEVER, there are decisions of this court which have considered the question of the value of the route right. Those decisions have been G. Vijayaranga Mudaliar v. CIT, 1963 47 ITR 853 , A. Vimalan v. CGT, 1974 94 ITR 21 and Ramaswami Udayar v. CIT, 1979 116 ITR 493 . In all these cases, the uniform view taken by this court is that the route rights have value and that they are liable to be assessed to capital gains. The matter had also to be consideied recently in T.C. No. 110 of 1975 in the case of K. Balasubramania Nair v. CIT in the judgment dated January 17, 1979 (since reported in, [1979]119ITR504(Mad) , The assessee in that case relied on the decision in CIT v. K. Rathnam Nadar, 1969 71 ITR 433 in support of its contention that the route rights would have to be considered in the same way as in the decision cited and that there would be no liability to capital gains. It has been pointed out in our judgment that the decision in Rathnam Nadar's case , [1969]71ITR433(Mad) was rendered in connection with a self-generating asset, viz., goodwill, and that the assessee in that case had not to pay anything as and by way of cost of acquisition of such an asset. It was pointed out that the route permit is one granted to the assessee as a result of an application having to be made and as a result of the assessee succeeding in the appeal and subsequent proceedings before courts, in case there is any objection to the grant of the permit by any one else. It was, therefore, pointed out that in the case of route rights, it would not be possible to proceed on the basis that it was a self-generating asset that it could have no cost of acquisition, and that the provisions of Section 45 and the sections following it would not be applicable. In T.C. No. 110 of 1975 (K. Balasttbramania Nair v. CIT--see p. 504 supra) the matter was remitted to the Tribunal for consideration of the question of the actual cost of acquisition of the route rights in the matter of computation of capital gains. In view of the number of decisions of this court, the Tribunal's view based on the decision of the Andhra Pradesh High Court,--there is no reference to any report in which it is published,--would not be correct. The question is accordingly answered in the negative and in favour of the revenue. The Tribunal will consider the question of actual amount of the capital gains in the order that it will be passing in the light of the observations made here and in T.C. No. 110 of 1975 (K. Balasubamania Nair v. CIT--see p. 504 supra).