Per Shri T. Venkatappa, Judicial member - The assessee transferred six buses to Shri Ramaswamy Gowder, proprietor, Sri Ram Transports for a consideration of Rs. 95,000. The original assessment made by the ITO was set aside by the Tribunal to make a fresh assessment in the light of the directions given by the Tribunal. Accordingly, a fresh assessment has been made by the ITO as per his order dated 7-12-1981.
In this order, he held that average profit from 1962-63 to 1968-69 works out to Rs. 18,000. It would be reasonable to assume that the route permits would be roughly between 2 to 2 1/2 times of the net income. He adopted the cost of the route permits at Rs. 40,000.
Deducting this amount from the total sale receipts of Rs. 95,000, the value of the buses sold was taken by him at Rs. 55,000. He held that the surplus realised on sale of route permits is assessable as capital gain. Thus, the entire amount of Rs. 40,000 being the value of route permits was assessed to capital gains. In respect of the sale of buses he worked out the profit under section 41(2) of the Income-tax Act, 1961 (the Act), at Rs. 33,791 after deducting the written down value of Rs. 21,209 from the sale price of Rs. 55,000. Thus, he vrought to tax Rs. 33,791 as as profit under section 41(2) on the sale of buses. the assessee appealed to the Commissioner (Appeals). He agreed with the ITO as to the allocation of value of old buses and the value of route permits at Rs. 55,000 and Rs. 40,000, respectively. There is nothing improbable about the six buses of 8 to 10 years old being sold for a consideration of Rs. 55,000 even though their written down value was Rs. 21,209 only. In respect of the assessment to capital gain of Rs. 40,000 allocated as value of the route permits, he applied the ratio of the decision of the Madras High Court in K. Balasubramania Nair v. CIT  119 ITR 504 and held that it is liable to capital gain. He estimated the cost at Rs. 500 in acquiring the route permit which will be deducted in computing the capital gain. Against the same the assessee has preferred this appeal.
2. The learned counsel for the assessee submitted that there is no cost for the route permits and as such no capital gain tax can be levied.
Since there are two views, the view favourable to the assessee should be adopted. He also urged that the value determined for the buses at Rs. 55,000 is high. The learned departmental representative supported the orders of the lower authorities.
3. We have considered rival submissions. In our view, the allocation made between the value of the buses and the value of the route permits at Rs. 55,000 and Rs. 40,000, respectively, is perfectly justified. The value of six buses is taken at Rs. 55,000 as against the written down value of Rs. 21,209. Even if the scrap of these six buses is sold, the assessee will be able to get Rs. 55,000. Thus the value taken at Rs. 55,000 for six buses is quite reasonable. Thus, profit computed under section 41(2) is perfectly justified.
4. The second question is with regad to the capital gains computed with respect to the route permits. In Addl. CIT v. Ganpathi Raju Jagi Sanyasi Raju  119 ITR 715, the Andhra Pradesh High Court has held that where when the route permit was granted, no amount was paid by the operator for the purpose of acquiring it and it is only over a number of years because of various factors that the permit acquires some value, the value of the route permit cannot be evaluated as on the date of acquisition and in such cases, where the cost of acquisition of a particular capital assets is nil, espectially when the capital asset is the cretion of the assessee by his own efforts, the case will be similar to that of a sale of goodiwll by the assessee and the consideration in terms of money realised on the transfer of the said capital asset cannot be rbought to tax as capital gains. This decision support the case of the assessee. The same High Court in CIT v. Krishna & Sons (unreported) had earlier held that route permit does not represent any property and it cannot be a capital asset. A contrary view has been taken by the Madras High Court in K. Balasubramania Nairs case (supra) and CIT v. Shri Venkateswara Bus Union  119 ITR 507.
we prefer to follow the view taken by the Andhra Pradesh High Court in the above two decisions in preference to the decisions of the Madras High Court referred to above. wehn the route permit was acquired, no price has been paid by the assessee. It is the transport authority of the state Government who grants the route permit for running stage carriages. When the route permit is granted, no price is paid by the assessee. Thus, there was no cost for the route permit when it was acquired. When there is no cost for the route permit when it was acquired, no capital gain cane be computed when it is sold. In CIT v.B. C. Srinivasa Setty  128 ITR 294 the Supreme Court held that what is contemplated by section 48(ii) is an asset in the acquisition of which it is possible to envisage a cost. It was observed as under : "What is contemplated is an asset in the acquisition of which it is possisble to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which posses the inherent quality of being available on the expenditure oa money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by section 49 and its cost, for the purpose of section 48, is determined in accordance with those provisions. There are other provisions which indicate that section 48 is concerned with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is sub-section (2) of section 55, None of the provisions pertaining to the head Capital gains suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by way of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in new business has been so regarded. The elements which created it have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain." (p. 300) Thus, it was held by the Supreme Court that none of the provisions pertaining to the head Capital gains" suggest that they include an asset in the acquisition of which no cost at all can be conceived. it was also held that the goodwill generated in a newly commenced business cannot be described as an asset within the terms of section 45 of the act and, therefore, its transfer is not subject to income-tax under the Capital gains. The above ratio squarely applied to the instant case. In the instant case, the petitioner has not paid any price for the acquisition of the route permit. Thus, when it is sold, no capital gain can be computed. Thus, in our view, the Commissioner (Appeals) was wrong in holding that the value of the route permits taken at Rs. 40,000 is liable to capital gain.