1. At the instance of the revenue, the following two questions have been referred to us for our decision under s. 256(1) of the I.T. Act, 1961 :
'1. Whether, on the facts and in the circumstances of the case, it has been rightly held by the Tribunal that the provisions of s. 12B would not apply to the facts of the case
2. whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was not liable to tax on the capital gains of Rs. 95,158 arising out of the transfer of buses and Rs. 47,616 arising out of the route permits on the ground that under-statement of consideration has not been proved by the department ?'
2. The assessee in this case is a registered firm by name Messrs. Southern Transports, Madurai. During the assessment year 1961-62, the said firm sold 9 route buses and 2 spare buses to a new company known as Messrs. Southern & Rajamani Transports (P.). Ltd., Madurai, for a total consideration of Rs. 2,60,000. Since the written down value of the said 11 buses as on September 1, 1959, was Rs. 2,67,359, which was higher than the actual value of the buses, the ITO subjected the transaction of sale to a detailed scrutiny. He found that out of the 11 buses transferred, 6 of them had been purchased in 1956, 1957 and 1958, and that, therefore, the sale price of the buses sold appeared to be too low. Having regard to the fact that the new company, to which the buses were sold, is one in which the partners of Southern Transports were shareholders, the ITO felt that the sale value of Rs. 2,60,000 did not represent the actual sale prince paid for the route business as well as the route permits. He, therefore, did not accept Rs. 2,60,000 as the real sale price but fixed the fair market value of the buses at Rs. 3,55,158 by taking the written down value of the 11 buses as on September 1, 1959, and adding thereto development rebate and the initial depreciation allowed in respect of the said buses. He thus determined the capital gains at Rs. 95,158 (Rs. 3,55,158 minus Rs. 2,60,000). The ITO also felt that the said sum of Rs. 2,60,000 did not include the sale value of the 9 route permits and having regard to the earning capacity of a bus, he determined the capitalised route value at 2 times the average profit and determined the value of the route permits at Rs. 90,234 and after deducting the value of the route permits as on January 1, 1954, which he fixed at Rs. 26,820 he determined the net capital gain in respect of the route permits at Rs. 63,414. Thus, the assessing authority determined the total capital gains at Rs. 1,58,572.
3. Aggrieved against the said computation of the capital gains by the assessing authority, the assessee went up in appeal. The AAC, however, held that the market value of the buses should be taken as Rs. 2,60,000 and hence there will be no capital gain on the sale of the buses and in that view he deleted the capital gains of Rs. 95,185 computed by the ITO for the transfer of buses. With regard to the computation of capital gains on the transfer route permits, he held that the partners' remuneration should be deducted from the profits of the firm and the route value should be taken at 11/2 times the average profits as against 2 times adopted by the ITO. On this basis, he determined the capital gains on the transfer of the bus routes at Rs. 47,616 as against Rs. 63,414 computed by the ITO.
4. Aggrieved against the deletion of the capital gains of Rs. 95,158 on the transfer of buses, the revenue went up in appeal to the Tribunal Aggrieved against the order of the AAC computing the capital gains on the transfer of the route permits at Rs. 47,616, the assessee went up in appeal to the Tribunal. Both the appeals were disposed of by a common judgment by the Tribunal. The Tribunal was of the view that as s. 12B(2) of the Indian I.T. Act, 1922, authorises the revenue to bring to charge only the real capital gains and not fictional gains, the revenue can take only the actual consideration received by the assessee and not the fictional or notional price determined by the revenue and that only in cases where the revenue establishes the two criteria as set out in the first proviso to s. 12B(2) of the Act, it is possible to ignore the disclosed consideration. In this view of the matter, the Tribunal held that the burden of proving that the transfer of buses by the assessee to the limited company was effected with the object of avoidance or reduction of tax on capital gains, not having been discharged by the revenue, the consideration of Rs. 2,60,000 disclosed by the assessee should be taken to be the actual consideration received by the assessee. The Tribunal also felt that there is nothing on record to indicate that the assessee received any consideration higher than Rs. 2,60,000 for the transfer of the buses, but chose to disclose the lesser consideration of Rs. 2,60,000. In this view, the Tribunal held that both in respect of transfer of buses as also the transfer of route permits, there was no capital gain. In this view, the Tribunal allowed the assessee's appeal and dismissed the appeal filed by the revenue. Aggrieved against the decision of the Tribunal, the revenue has chosen to ask for this reference on the two questions set out above.
5. It is seen from the order of the Tribunal that there is no understatement of consideration, and that is has also not been established by the revenue that the assessee had received any consideration higher than Rs. 2,60,000 disclosed in the books of account for the transfer of buses with route permits. The Tribunal also proceeds on the basis that the consideration of Rs. 2,60,000 is not merely for the transfer of buses but also for the transfer of route permits. In the orders passed either by the ITO or by the AAC, there is no indication that the intention of the assessee was to avoid or reduce the tax on capital gains by understating the consideration. The ITO proceeds to ignore the actual consideration of Rs. 2,60,000 received by the assessee merely on the ground that though the buses had been sold as second hand vehicles, they are worth much more, and that the partners of the assessee-firm are the shareholders in the transferee-company. To bring the case within the proviso to s. 12B(2) of the Act, it must be established by the revenue that the assessee received a consideration higher than Rs. 2,60,000 for the transfer of buses with route permits. In this case no attempt has been made by the revenue to show that the actual consideration received by the assessee was higher and that it is with a view to avoid or reduce the tax on capital gains a lesser consideration of Rs. 2,60,000 has been shown. It is well established by several decisions of this court that what is intended to be taxed by s. 12B of the Act is the actual capita gain and not a fictional gain and the avoidance of tax liability can only be on the capital gains actually received by understatement of consideration. As, in this case, no understatement of consideration had been proved or established either in respect of the buses or in respect of the route permits, the revenue was not justified in invoking s. 12B of the Act. The revenue in this case has in fact charged the fictional capital gains on the sale of buses with route permits and not on the real or actual gain. In this view of the matter, we are inclined to agree with the view taken by the Tribunal in this case. We, therefore answer both the question in the affirmative and against the revenue. There will be no order as to costs.