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Commissioner of Income-tax Vs. T. Kuppuswamy Pillai and Co. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 420 of 1971 (Reference No. 135 of 1971)
Judge
Reported in[1977]106ITR954(Mad)
ActsIncome Tax Act, 1961 - Sections 55(1); Indian Income Tax Act, 1922 - Sections 12B(2)
AppellantCommissioner of Income-tax
RespondentT. Kuppuswamy Pillai and Co.
Appellant AdvocateJ. Jayaraman and ;Nalini Chidambaram, Advs.
Respondent AdvocateT.V. Balakrishnan, Adv. for ;C.V. Mahalingam and ;S. Mathrubutheswaran, ;K.J. Rebello and ;R. Santhakrishnan, Advs.
Excerpt:
- - the learned standing counsel for the revenue contended that this decision would have to be held applicable only to cases of transfer of capital assets like goodwill, copyright and trademark which are created by personal efforts and would not apply to other capital assets like the import licence......arose out of the transfer of the import licence by the assessee to a third party did not attract capital gains tax ?'2. the relevant facts are as follows : under the national defence remittance scheme, import licences were being granted against bank's certificate evidencing receipt of certain categories of foreign exchange remittances received on or after october 26, 1965, up to january 31, 1966, through banking channels by persons who were indian nationals. the assessee had a branch at singapore under the name and style of engine beedi stores. there was a foreign exchange remittance by that branch to the assessee-firm. under the national defence remittance scheme, the assessee was given an import licence and by transferring the same to a third party, the assessee got a sum of rs......
Judgment:

Sethuraman, J.

1. Under Section 256(1) of the Income-tax Act, 1961, the following question of law has been referred for the opinion of this court :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the profit of Rs. 67,125 which arose out of the transfer of the import licence by the assessee to a third party did not attract capital gains tax ?'

2. The relevant facts are as follows : Under the National Defence Remittance Scheme, import licences were being granted against bank's certificate evidencing receipt of certain categories of foreign exchange remittances received on or after October 26, 1965, up to January 31, 1966, through banking channels by persons who were Indian nationals. The assessee had a branch at Singapore under the name and style of Engine Beedi Stores. There was a foreign exchange remittance by that branch to the assessee-firm. Under the National Defence Remittance Scheme, the assessee was given an import licence and by transferring the same to a third party, the assessee got a sum of Rs. 67,125. This sum was considered to be capital gains and assessed to capital gains tax by the Income-tax Officer. Before the Appellate Assistant Commissioner, the assessee took up various contentions and they were negatived by him. On further appeal before the Tribunal, it was contended that no capital gain was involved in the transfer of the licence as it did not cost anything in terms of money in its creation or acquisition and for this purpose reliance was placed on a decision of this court in Commissioner of Income-tax v. K. Rathnam Nadar : [1969]71ITR433(Mad) and also a decision of the Calcutta High Court in Commissioner of Income-tax v. Chunilal Prabhudhas & Co. : [1970]76ITR566(Cal) . The Tribunal held that the import entitlement was acquired by the assessee on the basis of a foreign exchange remittance by the branch and that since there was no cost in terms of money involved in such acquisition, there was no liability for capital gains tax. The Tribunal relied on the decisions mentioned above in support of its conclusion. It is against this order of the Tribunal that the Commissioner of Income-tax obtained the reference of the question set out already.

3. In the present case there is a finding of fact by the Tribunal that there was no material on record to suggest that any cost in terms of money was involved in the assessee securing the import licence. It is on the basis of this finding that the Tribunal has held that there was no liability for capital gains tax. The decision of this court in Commissioner of Income-tax v. K. Rathnam Nadar : [1969]71ITR433(Mad) , as mentioned above, was relied on by the Tribunal in support of its conclusion. In that case which dealt with a case of transfer of goodwill the question was whether the transfer attracted the liability to capital gains tax. In the course of the judgment, it was pointed out at page 445 :

'Sub-section (2) of Section 12B provides that the amount of a capital gain shall be computed after making the following deductions from the full value of the consideration for which the sale, exchange, relinquishment or transfer of the capital asset is made, namely, (i) expenditure incurred solely in connection with such sale, exchange, relinquishment or transfer ; (ii) the actual cost to the assessee of the capital asset, including any expenditure of a capital nature incurred and borne by him in making any additions or alterations thereto, but excluding any expenditure in respect of which any allowance is admissible under any provision of Sections 8, 9, 10 and 12 (of the Indian Income-tax Act, 1922). Sub-clause (ii) of Sub-section (2) may suggest that the capital gain arises only on the transfer of a capital asset which has actually cost to the assessee something in money. The actual cost in the context of the Income-tax Act can only be cost in terms of money. It cannot, it would appear, apply to transfer of capital assets (assuming that the goodwill is a capital asset, about which there was not much dispute), which did not cost anything to the assessee in terms of money in its creation or acquisition.'

4. Thus, it is clear from this decision that only if an asset had cost something in terms of money that the provisions relating to capital gains would apply. The learned standing counsel for the revenue contended that this decision would have to be held applicable only to cases of transfer of capital assets like goodwill, copyright and trademark which are created by personal efforts and would not apply to other capital assets like the import licence. This submission is not borne out by the judgment. In fact if the judgment is read in full it would be clear that the question posed before the court was in wider form, namely, whether the idea of capital gain should necessarily be connected with the idea of cost in terms of money in the creation and acquisition of the capital asset. It is this question that was considered by the court and answered against the revenue having regard to the language of Section 12B(2)(ii). The provisions of the Income-tax Act, 1961, in so far as this point is concerned are identical. It follows that the said decision would apply to the transfer of the licence here also which did not involve any cost to the assessee in its acquisition. We, therefore, answer the question referred to us in the affirmative and in favour of the assessee.

5. There will be no order as to costs.


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