1. In the reference under Section 256(1) of the I.T. Act, the following are the questions that require consideration :
' 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding and had valid materials to hold that the value of the buses should be taken only at Rs. 1,50,000 ?
2. Whether, on the facts and in circumstances of the case, the Appellate Tribunal was right in allocating the sale price of the buses at Rs. 1,50,000 and the route value at Rs. 2,70,000 ?
3. Whether, on the facts and in the circumstances of the case, profits under Section 41(2), computed by the Tribunal is valid and proper ?
4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that there was no liability to capital gains on the transfer of route permits ?
5. Whether the Appellate Tribunal was right in holding that the correct basis for evaluating the market value of the land sold to Pratap Talkies on March 22, 1968, would be to take into account the market value as on January 15, 1961, on which date the agreement of sale was executed ?
6. Whether the Appellate Tribunal was right in fixing the value of the land at Rs. 50,000 in view of the appellant's agreeing with the income-tax department for the valuation of the land at Rs. 50,000 on the facts and circumstances of the case ?
7. Whether the computation of capital gains from the land sold by the assessee to Pratap Talkies, as directed by the Tribunal, is proper and valid in law ?'
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 astaken 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. The assessee had 10 grounds of land in Tirupathi and the lands were sold to M/s. Pratap Talkies for a sum of Rs. 10,000 as stated in the sale deed. The ITO took the sale price at Rs. 1,06,000 and computed the capital gains accordingly.
4. The computation of the profit under Section 41(2) and of the capital gains in relation to the lands was confirmed by the AAC. The assessee appealed to the Appellate Tribunal. The Tribunal took the sale price of the 9 buses at Rs. 1,50,000 for various reasons to be presently considered and took the value of the route rights at Rs. 2,70,000. The computation of the profit liable to tax under Section 41(2) was directed to be made accordingly. As far as route rights are concerned, the conclusion of the Tribunal was that there was no capital gains. Regarding the sale of land, the Tribunal held that the assessee had agreed for the valuation of the land at Rs. 50,000 and that it would be fair and reasonable to take the value of the land at that figure and computed the capital gains accordingly. It is this order that has given rise to the questions already extracted.
5. Questions 1 to 3 go together. The point to be examined with reference to these questions is whether allocation of the sale price between the buses and the route rights at Rs. 1,50,000 and Rs. 2,70,000, respectively, as made by the Tribunal is proper or not. In coming to the conclusion that the sale price of the buses can only be taken at Rs. 1,50,000, which is incidentally the amount allocated by the assessee in its accounts, the Tribunal has given more than one reason. The Tribunal has made reference to the ITO himself having taken the value of the buses at Rs. 1,50,000 in making assessment on the purchaser for the purpose of granting the allowance of depreciation and pointed out incidentally that the same basis should be adopted in the assessee's case also. The Tribunal has gone into the facts in detail and examined the written down value of each of these buses, and their age and the prices at which these buses were subsequently sold by the purchaser. Having regard to these data, the Tribunal considered that the allocation of Rs. 1,50,000 made by the assessee in its accounts as representing the sale price of the buses was quite fair and reasonable and should be accepted. Question No. 1 challenges only the existence of the materials to support the conclusion of the Tribunal in allocating the sale price of the buses at Rs. 1,50,000, though during the course of the arguments it was stated that in the case of the purchaser of the 9 buses, viz., Velu Mudaliar, the Appellate Tribunal itself had taken their value at a higher figure for the purpose of grant of depreciation, and that, therefore, the higher figureshould have been taken in the present case also, we do not have any material to show that in the purchaser's case a higher figure was taken. In fact, before the Tribunal the contention for the assessee was that a sum of Rs. 1,50,000 had been taken as the cost of the buses in the hands of the purchaser, and the authorised representative for the revenue did not challenge the statement made on behalf of the assessee herein that the sum of Rs. 1,50.000 alone would represent the sale price of the buses as taken in the hands of the purchaser. The other reasons are independent reasons given by the Tribunal. Even assuming that the reference in the Tribunal's order as regards the cost of the buses taken in the hands of the purchaser is not correct, as we read the order we are not convinced that it was the main or only reason for its conclusion. The discussion in the Tribunal's order regarding the purchaser's case was only to show that the department was taking inconsistent positions in the two cases. But the real reasons that have been given by the Tribunal are based on the age of the buses, their written down value in the hands of the assessee himself and the sale price at which the purchaser had sold them soon after he purchased the buses. We are satisfied that there are enough materials to come to the conclusion that the sum of Rs. 1,50,000 represented the sale price of the buses. It would, therefore, follow that the value of the route permit would have to be taken at Rs. 2,70,000. The assessment under Section 41(2) has also to be consistent with this view and on the same basis. Questions Nos. 1 to 3 are, therefore, answered in the affirmative and in favour of the assessee.'
6. We now take up for consideration question No. 4. This relates to the. computation of capital gains as regards route rights. As already seen the Tribunal had taken the value of the route rights at Rs. 2,70,000. The Tribunal has held that the sale price of the route rights did not give rise to any capital gains because of its earlier order in I.T.A. No. 1621/MDS/1972-73, dated November 30, 1973, and also of a decision of the Andhra Pradesh High Court in CIT v. Krishna & Sons. The Tribunal's order dated November 30, 1973, is not before us and we have no idea of the reasons given by the Tribunal in that case to come to the conclusion that there can be no capital gains on the sale of the route rights. Presumably the reasons given by them in the said order are also to be found in sub-paras, (a) and (b) of para 10 of the order now under consideration. In the decision of the Andhra Pradesh High Court in CIT v. Krishna & Sons, it was held that the route rights did not represent any property and that it could not be a capital asset. The decision of the Andhra Pradesh High Court as noticed by the Tribunal itself was under appeal before the Supreme Court and the Supreme Court's decision is reported as CIT v. Krishna and Sons : 70ITR733(SC) . The Supreme Court did not, however, pronounce on thequestion of the assessability to capital gains out of the amount realised as sale proceeds of the route rights.
7. However, there are decisions of this court which have considered the question of the value of the route right. Those decisions have been reported in G. Vijayaranga Mudaliar v. CIT : 47ITR853(Mad) , A. Vimalan v. CGT : 94ITR21(Mad) and Ramaswami Udayar v. CIT : 116ITR493(Mad) . 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 : 119ITR504(Mad) , The assessee in that case relied on the decision in CIT v. K. Rathnam Nadar : 71ITR433(Mad) 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 : 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).
8. Questions 5, 6 and 7 go together and they relate to the capital gains arising out of the sale proceeds of the land sold to M/s. Pratap Talkies. There was an agreement with the purchaser for the sale of therland on January 15, 1961, and in the said agreement the consideration was shown atRs. 10,000. The sale deed, however, came to be executed only on March 22, 1968. The ITO proceeded on the basis that the fair market value of the property had to be ascertained as on the date of conveyance. He, therefore, took the fair market value of the property as on March 22, 1968, at Rs. 10,000 and computed the capital gains accordingly. Even before the ITO, the assessee had agreed to the sale price being taken at Rs. 50,000. The Tribunal examined the point as regards the market value of the property and came to the conclusion that the market value as on the date of the agreement, viz., January 15, 1961, would alone have to be taken. On that basis, in the view of the Tribunal, the sum of Rs. 10,000 shown in the agreement was the proper consideration. However, as the assessee had agreed even before the ITO to the sale price being taken at Rs. 50,000, the Tribunal directed that the sum of Rs. 50,000 would be taken as the basis for the computation of the capital gains. It is this conclusion of the Tribunal that is the subject-matter of the reference in the three questions, viz., 5, 6 and 7.
9. Out of the three questions, question No. 6 seems to challenge even the correctness of the Tribunal's action in taking the sale proceeds at Rs. 50,000 as agreed to by the assessee itself. The question was presumably referred as suggested by the assessee. The question had, however, not been raised by the assessee by filing any application for reference. Therefore, the assessee would not be in a position to challenge the correctness of the figure of Rs. 50,000 in the present reference. In fact, Mr. K. R. Ramamani, the learned counsel appearing for the assessee, did not challenge the correctness of this figure. As far as the department's stand is concerned, there is no finding in the order of the income-tax authorities or of the Tribunal that there was any under-statement of consideration so as to justify the application of the provisions of Section 52(2). That such an under-statement of consideration is necessary as a condition precedent to invoking the provision has been pointed out in two decisions of this court in CIT v. Rikadas Dhuraji : 103ITR111(Mad) and Addl. CIT v. Kuppuswamy (P.S.) : 112ITR1012(Mad) . As necessary factual basis for varying the sale consideration, as shown in the instrument had not been made out except to the extent of Rs. 50,000 as admitted by the assessee itself, it would follow that the sum of Rs. 50,000 was rightly taken by the Tribunal in arriving at 'the basis for the capital gains. We, accordingly, answer questions Nos. 5 and 7 in the affirmative and in favour of the assessee. We do not think it necessary to answer question No. 6 in view of the concession made for the assessee.
10. The reference is accordingly answered. There will be no order as to costs.