In the reference u/s 256(1) of the Income-tax 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 the 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 u/s 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 market value of the land sold to Pratap Talkies on 22-8-1969 would be to take into account the market value as on 15-1-1961, 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 Appellants 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 Triupathi to Kalahasthi. On 16-11-1967 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 as on 16-11-1967, 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 permit. 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 u/s 41(2) of the Act. The balance of Rs. 1,50,184/- was assessed as capital gains on the sale of the buses.
The assessee had 10 grounds of land in Triupathi 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.
3. The computation of the profit u/s 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 u/s 41(2) was directed to 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 question already extracted. Questions 1 to 3 go together. The point to be examined with reference to there questions is whether the allocations of the sale price between the buses and the route right at Rs. 1,50,000/- and Rs. 2,70,000/- 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 had 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 assessees case also. The Tribunal has gone into the facts in detail and examined the written down value of each of these buses, their age and the prices at which there 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.
4. Q. 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 9buses 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 figure should have been taken in the present case also, we do not have any material to show that in the purchasers 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 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 Tribunals order as regards he 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 reason for its conclusion. The discussion in the Tribunals order regarding the purchasers case was only to show that the Department was taking two 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 sole 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 u/s 41(2) has also to be consistent with this view. Questions 1 to 3 are therefore, answered in the affirmative and in favour of the assessee.
5. 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 that the sale price of the route rights did not give rise to any capital agains because of an earlier order of it; and also of a decision of the Andhra Pradesh High Court in the Commissioner of Income-tax v. Krishna & Sons. The Tribunals order dated 30-11-1978 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-paragraph 10 of the order now under consideration. In the decision of the Andhra Pradesh High Court in the 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 Courts decision is reported in the CIT, A. P. v. Krishna & sons. The Supreme Court did not, however, pronounce on the question of the assessability to capital gains out of the amount realised as those proceeds of the route rights.
6. However, there are decisions of this Court which have considered the question the value of the route right. Those decisions have been reported in G. Vijayaranga Mudaligar v. CIT, Madras, A. Vimalan v. CGT, Madras & Ramaswamy Udayar v. CIT, Madras. 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 considered recently in T.C. No. 110 of 1975 in the case of K. Balasubramania Nair v. The CIT, Tamil Nadu II, Madras in the judgment dated 17-1-1979. The assessee in that case relied on the decision in the CIT, v. K. Rathanam Nadar 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 Rathanam Nadars case was rendered in connection with a self generating asset viz., the good-will 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 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 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 s. 45 and the sections following it would not be applicable. In T.C. No. 110 of 1975, the matter was remitted to the Tribunal for consideration of the question of actual cost of the question of actual cost of the acquisition of the route rights in the matter of computation of capital gains. In view of the number of decisions of this Court, the Tribunals 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.
7. 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 the land on 15-1-1961 and in the said agreement the consideration was shown at Rs. 10,000/-. The sale deed, however, came to be executed only on 22-3-1968. The Income-tax Officer property had to be ascertained as on the date of conveyance. He, therefore, took the fair market value of the property as on 22-3-1968 at Rs. 1,06,000/- and computed the capital gains accordingly. Even before the Income-tax Officer 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., 15-1-1961 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 Income-tax Officer 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.
8. Out of the three questions the question No. 6 seems to challenge even the correctness of the Tribunals 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 filling 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 Departments 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 s. 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 the Court reported in the CIT, Madras-I v. Rikabdas Dhuraji and Another and the Addl. CIT, v. Kuppuswamy (P.S.). 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 agains. We accordingly answer questions 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.
9. The reference is accordingly answered. There will be no order as to costs.