The Judgment of the Court was delivered by

Sethuraman, J.:— In both these cases the Tribunal has made reference under section 256(1) of the Income-tax Act, 1961, raising the following questions:

T.C No. 175/71:

“(1) Whether, on the facts and in the circumstances of the case, the decision of the Tribunal in holding that the compulsory acquisition by the Kerala Government of the Cannanore Tellicherry Electric Supply Undertaking of the assessee under the Madras Electricity Supply Undertakings (Acquisition) Act is a transfer liable to capital gains tax under section 12B of the Indian Income-tax Act, 1922, is correct in law?

(2) Whether, on the facts and in the circumstances of the case, the decision of the Tribunal that where an undertaking as a going concern is compulsorily acquired by the Government, the said undertaking would constitute capital asset within the meaning of section 12B of the Indian Income-tax Act, 1922, is correct in law?”

T.C No. 177/71:

“(1) Whether, on the facts and in the circumstances of the case, the decision of the Tribunal in holding that the compulsory acquisition by the Andhra Pradesh Government of the Ellore Electric Supply Undertaking of the applicant under the Andhra Pradesh Electricity Supply Undertakings (Acquisition) Act is a transfer liable to capital gains tax under section 12B of the Indian Income-tax Act, 1922, is correct in law?

(2) Whether, on the facts and in the circumstances of the case, the decision of the Tribunal that where an undertaking as a going concern is compulsorily acquired by the Government, the said undertaking would constitute capital asset within the meaning of section 12B of the Indian Income-tax Act, 1922, is correct in law?”

2. It may be seen that the questions are identical in both the cases except for the difference in the enactments under which the acquisitions were made by the respective State Governments. We shall first set out the facts in the case of West Coast Electric Supply Corporation Ltd. concerned in T.C No. 175 of 1971. This is a company which was distributing electric energy under several licences one of which was the Cannanore Tellicherry Electric Licence. Under this licence the company was distributing electric energy to the area covered by the licence. The Cannanore Tellicherry area was originally part of the then Madras State and later became part of the Kerala State on the reorganisation of States. The Madras Electricity Supply Undertakings (Acquisition) Act, 1954, was passed by the Madras legislature to compulsorily acquire electricity supply undertakings. Acting under the provisions of the said Act which was applicable to the Cannanore Tellicherry area, the Government of Kerala acquired the said undertaking belonging to the assessee-company. The date of vesting of the undertaking in the Government under section 4 of the Acquisition Act was 30th March, 1957. The compensation payable for the compulsory acquisition was provided for under section 5 which gave the option to the licensee to adopt one of the three methods specified therein. The assessee-company adopted basis A, under which compensation equal to twenty times the average annual profits of the undertaking during the period of five consecutive accounting years immediately preceding the vesting date was provided for. Under basis A, all the assets and liabilities of the undertaking became vested in the Government and the assessee-company was entitled only to the compensation. After correspondence and reference to arbitration, the full compensation for the compulsory acquisition was finally determined at Rs. 30,46,714.

3. The Income-tax Officer assessing the company took the view that it was liable to capital gains tax under section 12B of the Indian Income-tax Act, 1922, and determined the capital gains at Rs. 12,02,667. On appeal, the Appellate Assistant Commissioner, while confirming the liability to capital gains tax fixed the quantum of capital gains at Rs. 5,26,086. Thereafter, the assessee preferred an appeal to the Tribunal against the order of the Appellate Assistant Commissioner contending that the compulsory acquisition will not amount to a transfer within the meaning of section 12B of the Indian Income-tax Act, 1922, attracting the liability to capital gains tax, and that since the entire undertaking with all its assets and liabilities as a going concern was taken over, there could be no transfer of capital assets as such, and that the quantum of capital gains determined was not correct, as the valuation of the assets as on 1st January, 1954, should have been taken at an increased value.

4. There was a similar assessment for the assessment year 1961-62 in the case of Ellore Engineering Company Ltd., which is the assessee in T.C No. 177 of 1971. That was a company to which a licence was granted for supply and distribution of electric energy to the Ellore area. This area was part of the then Madras State and later it became part of Andhra Pradesh on the re-organisation of States. The Andhra Pradesh Electricity Undertakings (Acquisition) Act was passed by the Andhra Pradesh legislature to compulsorily acquire the electricity undertakings. Acting under the provisions of that Act, the Andhra Pradesh Government acquired the Ellore Electric Supply Undertaking belonging to the assessee-company. The date of vesting under that Act was 10th December, 1960. The compensation payable for the compulsory acquisition was provided for under section 5 which gave the option to the assessee to adopt one of the three methods specified therein. The assessee adopted basis A under which compensation equal to twenty times the average annual profits of the undertaking during the period of five consecutive accounting years immediately preceding the vesting date was provided for. Under basis A, as in the other case, all the assets and liabilities of the undertaking became vested in the Government and the assessee was entitled only to the compensation. The compensation payable to the assessee was finally determined at Rs. 21,58,825.

5. The Income-tax Officer took the view that the company was liable to capital gains under section 12B of the Indian Income-tax Act, 1922, and determined the capital gains at Rs. 5,71,976. On appeal, the Appellate Assistant Commissioner while confirming the liability to capital gains tax, fixed the quantum at Rs. 5,30,324. Thereafter, the assessee preferred an appeal to the Tribunal against the order of the Appellate Assistant Commissioner and raised identical contentions which are set out above in the case of West Coast Electric Supply Corporation Ltd.

6. The Tribunal considered both the appeals together in its order dated 18th July, 1970, and rejected the contention that the capital gains were not taxable because the acquisition of the business by the Government did not amount to a sale, exchange, relinquishment or transfer. It rejected the other contention as well, viz., that the entire undertaking having been taken over as a going concern, there was no transfer of capital assets. However, the Tribunal reduced the capital gains to Rs. 77,101 in the case of West Coast Electric Supply Corporation Ltd. and Rs. 1,35,561 in the case of Ellore Engineering Company Ltd. The quantum of capital gains is not in dispute before us. Aggrieved by the order of the Tribunal in each of these two cases, the respective assessees have come to this court with the questions extracted already.

7. We shall take up for consideration the first question. The point raised by the learned counsel is that compulsory acquisition does not come within the scope of section 12B of the Act. Section 12B(1) provides that the tax shall be payable by an assessee under the head “Capital gains” in respect of any profits or gains, arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and that such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. The point sought to be raised by the learned counsel is that compulsory acquisition will not amount to a sale or transfer of a capital asset. It is common ground that there is no question of exchange or relinquishment on the facts of the present case. This point is concluded by more than one decision of this court. In Wilfred Pereira Ltd. v. Commissioner Of Income-Tax, Madras. [1964] 53 ITR 747 (Mad) the assessee had purchased some lands. The lands were compulsorily acquired by the State Government and the asses-see received as compensation a sum which was in excess of the price paid for the lands by the assessee. This excess was sought to be taxed as capital gains. The assessee contended, inter alia, that as the lands were compulsorily acquired there was no transfer within the meaning of section 12B. A Bench of this court held that a compulsory acquisition by the Government of property constitutes transfer and that the profit obtained by the transfer is taxable as capital gains. Similarly, in Commissioner of Income-tax v. United India Life Assurance Company Ltd. [1966] 62 ITR 610 (Mad) by virtue of the Life Insurance (Emergency Provisions) Ordinance, 1956, the management of the company in that case which was carrying on life insurance business vested in the Central Government with effect from 19th January, 1956. By section 3 of the Life Insurance Corporation Act, 1956, all assets and liabilities pertaining to the life insurance business stood transferred to the Corporation. The assessee received certain compensation. The question in that case was also whether there was a transfer as a result of the acquisition under the relevant enactment. This court held, following Wilfred Pereira Ltd. v. Commissioner Of Income-Tax, Madras. [1964] 53 ITR 747 (Mad), that the word “transfer” in section 12B included both a transfer by act of parties and a transfer by operation of law. To similar effect is the decision of a Bench of this court, to which one of us was a party, in Dollar Company v. Commissioner Of Income-Tax, Madras-I. [1977] 107 ITR 280 (Mad). There are decisions of other courts also taking the same view and they are Vadilal Soda Ice Factory v. Commissioner of Income-tax [1971] 80 ITR 711 (Guj), Mangalore Electric Supply Co. Ltd. v. Commissioner of Income-tax [1972] 86 ITR 472 (Cal) and Commissioner of Income-tax v. Shri Krishan Chandmal [1963] 47 ITR 833 (MP). Learned counsel for the assessee contended that a different view had been taken in Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax [1951] 19 ITR 406 (Cal). That was also a case of acquisition of an electricity supply undertaking, but at the relevant time when the acquisition was effected, the expression “transfer” had not been incorporated in section 12B of the Indian Income-tax Act, 1922, with the result that the court had no occasion to go into the question as to whether there was a transfer as a result of the compulsory acquisition of the undertaking. In that case, it was held that the word “sale” referred only to a transaction entered into voluntarily between two persons known as the buyer and the seller by which the buyer acquires property of the seller for an agreed consideration known as a price. The question of transfer not having been in issue in that case, that decision would not be of assistance to the assessee on the point now under consideration. In the result we have to answer the first question in each of these references in the affirmative and against the assessee.

8. We now turn to the second question raised in each of these cases. The submission for the assessee on this question was that the acquisition was of the entire undertaking as a going concern and that the provisions of section 12B read with section 2(4A) of the Indian Income-tax Act, 1922, would not apply. In other words, the contention was that the expression “capital asset” would not comprehend an undertaking acquired as a whole. There is no substance in this submission. The expression “capital assets” has been defined in section 2(4A) as meaning “property of any kind held by an assessee, whether or not connected with his business, profession or vocation but not including, (i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business, profession or vocation, etc., etc.” We have not reproduced clauses (ii) and (iii) of this section as they are not relevant for the purposes of this case. The expression “capital asset” has been given a wide meaning as “property of any kind”. That a business undertaking is property cannot be open to any debate. In fact the Supreme Court had occasion to pronounce on the content of the expression “property” in R.C Cooper v. Union of India [1970] 40 Comp Cas 325, 353, 354 (SC). In that case, which related to the nationalisation of banks, the Supreme Court pointed out, in relation to the entry in the legislative list, as follows:

“Under that entry ‘property’ can be compulsorily acquired. In its normal connotation ‘property’ means the highest right a man can have to anything, being that right which on; has to lands or tenements, goods or chattels which does not depend on another's courtesy: it includes ownership, estates and interests in corporeal things, and also rights such as trade-marks, copyrights, patents and even rights in personam capable of transfer or transmission, such as debts; and signifies a beneficial right to or a thing considered as having a money value, especially with reference to a transfer or succession, and to their capacity of being injured. The expression ‘undertaking’ in section 4 of Act 22 of 1969 clearly means a going concern with all its rights, liabilities and assets —as distinct from the various rights and assets which compose it.”

9. Taking into account the above pronouncement, it follows that the expression “property” is comprehensive enough to include an undertaking as such. As in section 2(4A) of the Indian Income-tax Act, 1922, the expression used is “property of any kind”, this case stands on an a fortiori footing.

10. Learned counsel drew our attention to section 2(2) and section 6(2)(a) of the Tamil Nadu Electricity Supply Undertakings (Acquisition) Act, 1954. These two provisions would have application only in a case where the compensation is payable under basis C. As, in the present case, compensation has been paid under basis A, these provisions do not have any application. We do not, therefore, think it necessary to pronounce on the contention based on these provisions.

11. We have already extracted the provisions of section 2(4A) of the Indian Income-tax Act, 1922, and it would be found therefrom that consumable stores are not included within the meaning of the term “capital asset”. The learned counsel for the assessee submitted that in the respective cases there were consumable stores which should be excluded, in any event, from the computation of capital gains. This is a matter which should have been taken up at the stage of the appeal before the Tribunal and we do not find it possible to allow the assessee to raise this contention at this stage. The point as to whether consumable stores have to be excluded has not been raised before the Tribunal and, therefore, the matter does not arise out of the order of the Tribunal. For the foregoing reasons we answer the second question in each of the references in the affirmative and against the assessee.

12. The Commissioner will have his costs. Counsel's fee is fixed at Rs. 250 in each of the references.