Syndicate Bank Ltd. v. Additional Commissioner Of Income-Tax. (And Vice Versa)

The Judgment of the Court was delivered by

Jagannatha Shetty, J.:— The Income-tax Appellate Tribunal has, under s. 256(1) of the I.T Act, 1961, referred as many as nine questions, all relating to the question of capital gains which accrued or arose to the assessee as a result of payment of compensation of Rs. 3.6 crores by the Government of India for having taken over the assessee's business undertaking.

2. The assessee is a public limited company under the name “the Syndicate Bank Ltd.”. It was carrying on banking business with its head office at Manipal. The business undertaking of this company along with 13 other like undertakings were first nationalised by the Government of India by promulgating an Ordinance called “the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance (8 of 1969)”. The validity of that Ordinance was challenged before the Supreme Court, and when it was pending consideration, the Ordinance was replaced by an Act called “The Banking Companies (Acquisition and Transfer of Undertakings) Act (22 of 1969)”. The Supreme Court struck down that Act as unconstitutional in Cooper v. Union of India, [1970] 40 Comp Cas 325 : (1970) 1 SCC 248 : AIR 1970 SC 564, on the ground that while determining the compensation payable for compulsory acquisition of the undertaking, the Government of India did not take into consideration the important components of the undertaking, such as, the goodwill, and the value of the unexpired period of lease.

3. After the decision of the Supreme Court in Cooper's case, [1970] 40 Comp Cas 325 (SC) : (1970) 1 SCC 248 : AIR 1970 SC 564, the Government of India came forward with another Ordinance called “The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1970”, again taking over all the said banking undertakings. That Ordinance was again replaced by the Act called “The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (Act 5 of 1970)” (which is hereinafter called as the “BCATU Act”). It was by this BCATU Act that the entire banking business undertaking of the assessee has been nationalised with effect from July 19, 1969. Before proceeding further, we may have a glimpse of the salient provisions of the BCATU Act. Section 4 provides that the undertakings of the existing banks shall vest in corresponding new banks. The corresponding new bank of the assessee has been termed as “Syndicate Bank”, that is, the same old name of the assessee with the deletion of the word “Ltd.”. The assessee retains the word “Ltd.”, but has been deprived of its banking business.

4. Section 5 of the BCATU Act provides that the undertaking of each existing bank shall be deemed to include all assets, rights, powers, authorities and privileges and all property, movable and immovable, cash balances reserve funds, investments and all other rights and interest in, or arising out of, such property as were immediately before the commencement of the Act in the ownership, possession, power or control of the existing bank, in relation to the undertaking, whether within or without India, and all books of accounts, registers, records and all other documents of whatever nature relating thereto and shall also be deemed to include all borrowings, liabilities and obligations of whatever kind then subsisting of the existing bank in relation to the undertaking, etc.

5. Section 6 provides for payment of compensation. It reads:

“Every existing bank shall be given by the Central Government such compensation in respect of the transfer, under section 4, to the corresponding new bank of the new undertaking of the existing bank as is specified against each such bank in the Second Schedule.”

6. Under s. 12(2), every officer or other employee of an existing bank shall become, on the commencement of the Act, an officer or other employee, as the case may be, of the corresponding new bank and shall hold his office or service in that bank on the same terms and conditions and with the same rights thereto.

7. The Second Schedule to the BCATU Act provides for compensation and thereunder, the Syndicate Bank Ltd., the assessee herein, was entitled to Rs. 3.6 crores as compensation for the entire business undertaking taken over by the Government of India.

8. For the assessment year 1970–71, the relevant previous year being the year ending on December 31, 1969, the assessee filed a return of income declaring a loss of Rs. 8,654 including the expenses incurred after July, 1969, on establishment, etc. In Part IV of the return of income, the profit of the banking business from January 1, 1969, to July, 18, 1969, profits under s. 41(2) of the I.T Act, 1961, on transfer of assets and also capital gains on transfer of undertaking to the Central Government were indicated, claiming all the three to be not taxable. It was urged before the ITO that the compensation of Rs. 3.6 crores was a lump sum compensation for the transfer of the business undertaking as a whole and it was not possible to split it up and apportion the same to any particular asset taken over by the Central Government. It was also urged that income chargeable under the head “Capital gains could arise only when a specific capital asset is transferred and not when an undertaking as a whole is transferred.

9. The ITO did not accept the said contentions. He observed that the definition of “Capital asset” under s. 2(14) of the I.T Act, 1961, is wide enough to cover property of every description including an undertaking. He gave an option to the assessee under s. 55(2) of the I.T Act, 1961. It appears that at one stage, the assessee seems to have exercised the option to substitute the fair market value of the asset as on January 1, 1954, for the cost of acquisition, but later imposed a condition stating that it would exercise the option only if it is beneficial to it.

10. There and then the ITO thought that he had no alternative than to make a valuation of the undertaking as a whole as on January 1, 1954. He, accordingly, valued the undertaking and found that it was not beneficial to the assessee. He, thereafter, computed the capital gain by deducting from the compensation amount, the cost of acquisition, the paid up capital as on July 18, 1969, and reserves (barring special reserves for dividends and other appropriations) and also profits for the period January 1, 1969, to July 18, 1969, after making provision for tax as per books of account. He thus determined the long-term capital gain at Rs. 65,61,682 accrued to the assessee on taking over of its business undertaking by the Government of India.

11. Aggrieved by the order of the ITO, the assessee appealed to the AAC. The AAC did not agree with the view taken by the ITO. The AAC was of the opinion that the compensation paid by the Government of India was for the transfer of the entire business undertaking of the assessee and its apportionment on various components of the undertaking was, therefore, not proper. He observed that the cost of acquisition as well as cost of improvement of the undertaking could not be ascertained and, hence, it would not be possible to compute the capital gain that accrued to the assessee. He held that the only alternative for the Department would be to take the capital gain as “nil”.

12. Aggrieved by the order of the AAC, the Department appealed to the Tribunal and the assessee came forward with a cross-objection.

13. Before the Tribunal, the common contention urged by both the sides was that the amount of Rs. 3.6 crores given as compensation for the compulsory acquisition of the business undertaking of the assessee is incapable of apportionment among the various assets constituting the undertaking. But, the Tribunal did not appear to have relished that submission and proceeded on the assumption that Parliament did not fix the compensation in a completely arbitrary manner. The Tribunal, relying on the decision of the Supreme Court in Cooper v. Union of India, (1970) 1 SCC 248 : AIR 1970 SC 564 : [1970] 40 Comp Cas 325 (SC) and also the decision of the Bombay High Court in Killick Nixon & Co. v. CIT, [1963] 49 ITR 244, held that the undertaking of the assessee which had been compulsorily acquired was a capital asset within the meaning of s. 2(14) of the I.T Act, 1961, and the gains arising from the transfer of such a capital asset has to be computed after determining the cost of acquisition. The Tribunal observed that it would not be correct to state that no part of the compensation would be relatable to any particular asset of the undertaking. The Tribunal expressed the view that the total amount of compensation paid to the assessee was in excess of the entire capital and reserves of the assessee as on the date of acquisition and, therefore, the amount of compensation must have covered all the assets less liabilities, and so much so, the compensation awarded has to be apportioned among the various assets excluding the amount which could be attributed to goodwill of the undertaking.

14. The Tribunal, however, made it plain that its direction regarding the exclusion of the value of goodwill from the compensation amount would be applicable only if the assessee does not exercise the option to substitute the fair market value of the undertaking as on January 1, 1954, for the cost of acquisition.

15. With these observations, the Tribunal set aside the orders of the AAC and the ITO. The Tribunal also directed the ITO to give to the assessee an opportunity to exercise a clear option under s. 5.5(2) of the I.T Act, 1961, and not a conditional option as the assessee exercised earlier.

16. The Tribunal has referred to this court nine questions out of which the first question relates to the nature of the “undertaking” acquired by the Government of India. The question reads:

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the undertaking of the assessee company was a capital asset on transfer of which capital gains would arise?”

17. This question has two parts. The first part relates to the nature of the business undertaking of the assessee acquired by the Government of India as to whether it was a capital asset ? The second part relates to capital gain accruing or arising to the assessee upon the transfer of that business undertaking. The second part could as well form an independent question and not incidental to the first part of the question.

18. We will first consider the first part of the question. “Capital asset” has been defined under s. 2(14) of the I.T Act, 1961. “Capital asset” means property of any kind held by an assessee, whether or not connected with his business or profession, but does not include—

(i) any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession;

(ii) personal effects, that is to say, movable property (including wearing apparel and furniture, but excluding jewellery) held for personal use by the assessee or any member of his family dependent on him;”

19. The use of the word “means” shows that the definition is a hard and fast definition and that no other meaning can be assigned to the expression than what is put down in the definition. Generally, the word “means” is an inclusive term. Given that meaning, the expression “capital asset” must include property of any kind held by the assessee on the surface of the earth, except what has been expressly excluded by clauses (i) to (iv) thereunder. But for this exemption statutorily provided, those exempted properties would also otherwise fall within the defined meaning. The term “capital asset” has thus an all-embracing connotation and includes every kind of property as generally understood except those that are expressly excluded from the definition. So too, the meaning of the expression “property It includes every conceivable thing, right or interest or liability. In Cooper v. Union of India, [1970] 40 Comp Cas 325 (SC) at p. 354 : (1970) 1 SCC 248 : AIR 1970 SC 564 at p. 591, the Supreme Court observed:

“The expression ‘property’ in entry 42, List III, has a wide connotation, and it includes not only assets, but the organisation, liabilities and obligations of a going concern as a unit.”

20. In view of what would seem to be the plain, unambiguous and wide meaning of the word “capital asset” under s. 2(14) of the I.T Act, 1961, and the word “property” as generally understood, we desire to say quite definitely that the business undertaking of the assessee taken over by the Government of India under the BCATU Act was a “capital asset”

21. As a preliminary to the consideration of the second part of the first question and other eight questions referred to by the Tribunal (which will be referred to at the end of this order), it will be necessary to examine whether the lump sum compensation awarded to the assessee under the BCATU Act could be apportioned on various items or components of the undertaking in question. Mr. Srinivasan, learned counsel for the Revenue, submitted that it would be factually and legally impossible to apportion the compensation to various items constituting the undertaking. The counsel, in our opinion, is right in his submission. The Government of India has awarded Rs. 3.6 crores as compensation to the assessee. The undertaking taken over consisted of various and varied assets and liabilities. Section 5 of the BCATU Act gives us an indication of the nature of properties that go to constitute the undertaking. Section 5 provides that the undertaking acquired consists of assets, rights, powers, authorities and privileges and all property, movable and immovable, cash balances, reserve funds, investments, etc. It also covers borrowings, liabilities and obligations of whatever kind then subsisting in the then Syndicate Bank Ltd. Besides, there are other properties which are inherent in such undertaking like the secret reserves which are also called “hidden reserves and inner reserves” not disclosed in the balance-sheet of the business undertaking. (See (i) William Pickles' Book of Accountancy, 3rd edn., p. 186; (ii) Spicer & Pegler's Book-Keeping & Accounts. 16th edn., p. 65; and (iii) J.R Batliboi's Book of Advanced Accounting, 21st end., p. 701). It includes also rights— contingent or definite, tangible or intangible and all interests and advantages—partial or total, present or future. In the very nature of these kinds of properties comprising the business undertaking taken over by the Government of India, it is neither possible nor desirable to apportion the lump sum compensation of Rs. 3.6 crores on item-wise basis. The BCATU Act does not give any indication to that effect. It may be, as the Tribunal has observed, that Parliament did not fix the compensation in a completely arbitrary manner. But it would be hazardous to guess that out of the total compensation awarded, so much would be attributable to a particular asset of the undertaking.

22. The case nearest to the point is found in CIT v. Mugneeram Bangur & Co. (Land Department), [1965] 57 ITR 299 (SC). There, the Supreme Court was concerned with a problem arising on the sale of a going concern. The firm which carried on the business of buying land, developing it and then selling it, sold the business as a going concern with its goodwill and all stock-in-trade, etc., to a company promoted by the partners of the firm. The schedule to the agreement contained the properties agreed to be sold for a total sum of Rs. 34,99,300. The Appellate Tribunal held that although the sale was of the business as a going concern, the value of the stock-in-trade could be traced. But the Supreme Court held that the sale was the sale of the whole concern and no part of the price paid was attributable to the cost of the land and no part of the price was taxable. It was observed (p. 305):

“It seems to us that in the case of a concern carrying on the business of buying land, developing it and then selling it, it is easy to distinguish a realisation sale from an ordinary sale, and it is very difficult to attribute part of the slump price to the cost of the land sold in the realisation sale. The mere fact that in the schedule the price of land is stated does not lead to the conclusion that part of the slump price is necessarily attributable to the land sold. There is no evidence that any attempt was made to evaluate the land on the date of sale. As the vendors were transferring the concern to a company, constituted by the vendors themselves, no effort would ordinarily have been made to evaluate the land as on the date of sale. What was put in the schedule was the cost price, as it stood in the books of the vendors. Even if the sum of Rs. 2,50,000 attributed to goodwill is added to the cost of land, it is nobody's case that this represented the market value of the land.

In our view, the sale was the sale of the whole concern and no part of the slump price is attributable to the cost of land. If this is so, it is clear from the decision of this court in Commissioner of Income-tax v. West Coast Chemicals & Industries Ltd., [1962] 46 ITR 135 (SC) and Doughty's case, [1927] AC 327 that no part of the slump price is taxable.”

23. It will be clear from these observations that if the sale is of a whole concern and no part of the agreed price is indicated against different and definite items having regard to their valuation on the date of sale, the agreed price cannot be apportioned on capital assets in specie. What is sold in such a case is not individual items of property forming part of the aggregate, but the capital asset consisting of business of the whole concern or undertaking.

24. This view that we have taken finds general support from the decisions of the Gujarat High Court in (i) Sarabhai M. Chemicals Private Limited v. Mittal, Competent Authority, [1980] 126 ITR 1; and (ii) Artex Manufacturing Co. v. CIT, [1981] 131 ITR 559. But, with respect, we do not share that part of the view taken in the first of these cases on the principles stated by the Bombay High Court in Killick Nixon and Co. v. CIT, [1963] 49 ITR 244. The Gujarat High Court in Sarabhai M. Chemicals (P.) Ltd.'s case, [1980] 126 ITR 1, agreed with the ratio of the decision of the Bombay High Court in Killick Nixon 6- Co.'s case, [1963] 49 ITR 244, which we find it hard to accept.

25. The case in Killick Nixon & Co. v. CIT, [1963] 49 ITR 244 (Bom), on which the Tribunal also depended very much in this case went on a different line of reasoning. There, the case was concerned with a transaction where a partnership firm sold all its assets and liabilities with certain contractual rights in consideration of the allotment of shares of the value of ninety lakhs of rupees. For determining the capital gains on the sale of its assets, the case started with a plea before the ITO that there was no question of accrual of capital gain since the sale of the assets took place after the business was discontinued. The ITO held that that was not a case of discontinuance but a case of succession to the business of the firm by two new companies. He determined the capital gain on the sale of the business at Rs. 32,01,747 on the basis of a valuation on January 1, 1939, and included it in the assessment. In appeal before the AAC, the parties filed affidavits on the valuation of the assets sold. In the light of the new material coming forth, the AAC called for a report from the ITO. The ITO considered the entire material and submitted his report on the basis of which the AAC recomputed the capital gains liable to tax. Against the order of the AAC, the assessee appealed to the Tribunal. One of the contentions before the Tribunal was that s. 12B(1) of the I.T Act, 1922, had no application to the case because the assessee had sold its business lock, stock and barrel. It was contended that in order that the gain to be a capital gain under s. 12B(1), there must be a sale of the capital assets as such and not a transfer of a business as a whole. This contention formed the basis for question No. 3 which was referred to the Bombay High Court (Supplemental question No. 1).

26. While dealing with that question, the High Court observed (p. 259 of 49 ITR):

“Capital gains under section 12B(1) is gain, which arises on the sale, exchange or transfer of a capital asset, i.e, on the sale, exchange or transfer of property of any kind as specified in section 2(4A). The fact that the property is connected with business or unconnected with the business is immaterial. It is the existence of the property and the gain arising on its disposal by sale, exchange or transfer that alone is necessary for the purpose of constituting a capital gain, whether the assets are sold along with the business or as a part of the business as a going concern or without business and separately would not make any difference. If the sale even of the business as a whole included a sale of the capital assets of the business, the gain arising on such sale as is attributable to the capital assets would be a capital gain. There is nothing in section 12B(1) which, in our opinion, supports the submission of Mr. Palkhivala that in order that the gain to be a capital gain under section 12B(1), there must be a sale of the capital assets as such and not a sale of the capital assets involved in the transfer of a business as a whole. The third question, therefore, also has to be answered against the assessee and our answer to the said question is, therefore, in the affirmative.”

(Emphasis* supplied)

27. We are afraid that the above view taken by the Bombay High Court may no longer be valid after the decision of the Supreme Court in CIT v. Mugneeram Bangur & Co. (Land Department), [1965] 57 ITR 299, in which the Supreme Court has observed that when a business undertaking as a whole is transferred together with all its assets, what arises for consideration from the point of view of taxation is only the gain in respect of that transaction and nothing else.

28. This takes us to the next contention which was presented most persuasively by Mr. Sarangan. The learned counsel urged that the compulsory acquisition of the undertaking by the provisions of the BCATU Act resulted in no transfer of capital asset as such so as to attract s. 45 of the I.T Act, 1961. The contention, in terms more easily understood, is that the undertaking in question is not an “asset” since for the purpose of computation of income chargeable under the head “Capital gains”, the cost of acquisition and the cost of improvement thereto cannot be determined. While elaborating the contention, Mr. Sarangan placed strong reliance on the decision of the Supreme Court in Cit v. B.C Srinivasa Setty., [1981] 128 ITR 294.

29. We are here concerned primarily with the terms of sections 45 and 48 of the I.T Act, 1961.

“45. Capital gains.—(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D and 54E, be chargeable to income-tax under the head ‘Capital gains’, and shall be deemed to be the income of the previous year in which the transfer took place.”

“48. Mode of computation and deductions.—The income chargeable under the head Capital gains shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:—

(i) expenditure incurred wholly and exclusively in connection with such transfer;

(ii) the cost of acquisition of the capital asset and the cost of any improvement thereto.”

30. The cost of acquisition of the capital asset mentioned in the above section implies date of acquisition and the date of acquisition of the asset is, therefore, most relevant for determining the capital gain. Unless, one is able to determine the date of acquision of the capital asset, the computation of the income derived by the transfer of such capital asset would be impossible.

31. The decision in Srinivasa Setty's case, [1981] 128 ITR 294 (SC), provides judicial support for this view. There, the question that arose for consideration was whether the transfer of goodwill generated in a newly constituted business would be subject to income-tax under the head “Capital gains”. Pathak J., speaking for the Supreme Court, observed that the goodwill of a newly constituted business cannot be considered as an “asset” within the meaning of s. 45 and, therefore, its transfer is not subject to income-tax under the head “Capital gains”. The learned judge gave the following reasons (at p. 300):

“What is contemplated is an asset in the acquisition of which it is possible to envisage a cost. The intent goes to the nature and character of the asset, that it is an asset which possesses the inherent quality of being available on the expenditure of money to a person seeking to acquire it. It is immaterial that although the asset belongs to such a class, it may, on the facts of a certain case, be acquired without the payment of money. That kind of case is covered by s. 49 and its cost, for the purpose of s. 48, is determined in accordance with those provisions. There are other provisions which indicate that s. 48 is concerned with an asset capable of acquisition at a cost. Section 50 is one such provision. So also is sub-s. (2) of s. 55. None of the provisions pertaining to the head ‘Capital gains’ suggests that they include an asset in the acquisition of which no cost at all can be conceived. Yet there are assets which are acquired by was of production in which no cost element can be identified or envisaged. From what has gone before, it is apparent that the goodwill generated in a new business has been so regarded. The elements which create it have already been detailed. In such a case, when the asset is sold and the consideration is brought to tax, what is charged is the capital value of the asset and not any profit or gain.

In the case of goodwill generated in a new business, there is the further circumstance that it is not possible to determine the date when it comes into existence. The date of acquisition of the asset is a material factor in applying the computation provisions pertaining to capital gains. It is possible to say that the ‘cost of acquisition’ mentioned in s. 48 implies a date of acquisition, and that inference is strengthened by the provisions of ss. 49 and 50 as well as sub-s. (2) of s. 55.

It may also be noted that if the goodwill generated in a new business is regarded as acquired at a cost and subsequently passes to an assessee in any of the modes specified in sub-s. (1) of s. 49, it will become necessary to determine the cost of acquisition to the previous owner. Having regard to the nature of the asset, it will be impossible to determine such cost of acquisition:— Nor can sub-s. (3) of s. 55 be invoked, because the date of acquisition by the previous owner will remain unknown.

We are of opinion that the goodwill generated in a newly commenced business cannot be described as an ‘asset’ within the terms of s. 45 and, therefore, its transfer is not subject to income-tax under the head Capital gains”

32. The critical points in this reasoning are these : (i) There are assets of different nature, those involving cost in their acquisition and those which could be acquired by way of production in which the cost element cannot be identified. But none of the provisions pertaining to “capital gains” suggest that they include an asset in the acquisition of which no cost at all can be conceived, (ii) The cost of acquisition mentioned in s. 48 implies a date of acquisition. And (iii) if the cost of acquisition and/or the date of acquisition of the asset cannot be determined, then, it cannot be described as an “asset” within the meaning of s. 45 and, therefore, its transfer is not subject to income-tax under the head “Capital gain”.

33. Relying on these principles, Mr. Sarangan urged that the “undertaking” in this case includes all rights, assets, contingent or definite, corporeal or incorporeal and all interests and advantages, present or future. It also includes the management, executives, employees, and anything which goes as a part of organisation including the potentiality of the organisation to grow. It contains a variety of elements both tangible and intangible. It remains insubstantial in form and nebulous in character. Its value may fluctuate from one moment to another depending on changes in the reputation of the business. If “goodwill” cannot be considered as an “asset” within the meaning of s. 45, as held by the Supreme Court in Srinivasa Setty's case, [1981] 128 ITR 294, equally the business undertaking in the present case cannot be considered as an “asset” within the scope of the said section. So ran the submission.

34. Mr. Sarangan next urged that the cost of acquisition of the undertaking and the cost of improvement thereto cannot be ascertained. Even the date of commencement of the undertaking cannot be considered as the date of its acquisition since the company was registered by the promoters and it commenced the business much later and there might not be any undertaking as on the first day. It is impossible to conceive of the cost of improvement of the undertaking, since the undertaking imperceptibly grows with its various activities, namely, with the appointment of managers, employees, extension of new branches, undertaking of new activities of banking, procurement of fixed deposits and remunerative lending to clients. In progressive business, the undertaking may flourish with progressive increase and in a failing or dwindling business, it would begin to wane. It is, therefore, absolutely impossible to find out the date on which the improvement has been effected even if it may be said that the date of acquisition is available in this regard.

35. Mr. Sarangan also referred us to the decision of the Bombay High Court in Evans Fraser & Co. Ltd. v. CIT, [1982] 137 ITR 493, where the ratio of the decision in Srinivasa Setty's case, [1981] 128 ITR 294 (SC), has been extended even to the “goodwill” built up by an undertaking on the ground that its cost of improvement cannot be determined. The two decisions of the Calcutta High Court were also depended upon in support of the contention. In CIT v. Clive Mills Co. Ltd., [1984] 148 ITR 14, the Calcutta High Court applied the ratio of the decision of the Supreme Court in Srinivasa Selty's case, [1981] 128 ITR 294 (SC), to sale of loom hours with an observation that it would not be possible to envisage the cost of acquisition and, therefore, the profits and gains arising from the sale of loom hours are not chargeable to tax under the head “Capital gains”. The same High Court in Commissioner Of Income-Tax, Central, Calcutta v. Satya Paul., [1984] 148 ITR 21, held that the amount realised by sale of import entitlements, where it did not cost anything to the assessee, could not be brought to tax under the head “Capital gains”. The learned counsel also relied upon the decision of the Delhi High Court in Bawa Shiv Charan Singh v. CIT, [1984] 149 ITR 29, where it was held that there could be no capital gains on the transfer of leasehold rights which were acquired by the assessee without any cost. Of course, if the cost of acquisition of the business undertaking acquired by the Government of India under the BCATU Act cannot be ascertained, then the undertaking cannot be an “asset” within the meaning of s. 45. But, we express no opinion on this aspect of the matter since there is no finding by the Tribunal. This part of the question has to be examined by the Tribunal or at its instance by any other authority having regard to all the facts and circumstances of the case, in the light of the decisions to which we have called attention. We may, however, point out that if this aspect of the matter is found against the assessee then, the assessee may be afforded an opportunity to exercise the option contemplated under s. 55(2) of the I.T Act, 1961.

36. In view of the conclusion that we have reached, our answers to the questions are as follows:

Questions Answers “1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the undertaking of the asses-see company was a capital asset on which transfer capital gains would arise? The first part of the question is answered in the affirmative and we decline to answer the second part of the question. 2. If the answer to the first question is in the affirmative, whether the Tribunal was justified in law in holding that only a part of the compensation amount could be attributed to the exempted assets like agricultural land and, that such part could be arrived at on the basis of the proportion of the book value of the exempted assets to the total value of the assets according to the balance-sheet? In view of the answer to the first part of question No. 1 in the affirmative, question No. 2 has to be answersd in the negative. 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that a part of the compensation could be attributed to goodwill? In the negative. 4. Whether the Tribunal was right in law in holding that there could be no capital gains on transfer of goodwill in case the assessee did not opt under section 55(2) of the Income-tax Act, 1961, for the market value of the undertaking as on 1-1-1954 to be substituted for the cost of acquisition of the undertaking? In view of the answers to questions Nos. 1 to 3, questions Nos. 4 and 5 do not call, for answers.

5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that if the assessee opted for substitution of the market value of the undertaking as on 1-1-1954 for the cost of acquisition, capital gains liable to tax would arise on transfer of goodwill? 6. Whether the Tribunal was justified in law in holding that it was not permissible for the assessee to make a conditional option for the substitution of the market value of the undertaking as on 1-1-1954, for the cost of acquisition under the provisions of section 55(2) of the Income-tax Act, 1961? Answers to these questions Nos. 6 to 9 are premature. As and when the option is exercised by the assessee, it is open to the ITO to adopt any reasonable method for determining the market value of the assets of the undertaking as on 1-1-1954, without reference to the observations or findings recorded by the Tribunal as to the method of valuation.” 7. Whether the manner laid down by the Tribunal for the apportionment of the compensation amount between the various assets of the undertaking as on the date of acquisi-tion is correct in law? 8. Whether the directions of the Tribunal with regard to the computation of the cost of acquisition and of improvement are correct in law? 9. Whether the Tribunal was right in holding that for the determination of the market value of the undertaking as on 1-1-1954 on the basis of the capitalisation of the maintainable profits, profits of the years subsequent to 1-1-1954 should not be taken into account?