LexPNB FINANCE LTD. versus COMMISSIONER OF INCOME TAX-I, NEW DELHI
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
[2008] 15 S.C.R. 556
A
PNB FINANCE LTD.
"""'--
v ..
COMMISSIONER OF INCOME TAX-I, NEW DELHI
(Civil· Appeal No. 3721 of 2002)
NOVEMBER 6, 2008
B
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]
Income Tax Act, 1961 - s.49 - Assessment Year 1970-
71 - Compensation received by Banking Undertaking on its
c transfer under Banking Companies Act of 1970 - Taxability
of - Held: The Banking Undertaking, inter alia,· included
intangible assets like goodwill, tenancy rights, manpower and
value of banking licence - Compensation was not allocable
item-wise - Hence, it was not possible to compute capital
D gains and, therefore, the amount of compensation received
by the Banking Undertaking on its transfer was not taxable
~
under s.45 - Banking Companies (Acquisition and Transfer
of Undertakings) Act, 1970.
E
The Banking Undertaking in question received
compensation on its .transfer under the Banking
Companies {Acquisition
1 and Transfer of Undertakings)
Act, 1970.
The question which arose for consideration in the
..
F present appeal is whether transfer of the said Banking
Undertaking in the facts and circumstances of the case,
which concerned the Assessment Year 1970-71, gave rise
to capital gains taxable under s.45 of the Income Tax Act,
1961.
G
Allowing the appeal filed by the assessee, the Court
HELD:1.1. For applicability of s.45, three tests are
.,.__
required to be applied. The first test is that the charging
section and the computation provisions are inextricably
H
556
PNB FINANCE LTD v. COMMISSIONER OF INCOME
557
TAX-I, NEW DELHI
linked. The charging section and the computation
A
provisions together constitute an integrated Code.
Therefore, where the computation provisions cannot
apply, it is evident that such a case was not intended to
fall within the charging section, which, in the present
case, is s.45. That section contemplates that any surplus
accruing on transfer of capital assets is chargeable to tax
in the previous year in which transfer took place. In this
case, transfer took place on 18.7.1969. The second test
B
is the test of allocation/attribution. This test applies to a
slump transaction. The object behind this test is to find c
out whether the slump price was capable of being
attributable to individual assets, which is also known as
item-wise earmarking. The third test is that there is a
conceptual difference between an undertaking and its
components. Plant, machinery and dead stock are
0
individual items of an Undertaking. Business
Undertaking can consist of not only tangible items but
also intangible items like, goodwill, man power, tenancy
rights and value of banking licence. However, the cost of
such items (intangibles) is not determinable. [Para 17]
[564-H; 565-A-E]
E
1.2. In the present case, the Banking Undertaking,
inter alia, included intangible assets like, goodwill,
tenancy rights, manpower and value of banking licence.
On facts, item-wise earmarking was not possible. The
F
compensation (sale consideration) of Rs. 10.20 er. was
not allocable item-wise. For the aforestated reasons, on
the facts and circumstances of the present case, which
concerns assessment year 1970-71, it was not possible
to compute capital gains and, therefore, the said amount G
of Rs. 10.20 er. was not taxable under s.45 of the Income
Tax Act, 1961. [Paras 17 and 18] [565-G-H; 566-A, B]
CIT v. Artex Manufacturing Co., {1997) 227 ITR 260, held·
inapplicable.
H
558
SUPREME COURT REPORTS
[2008] 15 S.C.R.
A
CIT v. B.C. Srinivasa Setty (1981) 128 ITR 294; CIT v.
B
c
Mugneeram Bangur & Co. (1965) 57 ITR 299 and CIT v.
Electric Control GearManufacturing Co. (1997) 227 ITR 278,
referred to.
Case Law Reference:
(1997) 227 ITR 260
held inapplicable
Para 11
(1965) 57 ITR 299
referred to
Para 15
(1997) 227 ITR 278
referred to
Para 16
(1981) 128 ITR 294
referred to
Para 17
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3721 of 2002.
o
From the final Judgment and Order dated 27.4.2001 of the
High Court of Delhi at New Delhi in ITR No.12 of 1979.
Ajay Vohra, Bhargava V. Desai, Kavita Jha, Sandeep S.
Karhail, Rahul Gupta and Reema Sharma for the Appellant.
E
Mohan Parasaran, ASG., D.L. Chidananda, Gaurav
Dhingra, Naresh Kaushik, B.V. Balaram Das for the
Respondent.
The Judgment of the Court was delivered by
F
S.H. KAPADIA, J. 1.This civil appeal is directed against
the judgment of Delhi High Court in Income tax Reference under
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