# MANGALORE ELECTRIC SUPPLY CO. LTD v. THE COMMISSIONER OF INCOME TAX, WEST BENGAL

- **Citation:** [1978] 3 S.C.R. 913
- **Court:** Supreme Court of India
- **Decided:** 1978-05-04
- **Bench:** Y. V. Cil\Ndrachud, D. A. DESAr, R. S. Pathak
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mangalore-electric-supply-co-ltd-v-the-commissioner-of-income-tax-west-bengal-7455
- **Pages:** 9

## Headnote

bicon1e Tax Act, 1922, S. 12 B(l)-Whether the word 'transfer' occurring,
in S. 12 B(J) of the Act refers to voluntary transfers only-Whether the 1vord
tra11sf1-r .\l1ou£d be construed ej11sde1n f.{Clleris with th!' lvords 'sale', 'exchange'
and requisitions'.
A
B
In exercise of its power under Section 4 of the Madras Electricity Supply
C
Undertakings (Acquisition) Act, 1954, the Government of Madras acquired
the appeJlants' undertaking and its properties were taken over on the date of
vesting viz. October 15, 1956. As per the option exercised by the appellant
under S. 6, the appellant was paid a compensation of Rs. 18,42,312/- applying
Basis 'A' method.
In the course of the appellant's assessment for the assess·
ment year 1957-58, corresponding to the accounting year commencing
on
April 1, 1955 and ending on October 14, 1956, the Income Tax Officer considered the question whether the compensation received by the appellant for
the acquisition of its undertaking was in the nature of a capital gain within
I>
the meaning of S. 12 B of the Income Tax Act, 1922. Deducting a sum of
Rs. 6.45,710/- representing the value of fixed assets from the compensation
paid by the State Government to the appellant, the Income Tax Officer treatea
the sum of Rs. 11,95,602/- as capital gains which was liable to be brought to
tax. The appellanf's contention before the appellate Assistant Commissioner
that the compulsory acquisition of its undertaking \Vas not a 'transfer' within
the meaning of S. 12 B (1) of the Act and 1therefore, it was not liable to
capital g:ain tax failed.
The Tribunal in further appeal and the High Court
E.
on a reference confirmed the said view.
The High Court on an application
under Section 256(2) of the Incon1e Tax Act, 1961, decided against
the
appel1ant on the question whether part of the compensation was paid towards
g,)od-will and therefore exen1pt from tax.
Disn1issing the appeals by certificate the Court.
HELD: 1. The v;rord 'transfer' is comprehensive and is regarded generally
F.
as com.prehending within its scope transfers both of the voluntary and involuntary kinds.
Without more, therefore there is no reason for limiting
the
operations of the word 'transfer' to voluntary acts of transfer so as to exclude
,,_.. compuisory acquisitions of property.
[917 G-HJ
(
2. (a) The word 'transfer cannot be construed ajusdc1n generis with the
words \ale'. 'exchnnge' or 'relinquishment'.
[918 A]
(b) There is no roon1 for the application
of
ej11sden1
generis doctrine
unless one finds a category and "\Vhere the words are clearfy wide in their
n1ean.ing, they ought not to be qualified on the ground of their association with
other \'>'Ords.
[91 ~ C-I)J
In the instant c<1se. in the absence of a distinct genus or category, no presumption can arise that the word 'transfer' must be construed in the sense of
a voluntary act of transfer since 'sale', exchange' or 'relinquishment' are
in the norn1al acceptation of those terms voluntary acts.
The words (a) sale,
(b) exchange, (c) relinquisl1ment and (d) transfer must accordingly be given
their plain and natural meaning and there is no justification for restricting
the wide comprehension of the last of the four wordS to voluntary transfers
by thr application of the ej11sde1n generis rule.
[918 E.]
G
H
J
914
SUPREME COURT REPORTS
(1978] 3 S.C.R.
A
Prove.st, etc. vf Glasgow v. Glasgow Trannvay Co., [1898] A.C. 631, 634
n
E
·G
H
£:.nd 1''.A.L.Cl.O. v. Bolton Corp11., [ 1943] A.C. 166 quoted with approval.
(c) The proviso to S. 12B of the Income Tax Act, 1922. as it stood prior
to its amendment by the Finance Act (No. 3) 1956 shows that the
word
'transfer' which occurred in sub~section (1) was intended to include transfer
of capital assets by reason of the compulsory acquisition thereof under any
la\v for the time being in force relating to the ·compulsory acquisition
of
property for public purposes. The object of the proviso, clearly, \Vas to take
away tran~fers by way of compulsory acquisition

## Text

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913
MANGALORE ELECTRIC SUPPLY CO. LTD.
v.
THE COMMISSIONER OF INCOME TAX, WEST BENGAL
May 4, 1978
[Y. V. CIL\NDRACHUD, C.J., D. A. DESAr AND R. S. PATHAK, JJ.J
bicon1e Tax Act, 1922, S. 12 B(l)-Whether the word 'transfer' occurring,
in S. 12 B(J) of the Act refers to voluntary transfers only-Whether the 1vord
tra11sf1-r .\l1ou£d be construed ej11sde1n f.{Clleris with th!' lvords 'sale', 'exchange'
and requisitions'.
A
B
In exercise of its power under Section 4 of the Madras Electricity Supply
C
Undertakings (Acquisition) Act, 1954, the Government of Madras acquired
the appeJlants' undertaking and its properties were taken over on the date of
vesting viz. October 15, 1956. As per the option exercised by the appellant
under S. 6, the appellant was paid a compensation of Rs. 18,42,312/- applying
Basis 'A' method.
In the course of the appellant's assessment for the assess·
ment year 1957-58, corresponding to the accounting year commencing
on
April 1, 1955 and ending on October 14, 1956, the Income Tax Officer considered the question whether the compensation received by the appellant for
the acquisition of its undertaking was in the nature of a capital gain within
I>
the meaning of S. 12 B of the Income Tax Act, 1922. Deducting a sum of
Rs. 6.45,710/- representing the value of fixed assets from the compensation
paid by the State Government to the appellant, the Income Tax Officer treatea
the sum of Rs. 11,95,602/- as capital gains which was liable to be brought to
tax. The appellanf's contention before the appellate Assistant Commissioner
that the compulsory acquisition of its undertaking \Vas not a 'transfer' within
the meaning of S. 12 B (1) of the Act and 1therefore, it was not liable to
capital g:ain tax failed.
The Tribunal in further appeal and the High Court
E.
on a reference confirmed the said view.
The High Court on an application
under Section 256(2) of the Incon1e Tax Act, 1961, decided against
the
appel1ant on the question whether part of the compensation was paid towards
g,)od-will and therefore exen1pt from tax.
Disn1issing the appeals by certificate the Court.
HELD: 1. The v;rord 'transfer' is comprehensive and is regarded generally
F.
as com.prehending within its scope transfers both of the voluntary and involuntary kinds.
Without more, therefore there is no reason for limiting
the
operations of the word 'transfer' to voluntary acts of transfer so as to exclude
,,_.. compuisory acquisitions of property.
[917 G-HJ
(
2. (a) The word 'transfer cannot be construed ajusdc1n generis with the
words \ale'. 'exchnnge' or 'relinquishment'.
[918 A]
(b) There is no roon1 for the application
of
ej11sden1
generis doctrine
unless one finds a category and "\Vhere the words are clearfy wide in their
n1ean.ing, they ought not to be qualified on the ground of their association with
other \'>'Ords.
[91 ~ C-I)J
In the instant c<1se. in the absence of a distinct genus or category, no presumption can arise that the word 'transfer' must be construed in the sense of
a voluntary act of transfer since 'sale', exchange' or 'relinquishment' are
in the norn1al acceptation of those terms voluntary acts.
The words (a) sale,
(b) exchange, (c) relinquisl1ment and (d) transfer must accordingly be given
their plain and natural meaning and there is no justification for restricting
the wide comprehension of the last of the four wordS to voluntary transfers
by thr application of the ej11sde1n generis rule.
[918 E.]
G
H
J
914
SUPREME COURT REPORTS
(1978] 3 S.C.R.
A
Prove.st, etc. vf Glasgow v. Glasgow Trannvay Co., [1898] A.C. 631, 634
n
E
·G
H
£:.nd 1''.A.L.Cl.O. v. Bolton Corp11., [ 1943] A.C. 166 quoted with approval.
(c) The proviso to S. 12B of the Income Tax Act, 1922. as it stood prior
to its amendment by the Finance Act (No. 3) 1956 shows that the
word
'transfer' which occurred in sub~section (1) was intended to include transfer
of capital assets by reason of the compulsory acquisition thereof under any
la\v for the time being in force relating to the ·compulsory acquisition
of
property for public purposes. The object of the proviso, clearly, \Vas to take
away tran~fers by way of compulsory acquisition from the scope of sub~section
( 1). It is impossible on any other hyprothesis to give intelligible n1eaning to
the exception carved out by the proviso.
After the amendment of S. 12B by
the Act of 1956, the exception carved out by the proviso in favour of 'transfer
of carital assets by reason of the compulsory acquisition thereof' \\"as deietcd.
The deletion of the particular clause of the proviso contains an
indelible
reflection oi the true legislative intent which is, that the transfer of
capita}
assets by reason of compulsory acquisition arc comprehended \Vithin
the
meaning of the word 'transfer'.
If an existit1g title is extinguished and a new
one is created, there is within the meaning of section 12B ( 1) of the Act of
1922, transfer of a capital asset.
The fact that the divestiture of title takes
place under a law relating to compulsory acquisition of property \\ ould make
no difference to that position. The word 'transfer' \Vhich occurs in
section
12B (1) of the Income Tax Act, 1922. is an expression of wide comprehen~
sion and includes within its sweep both voluntary and involuntary transfers.
[918 F. 919 B-H]
Co111111i.s.11oner of lncon1c Tax, Madhva Pradesh v. Shrikrislia11 Chandn1al
and Anr., 47 I.T.R. 833. Wilfred Pereira Ltd. v. Con11nissioner of lncon1e Tax,
Madras, 53 I.T.R. 747, Con1n1lssioner of lnconie-Tax, Madras v. United India
Life Assurance Conipany Ltd .. 62 l.T.R. 610 and Vadilal S..'1da lcf Far.:tory v.
('01111nissioncr of lncon1e-tax, Gujarat JI 80 I.T.R. 711 arpro\'ed.
3. (a) The High Court has correctly negatived the appellants' contention
that goodwill should be valued separately and <i
p<irt
of
the
con1pensation
;1ttributab1e to it should be deducted from the con1pcnsation.
[920 Cl]
(b) Since the question as to \vhether a part of the compensati0n is attributable to the goodwill of the appellant's business is a mixed question of law
and fact and since not only \\'as the questio11 not
raised
by
the
appdlant
before the Income-tax Officer or the Appellate Assist.:'lnt Commissioner but,
having raised it before the TribunaL the appellant placed no materinl bcfcre it
on the basis of which good-will could be evaluated and a part of the cornpensation properly apportioned to the goodwill of the business, the appellant
cannot be allowed to raise the contention involved in two questions raised
before the High Court un<lcr S. 256(2) of the Income Tax Act. 1961. \921 D-Fl
CIVIL APPELLATE JUR1SDICT10": Civil Appeals Nos. 2160 and
2006 of 1972.
;
1
From the Judgment and Order dated 25th August 1971 and 19th
',
November 1977 of the Calcutta High Court in Income Tax Reference
No. 106 of 1969 and 138/<i9.
V. S. Desai, S. R. Agrawal. A. T. Pntm and Praveen Kumar for
the Appellant in both the appeals.
G. C. Mathur and Mi.H A. S11bhashini for the Respondent in both
the appeals.
The Judgment of the Court was delivered by
CHANDRACHUD, C.J.~ The appellant, the Mangalore Electric Supply Company Limited, was carrying on the business of distribution of
electricity in Mangalore, South Kanara District, under a licence granted
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M. E. s. co. LTD. v. c. LT. WEST BENGAL (Chandrachud, CJ.) 915
by the Government of Madras in favour of Messrs Octavious Steel &
Company Limited. The licensee had assigned its right to the appellant
with the previous consent of the State Government. Under section 4
of the Madras Electricity Supply Undertakings
(Acquisition)
Act,
1954, the State Government ·had the power to take over any electricity
undertaking, declaring that it shall vest in the Government on the date
specified therein. In exercise of that power, the Government of Madras
passed an order declaring that the appellant's undertaking would vest
in the Government on December 31, 1956, which
date
w2.s
later
advanced to October 15, 1956.
The appellant's undertaking was
accordingly acquired by the Government and its properties were taken
over on the date of vesti'ng.
Mangalore was then a part of the State
of Madras.
Section 5 of the Acquisition Act, 1954, provided for payment of
compensation to a licensee whose undertaking was !aken over by_ the
Government. Three modes of fixation of compensation wece provided
for by that section, called Basis A, Basis B and Basis C. Scd[oci 6
gave to the undertaking concerned the option to choose any one of
these three modes.
According to Basis A, the licensee. was entitled
by way of compensation to the payment of an amount equal to 20
times the average net annual profits
of the undertaking during the
period of five consecutive accounting years immediately preceding the
date of vesting.
The appellant opted for compensation on Basis A,
one of the consequences of which, as. provided by the Act, was that
the entire property belonging to the undertaking, including the fixed
assets, vested in the State Government under section C.
Applying
Basis A, the appellant was
paid
compensation in
the
sum
of
Rs. 18,42,312/-.
In the course of the appellant's assessment for the assessment year
1957-58i corresponding to the accounting year commencing on April
I. 1955 and ending on October 14, 1956, the Income-tax Officer C'Jilsidered the question whether the compensation received by the appellant for the acquisition of its undertaking was in the nature of a capital
gain within the meaning of section 12B of the Indian Income-tax Act,
1922. Deducting a sum of Rs. 6,46,710/-, representing the value of
fixed assets, from the compensation paid by the State Government to
the appellant, the Income-tax Officer treated the sum of Rs. 1 t.95,602/-
as capital gains which was liable to be brought to tax. The appellant
appealed to the Assistant Commissioner contending that the compulsory acquisition of its undertaking was not a 'transfer' within the meaning of section 12B (I) and therefore it was not liable to capital gains
tax.
That argument was rejected by the
Assistant
Commissioner
whose judgment was confirmed in a further appeal. by the Income-tax
Appellate Tribunal. On the application of the appellant, the Tribunal
referred the following question for the opinion of the High Court :
"Whether, on the facts and in the circumstances of the
u:sc, the acquisition under the Madras Electricity Supply
Undertakings (Acquisition) Act, 1954 came within the scope
of section 12B of the Indian Income-tax Act, 1922 so as to
render liable any surplus arising from such acquisition to tax
under section 12B of the Act?''
A
B
c
D
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F
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916
SUPREME COURT REPORTS
[1978] 3 S.C.R.
A
By its judgment dated August 25, 1971, the High Court upheld the
view taken by the Tribunal but granted to the appellant a certificate
of fitness to file an appeal to this Court. That has given ri;c to Civil
Appeal No. 2160 of 1972.
B
c
D
E
F
G
H
The appellant had asked the Tribunal to refer for the opinion of
the High Court four other questions.
The Tribunal having declined
to do so, the appellant applied to the High Court under section 25 6
(2) of the Income-tax Act, 1961, requesting it to call for a reference
from the Tribunal. The High Court agreed and called for a reference
on the four points, the 3rd and 4th out of which were not pressed by
the appellant when the reference was heard by the High Court. Before the High Court the appellant limited its argument to the following two questions :
"(i) Whether on the facts and in the circumstances o( the
case and on a proper interpretation of the Madras
Electricity Supply Undertakings (Acquisition) Act,
1954 the Tribunal was justified in law in holding that
_no part of the compensation was attributable to the
goodwill of the company;
(ii) Whether the Tribunal was justified in law in
not
determining the amount of compenastion attributable
to the goodwill and in further not determinin~ the
Capital Gains, if any, arising out of such acquis!'t!on".
By its judgment dated November 19, 1971, the High Court answored
both the questions against the appellant but granted to it a certificate
of fitness to appeal to this Court, which has given rise to Civil Appeal
No. 2006 of 1972.
We will take up Civil Appeal No. 2160 of 1972 first for our consideration the involves for consideration the decision of the question
whether compulsory acquisition of property falls within the scope of
section 12B of the Indian Income-tax Act, 1922, so as to render any
surplus arising from such acquisition liable to tax under that section.
Capital gains were charged for the first time by the Income-tax
and Excess Profits Tax (Amendment) Act, 1947, which inserted section 12B in the Indian Income-tax Act, 1922. It taxed capital gains
arising after March 31, 1946.
The levy on capital gains was, however, abolished by the Indian Finance Act, 1949, which confined the
operntion of section !2B to capital gains arising before April !, 1948.
The levy of tax on capital gains was revived by the Finance (No. 3)
Act, 1956, with effect from April 1, 1957, which substituted the following section with which we are concerned. It read thus :
"l 2B (1) The tax shall be payable by an assessec 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 such profits and gains shall be deemed to be the income
of the previous year in which the sale, exchange, relinquishment or transfer took place :
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M. E. s. co. LTD. v. c. I. T. WEST BENGAL (Chandrachud, C.J.) 917
Provided that any distribution of cap;tal assets on the
A
total or partial partition of Hindu undivided family or under
a deed of gift, request or will shall not for the purpo,cs of
this section be treated as a sale, exchange, relinquishment or
lransfcr of the capital assets .
.,
Learned counsel appearing for the appeliant contends that if a
subject is deprived of his property by the State in exercise of its power
of eminent domain, there is no 'transfer' of property within the meaning of section I 2B (1), the reason being that a transfer cannot be
effected, according to the ordinary connotation of that word, without
1he concurrence of the transferor and the transferee. It is urged that
a compulsory divestiture of title against the volition of the owner cannot amount to transfer, howsoever lawful the act may be as a statutory
acquisition of prope1ty.
The justification for this submission is stated
to be that the word 'transfer' occurs in the collocatian of three otber
words 'sale', 'exchange' and 'relinquishment' which
are
essentially
volitional or voluntary acts, leading to the conclusion that the word
'transfer' must take its colour from the three other words in association \Vith which it is used.
'Transfer', therefore, according
to
the
learned counsel, means a voluntary transfer and cannot include the
compulsory acquisition of property.
We find it impossible to accept this submission. In the first place
if it was intended that voluntary transfers alone should fall within the
meaning of the section, it was unnecessary for tho legislature to use the
expression 'transfer', an expressio'n acknowledged in law as having a
vide connotation and amplitude.
Earl Jowitt, in 'The Dictionary of
English Law' says :
"In the law of property, a transfer is where a right passes
from one person to another, either ( l) by virtue of an act
done by the transferor with that intention, as in the case of a
conveyance or assignment by way of sak or gift, etc.; or (2)
by operation of law, as in the case of forfeiture, bankruptcy,
descent, or intestacy".
,_.Roland Burrows. on '\¥ or?s and Pharases', volume V, contains a state-
-
ment under the capt10n Transfer on Sale' at pago 331 that even a
~'
transfer of 1and under compulsory powers is a transfer 'on sale'.
It is
unnecessary for oo to consider the question whether a compulsory acqnisition ·of property is a 'sale' within the meaning of section 12B(l) and
indeed, it is needless for the present purpose to go that far.
We are
concerned with the narrower question wheth"r a compulsory acquisition
of property can amount to a 'transfer' within the meaning of section
12B(1) and upon that question it is important to bear in mind that
the word transfer is comprehensive•and is regard"d generally as comprehensing within its scope transfers both of the voluntary and involuntary kinds. Without more, therefore, there is no reason for limiting the
operation of the word 'transfer' to voluntary acts of transfer so as to
exclude compulsory acquisitions of property.
B
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II
918
SUPREME COURT REPORTS
(1978] 3 S.C.R.
A
The argument that the word 'transfer' must be construed ejusdem
B
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generis with the words
sale, exchange or relinquishment has to be
rejected because as stated in Craies on Statute Law (7th edition,
page 181);
"the Ejusdem generis rule is
one to be applied
with
caution and not pushed too far, as in the case of many decisions, which treat it as automatically applicable, and ROt as
being, what it is, a mere presumption, iu the absence of
other indications of the irrtention of the legislature.
The
modern tendency of the law, it was said, is 'to attenuate the
appli~ation of the rule of ejusdem generis'.
To invoke the
application of the ejusdem generis rule there must be a distinct geneus or category.
The specific words must apply ,
not to different objects of a widely differing character but
to something which can be called a class or kind of
objects.
Where this is lacking, the rule cannot apply".
Thus, unless you find a category there is no room for the application
of ejusdem generis doctrine and where the words are clearly wide in
their meaning they ought not to be qualified on the ground of their
association with other words.
(See Provost, etc. of Glasgow v. Glassgow Tramway) Co.(').
In N.A.L.G.O. v. Bolton Corp11.('), it was
held that "the ej11sdem generis rule is often useful or convenient, but
it is merely a rule of construction, not a rule of law". In the instant
case, in the absence of a distinct genus or category, no presumption can
arise that the word 'transfer' must be construed in the •wse of a voluntary act of tra·ns!er since 'sale', 'exchange' or 'relinquishment' are in the
normal acceptation of those terms voluntary acts. The words (a) sale,
(b) exchange, ( c) relinquishment and ( d) transfer must accordingly
be given their plain and natural meaning and there is no· justificatio·n
for restricting the vide comprehonsion of the last of the four words to
voluntary transfers by the application of the ejusdem generis rule.
The legislative history of section 126(1) furnishes an important clue
to the question raised by the appellant's counsel. Prior to its amendment by the Finance (No. 3) Act, 1956, which came into force on
April I, 1957, section !2B(l) of the Act of 1923 read thus:
"12B. Capital gains.-(1) The tax shall be payabk by
an assessee under the head 'Capital gains' in respect of any
profits or gains arising from the sale, exchange or transfer of
a capital asset effected after the 31st day of March, 1946,
and before the 1st day of April, 1948; and such profits and
gains shall be deemed to be income of the previous year in
which the sale, exchange or transfer took place ...
Provided further that any transfer of capital assets by
reason of the compulsory acqusition thereof under any
law for the time being in force relating to the compulsory
(1) [1898] A.C. 631, 634.
f2) [19431 A.C. 166.
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M. E. s. co. LTD. v. c. I. T. WEST BENGAL (Clumdrachud, C.J.)
919
acquisition of property for public purposes of any distribution of capital assets on tbe total or partial partition of a
Hindu undivided family, or on the dissolution of a firm or
other association of persons, or on the liquidation of a company, or under a deal of gift,
bequest, will or i.ransfer on
irrevocable trust shall not, for the purposes of this section,
be treated as sale, exchange or transfer bf the capital assets :
,,
The proviso which we have extracted above shows that the
word
'transfer' which occurred in sub-section ( 1) was intended to include
transfer of capital assets by reason of the compulsory
acquisition
thereof under any law for the time being in force relating to the
compulsory acquisition of property for public purposes.
The object
of the proviso, clearly, was to take away transfers by way of compulsory acquisition from the scope of sub-section (1).
It is impossible on any other hypothesis to give intelligible meaning to the
exception carved out by the proviso .
This is in so far as the legislative history of section 12B prior to
G
its amendment by Finance (No. 3) Act, 1956, is concerned.
After
D
the amendment of section 12B by the Act of 1956, the exception
carved out by the proviso in favour of 'transfer of capital assets by
reason of the compulsory acquisition thereof was deleted.
The
rest of the proviso was retained substantially with certain modifications
e.nd additions which are not relevant for our purpose.
The deletion
of the particular clause of the proviso contains an indelible reflection
of the true legislative intent which is, that the transfer
of
capital
E
assets by reason of compulsory acquisition are comprehended within
the meaning of the word 'transfer'.
We are, therefore, clear that
if an existing title is extinguished and a new one is created, there is
within the meaning of section 12B(l) of the Act of 1922, transfer
cf a capital asset.
The fact that the divestiture cf title takes place
under a law relating to compulsory acquisition of property would make
no difference to that position.
F
The High Court of Madhya Pradesh in the Commissioner
of
Jncome-lllx,
Madhya
Pradesh
v. Shrikrlshan
Chandmal
and
another( 1), the High Court of Madras in Wilfred Pereira
Ltd. v.
Commissioner of Income-tax, Madras(')
and
Commissioner
of
Income-tax, Madras v.
United
India
Life Assurance Company
Ltd. (3) and the High Court of Gujarat in Vadilal Soda lee Factory v.
Commissioner of Income-tax,
Gujarat(')
have taken
th~ same
view, namely, that the word 'transfer' which occurs in section 12B(l)
of the Income-tax Act, 1922 is an expression of wide comprehension
and includes within its sweep both voluntary and involuntary transfers.
(I) 47 !TR 833.
(2) 5.l !TR 747.
(:) 62ITR610.
·~4) 8GfTR 711.
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920
SUPREME COURT REPORTS
[l978l3SC.R.
The judgment of the High Court dated August 25, 1971, leading to Civil Appeal No. 2160 of 1972 must therefore be affirmed and
the appeal dismissed.
In regard to Civil Appeal No. 2006 of 1972, the case of the appellant before the Income-tax Oflic~r was only this that the compulsory
acquisition of its undertaking did not amount to a 'transfer' within
the meaning of section 12B(l) of the Act of 1922.
No case was
made out that, alternatively, goodwill is not a capital asset.
The
appellant did not contend before the Appellate Assistant Commissioner also that goodwill is not a capital asset and therefore at least
to the extent to which compensation was attributable to the goodwill,
the Capital Gains tax was not attracted.
The appellant did contend
before the Tribunal that apart from its tangible assets,
the
State
Government had
taken over the goodwill attaching to the business
and the appellant's right to the management of that business and the
amonnt referable to these items had to be deducted in computing
the capital gains.
The Tribunal answered this contention by holding that-
(a) goodwill as understood in law had no real
significance in the present case and could not have been
acquired by the Govermnent;
(b) it was .not one of the assets shown in. the balancesheet;
(c) there was no proof to show that the
Government
actually took over any goodwill;
(d) if the case of the appellant was that even
if
it
was not shown in the balance-sheet, payment therefor had to be evaluated or apportioned, the appellant should have produced proof regarding the evalution of the goodwill;
( e) the apellant had not placed any materials before the
Tribunal to show whether any
interference
was
called for in the matter
of
computation
having
regard to the value of goodwill as on January 1,
1954; and
( f) the right of management was not independent of the
business acquired and there were no materials
to
show that this right could have any value placed
upon it in the fixation of compensation.
The High Court was in our opinion right in taking the view that
in the light of these circumstances the appellant's contention, that
goodwill should be valued separately and a part of the compens'l.tion
attributable to it should be deducted from the compensation, could
not be accepted. Even assuming for the purposes of argument thaf the
two relevant questions on which the High Court called for a reference
from the Tribunal involved the consideration of any legal principle,
the questions are mixed questions of law and fact because, unless it
is found that the goodwill, infact, had some value, it cannot be decided
whether any part of the compensation is attributable to the goodwill
of the business.
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M. E. s. co,. LTD. v. c. I. T. WEST BENGAL (Cha11drachud, C.J.) 92 l
Learned counsel for the appellant drew our attention
to
the
grievance made by the appellant in his applicat:Wn dated February
8, 1972, for leave to appeal to this Court to the effect that the
tribunal had expressed the view at the time of hearing of the appeal
before it that it would only decide the point whether a part of the
.compensation was attributable to the goodwill of the business and
that the question as regards the value of the goodwill as of January
l, 1954, would be left to the Income-tax Officer for his determination.
The grievance' of the appellant is that it was misled by the
observations made by the Tribunal during the course of the hearing
of the appeal and that is why it did not produce any evidence regarding the value of the goodwill.
That there is no substance in
this contention is clear from the order of the Tribunal dated October
9, 1968, by which it refused to refer for the opinion of the· "High
-Court the question regarding the evaluation of the goodwill. . The
Tribunal observes in its order that during the hearing of the apj)eal
it had not expressed any view of the kind attributed to it by the
appellant and that no assurance was held forth to the appellant that
the question as regards goodwill would be left for determination to
the Income-tax Officer.
A
B
c
Since the question as to whether a part of the compensation is
D
attributable to the goodwill of the appellant's business is a mixed
question of law and fact and since not only was the question not
raised by the appellant before tbe Income-tax Officer or the Appellat~
Assistant Commissioner but, having raised it before the Tribunal the
appellant placed no material before it on the basis of which goodwill
could be evaluated and a part of the compensation properly aJ>-
portioned to the goodwill of the business, we cannot
allow
the
E
appellant to raise the contention involved in the two questions. On
those questions, therefore, the judgment of the High Court, for the
reasoos mentioned by us, has to be affirmed.
Civil Appeal
No.
2006 of 1972 is also, therefore, dismissed.
In the ultimate result, both the appeals are dismissed and the
judgment of the High Court in both the cases is confirmed.
The
F
appellant shall pay the Commissioner's costs in the appeals.
S. R.
Appeals dismi.1sed.
8-329SCI/7S