Judgment :- THANIKKACHALAM J. At the instance of the assessee as well as the Department, the Tribunal referred the following questions under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") for our opinion Questions referred to us in Tax Cases Nos. 1150 and 1151 of 1981 "1. Whether the Tribunal was right in law in holding that the acquisition of the transport division of fleet operators under the Tamil Nadu Acquisition Act XXXVII of 1971 (hereinafter referred to as 'Acquisition Act'), is a compulsory acquisition and can be termed as acquisition under a 'law for the time being in force' ? 2. Whether the Tribunal was right in holding that as the acquisition took place in the previous year relevant to the assessment year 1972-73, the fact that the compensation was determined in the subsequent assessment year will not affect the assessability in the year in which acquisition took place, viz., 1972-73 ? 3. Whether the Tribunal was right in holding that notwithstanding that section 3 of the Acquisition Act itself does not make any mention of permits while listing the assets that vest with the Government, yet there was a transfer of unexpired permit within the meaning of section 2(47) ? 4. Whether the Tribunal was right in its conclusion that the compensation of Rs. 56, 82, 378.47 determined in subsequent previous year as payable to the assessee for the vesting of the undertaking with the Government should be taken as the full value of consideration for computation of capital gains under section 48 and other purposes and that the deduction made for gratuity liability therefrom should be ignored? 5. Whether the Tribunal was right in holding that the sum of Rs. 14, 714 representing the excess value of stores and cost had been correctly assessed to capital gains in the assessment year 1972-73 ? 5. Whether the Tribunal was right in holding that the sum of Rs. 14, 714 representing the excess value of stores and cost had been correctly assessed to capital gains in the assessment year 1972-73 ? "Question referred to us in Tax Case No. 1301 of 1981 " Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the application fees and other incidental expenses incurred in connection with the acquisition of route permits cannot be treated as the expenditure which constituted the 'cost of acquisition' of the route permits and hence no capital gains could be brought to tax on the transfer of such route permits ?"* These references relate to the assessment years 1972-73 and 1973-74 corresponding to the financial years 1971-72 and 1972-73. The assessee- company was carrying on mainly transport business and up to March 1, 1972, the assessee had both passenger transport and goods transport business. By virtue of the Tamil Nadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 (Acquisition Act XXXVII of 1971) (hereinafter referred to as "the Tamil Nadu Acquisition Act), the Government of Tamil Nadu nationalised many of the important passenger and transport routes. Under G. O. No. 231 dated March 15, 1972, the Government of Tamil Nadu acquired the assessee's bus transport business under the provisions of section 3(4) of the Tamil Nadu Acquisition Act and paid a total compensation of Rs. 39, 77, 212. The assessee before the Income-tax Officer contended that the compensation was determined and paid by the Government only in the subsequent assessment years and section 41(2) profits can be assessed in the assessment year under appeal (1972-73). The Income-tax Officer rejected this contention and held that the buses were taken over by the Government Notification No. 101(c) of 1972 dated February 28, 1972, and the vesting of the buses with the Government had taken place for the accounting year relevant to the assessment year under appeal. Accordingly, the Income-tax Officer computed the profitsBefore the Appellate Assistant Commissioner, the assessee contended that the amount received by way of compensation for the buses taken over by the Tamil Nadu Government was a casual and non-recurring receipt and hence section 41(2) profits will not arise. Accordingly, the Income-tax Officer computed the profitsBefore the Appellate Assistant Commissioner, the assessee contended that the amount received by way of compensation for the buses taken over by the Tamil Nadu Government was a casual and non-recurring receipt and hence section 41(2) profits will not arise. It was further contended that the taking over of the buses cannot be considered as sale and the amount of compensation was not determined or become payable during the accounting year and hence there was no liability to section 41(2) profits for the year under appeal. The Appellate Assistant Commissioner rejected all these contentions and held that the buses and other assets were taken over by the Government under Notification No. 101(c) of 1972 dated February 28, 1972, and since the assets have been transferred to the Government on February 28, 1972, which falls within the accounting year, section 41(2) profits have been correctly assessed by the Income-tax Officer Aggrieved, the assessee filed an appeal before the Tribunal. The Tribunal held that whether the acquisition is acquisition or compulsory acquisition the legal consequences are the same. The second contention of the assessee that there is no compulsory acquisition "under any law for the time being in force" is rejected. The Tribunal held that the compensation was not a lump sum payment but attributable to each and every item of stock-in-trade of the assessee. Since the compensation was determined and paid for each and every item of the assets belonging to the transport business of the assessee the decision of the Supreme Court reported in 1965 (57) ITR 298 (sic) will not apply to the present case. According to the Tribunal, in the present case, the assets sold are those in respect of which depreciation allowance has been granted and the other requirements under section 41(2) are also satisfied. Hence, section 41(2) profits have been correctly assessed. The Tribunal also held that in the present case the acquisition took place in the accounting year relevant to the assessment year 1972-73 and the fact that the compensation was determined and a part of it was paid for the subsequent assessment year will not affect the assessability of the amount in the year in which the acquisition took place, viz., 1972-73. Since the compulsory acquisition took place in the assessment year 1972-73, the capital gains have been correctly assessed by the Income-tax Officer. Since the compulsory acquisition took place in the assessment year 1972-73, the capital gains have been correctly assessed by the Income-tax Officer. The Tribunal was also of the view that route permits are capital assets and the profit arising on the transfer of route permits is liable to capital gains tax. According to the Tribunal, since transfer includes extinguishment which has widest amplitude there is extinguishment of the rights of the assessee for the unexpired permits when the Government issued the notification and paid compensation to the assessee and hence there is a liability to capital gains tax. Moreover section 15(2) of the Tamil Nadu Acquisition Act provides transfer of unexpired permits to Government on acquisitionThe next contention before the Tribunal was that even granting that the route permit is property there being no cost of acquisition for obtaining the route permits, in view of the decision of this court in CIT v. K. Rathnam Nadar, there is no liability to capital gains tax. In answering the question whether there was cost of acquisition for acquiring the route permit, the Tribunal held that the application fees and other incidental expenses incurred in connection with the acquisition of the route permit cannot be treated as the expenditure which constituted the cost of acquisition of the route permit, and hence no capital gains could be brought to tax on the transfer of such route permits While considering the full value of consideration accruing in section 48 of the Act, the Tribunal held that the compensation payable for transferring the capital assets to the Government was fixed at Rs. 56, 82, 378.47 by agreement between the parties. What the assessee received in view of the assets it had parted with was Rs. 56, 82, 378.47 and that alone should be taken as the full value of the consideration for computation of Capital gains under section 48 of the Act. The Tribunal further pointed out that the compensation received by the assessee for transferring the capital assets to the Government without allowing any deduction represents the full value of the consideration. The Tribunal further held that the gratuity liability amounting to Rs. 3, 30, 547 cannot be deducted from the compensation of Rs. 56, 82, 378.47 while arriving at the full value of the consideration On acquisition the value received for stores amounted to Rs. The Tribunal further held that the gratuity liability amounting to Rs. 3, 30, 547 cannot be deducted from the compensation of Rs. 56, 82, 378.47 while arriving at the full value of the consideration On acquisition the value received for stores amounted to Rs. 3, 97, 836 while the cost to the assessee was Rs. 3, 82, 122. The difference between these two amounts amounting to Rs. 15, 714 was assessed to capital gains tax. Before the Tribunal, the assessee contended that the compensation payable to the assessee was not determined in the accounting year relevant to the assessment year 1972-73 and, consequently, the capital gains on the value of stores is not assessable to tax for the assessment year 1972-73. However, the Tribunal held that the sum of Rs. 15, 714 is assessable under the head "Capital gains" for the assessment year 1972-73We will consider first the question referred to us at the instance of the Department in Tax Case No. 1301 of 1981. According to the Revenue, the Appellate Tribunal was not right in law in holding that the application fees and other incidental expenses incurred in connection with the acquisition of route permits cannot be treated as the expenditure which constituted the cost of acquisition of the route permits and hence no capital gains could be brought to tax on the transfer of such route permits. It is contended by learned standing counsel appearing for the Revenue that route permits are obtained by making the necessary application to the road transport authorities and by paying the prescribed fees and also incurring expenditure for processing the application by engaging counsel and it cannot, therefore, be stated that there was no cost of acquisition involved in acquiring the route permits. It was, therefore, contended that the entire establishment of the assessee was working to secure the route permits and the establishment expenses should be taken as the cost of acquisition for the route permits. It was, therefore, contended that the entire establishment of the assessee was working to secure the route permits and the establishment expenses should be taken as the cost of acquisition for the route permits. On behalf of the Revenue, reliance was placed upon a decision of this court in the case of S. Vaidyanathaswami v. CIT, wherein this court held that" the route permit is property, the liability to capital gains tax will arise only if there was some cost of acquisition and in the absence of a specific finding regarding the cost of acquisition, the question referred as to the liability to capital gains tax could not be arrived at and hence the Tribunal was directed to go into the question as to whether there was any cost of acquisition and if so, what was the amount that was spent for the acquisition of the asset and if there was no cost of acquisition a direction was given to the Tribunal to apply the principle of the decision in Rathnam Nadar's case. Learned standing counsel for the Revenue also relied upon a decision of this court in K. Balasubramania Nair v. CIT, wherein it was held that "route permit was not a self-generating asset and some cost could have been incurred for its acquisition. As the assessee had not produced any material to show the actual cost of acquisition, the Tribunal was directed to go into the question afresh and find out the cost of acquisition and determine the capital gains" . Another decision relied upon by learned standing counsel was that rendered in the case of CIT v. Shri Venkateswara Bus Union, wherein this court held that "in the case of route permits, it will not be possible to proceed on the basis that it was a self-generating asset and it will not have any cost of acquisition and hence the matter was remitted to the Tribunal for ascertaining the cost of acquisition and determining the capital gains" On the other hand, learned counsel appearing for the assessee, in order to support his contention, relied upon a decision of the Andhra Pradesh High Court in the case of Addl. CIT v. Ganapathi Raju Jegi, Sanyasi Raju, wherein it was held that "where when the route permit was granted, no amount was paid by the operator for the purpose of acquiring it and it is only over a number of years because of various factors, viz., the development of roads, passenger traffic, the frequency of the buses plying on the road, that the permit acquires some value, the value of the route permit cannot be evaluated as on the date of the acquisition. In such a case where the cost of acquisition of a particular asset is nil especially when the capital asset is the creation of the assessee by his own effort, the case will be similar to that of a sale of goodwill by the assessee and the consideration in terms of money realised on the transfer of the said capital asset cannot be brought to capital gains tax" This decision of the Andhra Pradesh High Court in has become the subject-matter of the appeal before the Supreme Court in CIT (Addl.) v.Ganapathi Raju Jogi. In the said appeal, by following an earlier decision of that court in CIT v. B. C. Srinivasa Setty, the Supreme Court affirmed the decision of the Andhra Pradesh High Court in CIT (Addl.) v. Ganapathi Raju Jegi, Sanyasi Raju and held that "counsel for both the parties stated that following the decision of this court in CIT v. B. C. Srinivasa Setty, this appeal has to be dismissed. It is accordingly dismissed. No costs." In view of the abovesaid decision of the Supreme Court, we have to hold that consideration in terms of money realised on the transfer of the route permits cannot be brought to tax as capital gains since there is no cost of acquisition in acquiring the route permits. In the later amendment brought out in section 45 of the Act, it was made clear that from the assessment year 1995-96 onwards that there is no cost of acquisition for acquiring the route permit. In view of the foregoing legal position, the Tribunal was correct in holding that the application fees and other incidental expenses incurred in connection with the acquisition of the route permits cannot be treated as the expenditure which constitute the cost of acquisition of the route permits and hence no capital gains could be brought to tax on the transfer of such route permits. Accordingly, we answer the question referred to us in Tax Case No. 1301 of 1981 in the affirmative and against the DepartmentIn view of the legal position that the sale proceeds of the route permits could not be subjected to capital gains tax, the questions referred to us at the instance of the assessee for the assessment year 1972-73 do not arise and hence they need not be answered and accordingly they are rejected In that view of the matter, the question referred to us at the instance of the Department for the assessment year 1972-73 is answered in the affirmative and against the Department. So far as the questions referred to us at the instance of the assessee for the assessment year 1972-73 in Tax Cases Nos. 1150 and 1151 of 1981 are concerned they are rejected. There will be no order as to costs. Counsel's fee fixed at Rs. 1, 000 (one set only)