1. The gift-tax appeal preferred by the assessee relates to the assessment year 1975-76. The assessee is a domestic company, which was carrying on the business of bus transport in Tirunelveli district. It owned 14 buses. On 16-5-1974, a resolution was passed to the effect that all the vehicles be divided among the three directors along with their route permits with effect from 1-6-1974. These 14 buses which were all that owned were, therefore, transferred for Rs. 2,87,950, which is the aggregate sale price whereas the aggregate of the written down value as on 1-4-1974 was Rs. 4,09,475. The ITO in the income-tax assessment assessed the company after invocation of Section 52(2) of the Income-tax Act, 1961 ('the 1961 Act') to capital gains estimating the fair market value at Rs. 5,23,000. But the AAC, with whom the Tribunal agreed, cancelled that levy. Later, one of the directors was assessed for the difference between the fair market value and the sale price of the buses sold to him under Section 2(22) of the 1961 Act (deemed dividend). That also on an appeal by the assessee was cancelled by the Tribunal. Now the difference between the fair market value and the sale price is assessed as deemed gift. The Commissioner (Appeals) agreed. Hence, this further appeal.
2. The first and foremost submission of the assessee was that Rs. 5,23,000 is not the fair market value but only a fancy figure and that Rs. 2,87,950 itself, because of the then attendant circumstances, reflects more or less the then fair market value, a point to which the gift-tax authorities paid only scant attention. The period in which the resolution was passed was somewhat of a troubled times for the private route operators in the State of Tamil Nadu. The State Government with a view to nationalize bus transport and to eliminate the private operators from the filed promulgated on 12-1-1973 an ordinance which was in due course replaced by an Act to provide for compulsory acquisition of all buses of private operators in the State. The scheme of the Act was to vest the ownership of the buses with route permits in the Government on a notified date, such acquisition to be completed within a period of five years by notifying different dates for different districts. Clause 14 of the ordinance barred the filing of applications for fresh permits or for renewal of existing permits for running any vehicle. Another Clause 16 provided that an operator shall be entitled to obtain temporary permit under the Motor Vehicles Act, 1939, in respect of any vehicle liable to be acquired under the ordinance and that the temporary permit shall be for a period of four months at a time until the vehicle is acquired. However, the enactment was struck down by the Madras High Court by their judgment on 19-4-1973 reported in 86 Law Weekly Supplement, Parts 13 and 14. The Government preferred an appeal to the Supreme Court. It is not known as to what happened to that appeal except to state that the Supreme Court has not till now reversed or upheld that High Court judgment. But it is a fact and also a matter of common knowledge that in Tamil Nadu the bus transport was thereafter step by step nationalised, perhaps by refusal of fresh permits or renewal of expired permits. It is also a well known fact that in spite of the judgment of the Madras High Court, the Government had stood firm on their policy on nationalisation. The assessee had also furnished a paper book of extracts from newspaper reports of 1973 and 1974 as to what happens in the Supreme Court about large number of appeals of bus operators who were refused fresh permits or renewal of permits. The point which the assessee wants to make out is that the business of bus transport has lost its charm and attraction with the promulgation of the ordinance and the bus operators had begun to move into other lines of business and, therefore, there was considerable and heavy depression in the market in respect of the buses.
3. The figure of Rs. 5,23,000 arrived at as the fair market value seems to be the probable amount of compensation that would have been given to the assessee for the nationalisation. How that amount is to be paid, whether in cash or in bonds or within how many years, is not made known to us. The GTO proceeded on the basis that the compensation to be paid reflects the market value. The Commissioner (Appeals) proceeded on the wrong basis that the Tribunal had decided this figure as the fair market value in the deemed dividend case of the director. It may be that the assessee might get Rs. 5,23,000 if the buses were acquired.
The question is whether that figure is the market value. Will any ordinary willing buyer pay that much for these buses in May 1974 What is the use of paying Rs. 5 lakhs and purchasing buses which cannot be put on the road for lack of permit if the purchaser is a new entrant to the business, or if put on road is likely to be taken away soon Buses by the themselves do not yield any income unless they are plied on the routes. If that is not possible, no reasonable man will go to buy these buses. The fact that the Government may pay compensation of Rs. 5 lakhs is no consolation. Why should a man pay Rs. 5 lakhs to purchase buses, own it for sometime and get back the amount of Rs. 5 lakhs He can as well refuse to buy. Further, what is the guarantee that Rs. 5 lakhs will be paid The law providing for compensation has been struck down.
The Government may not, therefore, revive the law for nationalisation of buses. The nationalisation can be effected by refusal of permits to ply as was subsequently done. Acquisition is not the only method of nationalisation. Refusal of permit is another. In that event the purchaser loses everything. The bus becomes a burden and a scrap in his hands. So purchase of buses in 1974 was sought with heavy risk. It may become a dead investment. In any event, it has lost its charm and attraction. So people may buy it only if sold on heavy discount. It is pointed out by the GTO that the buses transferred to the directors had been plied in the same routes as was plied by the company. That is not a very relevant or material fact. The scheme was not nationalisation of the entire trade in the whole State on a given point of time. It is to be done stage by stage spread over a period of five years. So after the purchase, they might have plied it till their permit expired or fresh permit refused. So all such subsequent events are not very material.
All that we want to say is that in May 1974, uncertainty had crept into the transport business. The policy of the Government reflected in Clauses 14 and 16 of the ordinance, have scared the operators and would-be purchasers. Therefore, no reason-able man will invest so much and face all the risks. So unless a heavy discount is offered, it may not be possible to sell any buses. Under such circumstances it is not possible to say that Rs. 5,23,000 is the market value. It can be anything much less than that, depending on the various circumstances.
Rs. 2,87,950 can also be the market value. There is nothing to show that it cannot be so. When the law providing for acquisition with compensation was struck down and when the Government is bent upon nationalisation and when nationalisation can be achieved by resort to refusal of permits and without acquisition, in which event the ownership and possession of buses become useless and a burden, it is not possible to say that Rs. 5,23,000 is the market value and that Rs. 2,87,950 is and cannot be the market value.
4. The simple question before us is whether the sale of 14 buses on 1-6-1974 is a sale otherwise than for adequate consideration. We have placed ourselves in the place of a willing buyer as on 1-6-1974. We find it extremely difficult, rather impossible to hold that the sale is otherwise than for adequate consideration. No reasonable man could have paid on that date Rs. 5,23,000. Whether anyone would have paid anything more than Rs. 2,87,950 and if so, how much more is anybody's guess However, such a question does not arise. The question is whether Rs. 5,23,000 would have been paid. We are of the definite view that no one would have paid either Rs. 5,23,000 or any amount near about that figure. So we have necessarily to cancel the assessment for deemed gift. In the light of this finding of ours, we do not propose to go into the other questions like deduction of share capital and voluntary liquidation, etc.