1976 (7) TMI 77 - AT - Income Tax

Summary

Issues:
1. Justification of Addl. Commissioner's order to include profit under section 41(2) of the Income Tax Act in the assessable income.
2. Taxability of the amount in the year of compromise.
3. Legality of service of notice by affixture.

Analysis:

Issue 1:
The appeal contested the cancellation of the Income Tax Officer's order by the Addl. Commissioner, directing a fresh assessment including profit under section 41(2) of the Income Tax Act. The company, dissatisfied with the compensation for its undertaking, engaged in legal proceedings resulting in various compensations. The Addl. Commissioner relied on the principle that the profit became taxable when a compromise was reached before the High Court. However, the Tribunal disagreed, stating that the compensation had become due earlier, and the profit should have been taxed in the relevant year, as per the Income Tax Officer's original assessment. Consequently, the Tribunal canceled the Addl. Commissioner's order.

Issue 2:
The Addl. Commissioner's decision was based on the premise that the profit became taxable only when the compromise was reached. However, the Tribunal differentiated this case from a precedent where no amount was due until the compromise date. In this case, the compensation had been fixed and paid earlier, indicating that the profit was taxable before the assessment year in question. The Tribunal concluded that the profit should have been taxed in the relevant year, aligning with the Income Tax Officer's initial assessment. Consequently, the Addl. Commissioner's order was canceled.

Issue 3:
The appellant challenged the legality of the notice served by affixture, contending it was illegal. However, the Tribunal did not delve into this issue as it was unnecessary for the decision. The Tribunal focused on the taxability of the profit and the timing of when it became due, ultimately allowing the appeal based on those grounds.

In conclusion, the Tribunal allowed the appeal, overturning the Addl. Commissioner's order to include the profit under section 41(2) of the Income Tax Act in the assessable income. The Tribunal determined that the profit had become due earlier than the assessment year in question, aligning with the Income Tax Officer's original assessment. The issue of the legality of the notice served by affixture was not addressed as it was deemed unnecessary for the decision.