TMI Blog1972 (4) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessment year 1955-56 when the undertaking was taken over by the Punjab Government by virtue of an option which was exercised in terms of the licence or whether it falls in the assessment year 1963-64 when the balance of the sale price was received by the assessee ?" The Panipat Electric Supply Co. Ltd., which is the assessee in this case, obtained a licence to generate and distribute electricity in Panipat on 20th July, 1934. The licence was for fifteen years but was renewed for a period of five years. In terms of clause 9 of the licence the Government of Punjab had an option to purchase the electrical undertaking belonging to the assessee at the expiry of the period of the licence under the provisions of section 7(1) of the Indian Electricity Act, 1910, on giving the requisite notice. Such a notice was given on 4th July, 1952, and the Government took possession of the undertaking on the midnight of 16th July, 1954. The assessee-company, being aggrieved, filed a suit for the recovery of Rs. 13,88,371.25. This suit was eventually compromised and the assessee agreed to accept a sum of Rs. 2,50,000 in full and final settlement of its claim against the Government. One of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s latter argument was accepted by the Tribunal. On an examination of the question before us, it appears that the matter has not to be decided on the basis of the date of the sale as that is not the real question involved in this case, but on a determination of the previous year in which the amount in question has to be included for the purpose of taxation. Even if the sale took place in 1954 and the amount in question was received in 1963, the question still would be whether the receipt in question was to be subjected to tax in the previous year relating to the date of sale or the date of receipt. When this position was put to counsel for the parties, they agreed that the real controversy in this case was as to whether the amount in question could be charged to tax in the previous year relating to the assessment year 1963-64 and not as to whether the sale took place in 1954. The difference between the two propositions becomes more obvious by reference to section 41(2) of the Income-tax Act, 1961. The said sub-section reads as hereunder : "Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building machinery or plant, as the case may be, is actually sold or its scrap value : Provided that such amount is actually written off in the books of the assessee : Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place : Provided further that where any insurance, salvage or compensation moneys are received in respect of any such building, machinery or plant which has been discarded or demolished or destroyed, and the amount of such moneys does not exceed the written down value, the amount allowable under this clause shall be the amount, if any, by which the difference between the written down value and the scrap value exceeds the amount of such moneys: Provided further, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Indian Electricity Act, 1910, as it stood on the date when possession of the undertaking was taken by the Government of Punjab. He has pointed out that there can be a dispute about the amount of the purchase price payable for acquiring the undertaking, which may be the subject-matter of arbitration. According to him, this does not mean that the sale of the undertaking took place on the date on which the arbitration between the parties might settle the price, Thus, it is submitted that in the present case the sale of the undertaking belonging to the assessee took place in July, 1954, and the later settlement of the price, which was the subject-matter of litigation, did not alter the date of the sale. He has also cited Fazilka Electric Supply Co. Ltd. v. Commissioner of Income-tax ; which is a decision of the Supreme Court concerned with the acquisition of a similar undertaking on 23rd July, 1949. In that case an amount of Rs. 77,000 was estimated by the Income-tax Officer as being the amount subject to tax under section 10(2)(vii) of the, Act of 1922. It was held by the Supreme Court that there was a sale within the meaning of the second proviso to section 10(2)(vii). On an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpulsory sale. At the end of the judgment, there is a reference to the decision in the Calcutta Electric Supply Corporation Ltd,. v. Commissioner of Income-tax, wherein it was held that an acquisition like the one in quection was not a sale within the meaning of section 10(2)(vii) of the Income-tax Act. It is difficult to come to the conclusion that the said judgment of the Supreme Court is applicable to the present case. Thus, it cannot be held that the second proviso to section 10(2)(vii) of the Income-tax Act, 1922, made the acquisition in the present case taxable in the assessment year 1955-56. The next question that needs consideration is, as to whether the amount in question is taxable in the assessment year 1963-64 as held by the Tribunal. This depends on the meaning to be given to the words "became due" occurring at the end of section 41(2) of the Income-tax Act, 1961. The rival contentions of the parties on this point are that the counsel for the assessee contends that the amount became due in July, 1954, though the exact liability was unascertained on the date of the acquisition by the Government of Punjab. On the other hand, counsel for the revenue contends that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be payable and due on that date. Mr. Jain has also referred to the judgment of the Supreme Court in Commissioner of Income-tax v. Ashokbhai Chimanbhai. In that case it was held : "In our judgment, income becomes taxable on the footing of accrual only after the right of the taxpayer to the income accrues or arises, and in the case of an agreement which makes profits receivable at or on the happening of a contingency, the fact that the profits are the result of transactions spread over a period which covers a period preceding the happening of that contingency would not make the receipt liable to be paid to persons other than those who are entitled to receive it on the date on which it is actually received or became receivable." The judgment in E. D. Sassoon Co. Ltd.'s case, already referred to, was also referred to in this judgment, and if was, pointed out that the test for ascertaining whether profits had accrued or arisen was whether the person who was entitled thereto had a right to claim such profits. Mr. Jain contends that, in view of this decision of the Supreme Court, the right to get compensation for the acquisition accrued to the assessee on the date of the sale and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the price which had already been received. There was no doubt that the income in question was the price of goods which had been compulsorily acquired. The goods which were acquired were clearly the goods ordinarily offered for sale by the brewery, i.e., rum. Hence, the price accruing from such a transaction must necessarily be profits which accrued to the assessee on the date when the goods were sold, At first sight there would be very little to distinguish this decision from the present case. However, there are two material differences. One is that the goods which were acquired were not capital assets and, secondly, some amount was received at the time of sale, which was certainly not the final amount receivable by the assessee. In this sense, the actual profit remained unascertained till the final decision of the war compensation court in November, 1921, which led to the payment of the balance of the price to the assessee in January, 1922. Mr. G. C. Sharma, learned counsel for the revenue, has submitted that concepts relating to ordinary income should not be applied in construing section 41(2) of the Act. He pointed out that this is a special provision which has as its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans in the case of a building, machinery, etc., the price for which it is sold and "sold" includes a transfer by compulsory acquisition. His contention is that if the assets now in controversy had been sold for a value less than the written down value then the assessee would have been entitled to a further deduction under section 32(1)(iii) but the same could not be determined till the amount in question was actually ascertained. It, therefore, follows that if the amount received exceeds the written down value, the excess in question cannot be said to be money payable to the assessee before it is ascertained. It seems that Mr. Sharma's contention is well-founded. When the section now in question, i.e., section 41(2), is analysed, it merely states that when a building, machinery, plant or furnitue is sold and the price received for the same is more than its written down value, the excess becomes chargeable to income-tax. In case this excess exceeds the difference between the actual cost and the written down value that part of the excess has to be disregarded, but the remaining excess has to be charged as income pertaining to the previous year in which the "moneys payable", i.e., p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an the written down value the assessee could then have said that he was entitled to a deduction under section 32(1)(iii) of the Act. If we view the acquisition of the undertaking by the Government of Punjab as a sale, the rights and obligations of the buyer and the seller have to be ascertained by reference to sections 54 and 55 of the Transfer of Property Act, 1882. A sale is defined in section 54 as "a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised". A sale, therefore, requires a price which may be paid or promised or part-paid or part-promised. The parties in the present case were never ad idem about the price till the compromise between the parties. The provisions of law by which the Government of Punjab acquired the undertaking were somewhat different from the ordinary law contained in the Transfer of Property Act, 1882, and hence it came about that the Government took possession of the undertaking even before any price was settled. It may be that this taking over of possession vested the under taking in the Government without a price being settled but it is impossible to say that the sale as contemplated by the Transfer of Prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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