TMI Blog1978 (11) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 23,534 was a part of the purchase price and would, therefore, go into computation in working out the profit under s. 41(2) of the I.T. Act ? " The facts in the context of which the aforesaid three questions are to be considered are not in dispute and can be stated thus: The assessee, a limited company (hereinafter referred to as the " assessee-company "), had supply of electricity as its business. The Punjab State Electricity Board (hereinafter referred to as " the board "), exercised its option to purchase from the assessee-company the said undertaking, vide the board's letter, by way of a notice, No. 5015/LB-3(32)61 dated January 16, 1962, under sub-s. (1) of s. 6 of the Indian Electricity Act, 1910, as amended by the Indian Electricity (Amendment) Act, 1959 (hereinafter to be referred to as " the Act "), read with sub-cl. (1) of cl. 9 of the Bhatinda Electric-Licence 2003 (Bikrami) on the expiry of the period of licence on 7th and 8th June, 1963 (midnight falling between 7th and 8th June, 1963). The assessee-company was required by the said notice to deliver the aforesaid undertaking including the land, building, works, material, equipment, machinery and plants, etc., pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eatures as to take the matter away from the cover of the ratio of those decisions as would be presently shown. Coming now to the first question, the learned counsel for the assessee company vehemently canvassed that the sum of Rs. 39,341 paid by the assessee-company to its employees by way of retrenchment compensation was truly an expenditure laid out for the purpose of business. The learned counsel lays stress on the fact that the assessee-company was still within its rights to resort to the expediency of retrenching its employees by following the procedure enacted under s. 25F of the Industrial Disputes Act. It was maintained on behalf of the assessee-company that the reasons which impelled the assessee-company to take those steps are totally immaterial and that even if the reason was the impending transfer of the assessee company's undertaking on the midnight of 7th and 8th June, 1963, which circumstance would have entitled its employees to such a retrenchment compensation as is envisaged under s. 25FF of the Industrial Disputes Act, that would not change the character of the expenditure in question so long it was incurred when the business was still a going concern. What re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of s. 25FF of the Industrial Disputes Act, is merely an abortive attempt to shift the expenditure from the capital account to the revenue account. We are, therefore, clearly of the view that the Tribunal rightly disallowed the claim of the assessee-company following the ratio of the Supreme Court decision in CIT v. Gemini Cashew Sales Corporation [1967] 65 ITR 643. The learned counsel for the assessee-company fairly conceded that the decision of the Supreme Court in Fazilka Electric Supply Co. Ltd. v. CIT [1962] 46 ITR 127 and Hoshiarpur Electric Supply Co. v. CIT [1971] 79 ITR 164, a Bench decision of our own High Court, truly cover the subject matter of question No. 2 against the assessee-company and he refrained from contesting the decision of the Tribunal in regard to the subject-matter of question No. 2. As regards the subject-matter of question No. 3, it may be observed that the learned counsel for the assesses-company merely contended that the ratio of the decision of the Bench of this court in Sonepat Light, Power and General Mills Ltd. v. CIT[1966] 59 ITR 392, would no longer be applicable as the old provisions dealing with the payment of purchase price and the fixa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the figures is not available with them. Even the statement of depreciable assets and profit under section 10(2)(vii) of the Income-tax Act for the assessment year in question signed by the voluntary liquidator of the assessee and accepted by the Income-tax Appellate Tribunal, Delhi, shows that the total amount has been shown as sale price and the so-called solatium has not been calculated or provided separately. The relevant words used in section 10(2)(vii) of the Income-tax Act are : In respect of any such building, machinery or plant which has been sold, the amount by which the written down value thereof exceeds the amount for which the building, etc., is actually sold.' After the judgment of the Supreme Court in the Fazilka Electric Company's case [1962] 46 ITR 127 (SC) it is settled that the machinery, plant, etc., were sold by the assessee to the Government. The question which then arises is what is the amount for which those things were actually sold. We think that to ask that question is to answer it. It is the total amount which the assessee received from the Government on account of the sale which is the amount for which the sale took place. It is nobody's case that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arket value is part of the consideration for the agreed sale provided in the licence itself and the assessee an compel its payment in appropriate proceedings ; it is not in the nature are of an exgratia payment. `Purchase money' in section 7(3) of the Electricity Act would include each of the amounts mentioned in the first and second provisos to section 7(1) of that Act. It cannot be argued that the creditors of the assessee can reach that part of the amount which is paid under the first proviso but not the sum of 20 per cent. thereon paid in pursuance of an agreement under the second proviso. This also strengthens the view we are taking. We think that it is not correct to call the amount paid by the Government to the assessee under the second proviso to sub-section (1) of section 7 of the Electricity Act as "solatium" and that in fact the amount which may become payable and did in this case become payable under that provision is a part of the amount paid for the sale of the undertaking. We, therefore, hold that the word "amount" used in section 10(2)(vii) Of the Income-tax Act includes the total amount paid by the Government to the assessee by virtue of paragraph 9 of the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d before the purchase under sub-section (3) of that section, at the time of the delivery of the undertaking, and if there is any difference or dispute regarding such purchase price, the same shall be determined by arbitration. (2) The market value of an undertaking for the purpose of sub-section (1) shall be deemed to be the value of all loads, buildings, works, materials and plant of the licensee suitable to and used by him, for the purpose of the undertaking, other than (i) a generating station declared by the licensee not to form part of the undertaking for the purpose of purchase, and (ii) service lines or other capital works or any part thereof which have been constructed at the expense of consumers, due regard being had to the nature and condition for the time being of such lands, buildings, works, materials and plant and the state of repair thereof and to the circumstance that they are in such position as to be ready for immediate working and to the suitability of the same for the purpose of the undertaking, but without any addition in respect of compulsory purchase or of goodwill or of any profits which may be or might have been made from the undertaking or of any similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the provisions of ss. 7A(1) and 7A(2) of the Act plus such amount as may be specified in the licence but not exceeding 20 per cent. of the market value determined in accordance with the provisions of sub-ss. (1) and (2) of s. 7 of the Act. Thus, from a perusal of the provisions of sub-s. (4) of s. 7 of the Act, it would be clear that the purchase price of an undertaking purchased under s. 6 of the Electricity Act is not the market value thereof as in the case of an undertaking purchased under s. 5(1) of the Act but it is equivalent to a value determined in accordance with the provisions of sub-s. (4) of s. 7A. Reference to sub-ss. (1) and (2) in sub-s. (4) of s. 7A is merely to provide the mode for the determination of the value which is to be the purchase price of the undertaking and, therefore, the expression " the purchase price of the undertaking shall be the market value of the undertaking at the time of purchase or at the time of the delivery of the undertaking " occurring in s. 7A(1), which was highlighted by the learned counsel for the assessee-company, would not in any way support the contention that the purchase price of the undertaking purchased under s. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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