Calcutta High Court
Commissioner Of Income-Tax vs United Provinces Electric Supply Co. ... on 8 August, 1986
Equivalent citations: [1987]166ITR565(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. The United Provinces Electric Supply Co. Ltd. (in voluntary liquidation), the assessee, used to carry on business in generation and supply of electricity at Allahabad and Lucknow under two licences, issued under the Indian Electricity Act, 1910, both dated January 1, 1914, for a period of 50 years.
2. On the expiry of the said licences, the Government of Uttar Pradesh exercised its rights under the Indian Electricity Act, 1910, and took over the said undertakings of the assessee at Allahabad and Lucknow on purchase with effect from September 17, 1964, and the said undertakings vested in the Uttar Pradesh State Electricity Board, hereinafter referred to as "the Board". Under Section 7A of the Indian Electricity Act, the assessee became entitled to payment of compensation for the compulsory purchase of the said undertakings.
3. The U. P. State Electricity Board paid to the assessee Rs. 62,60,668 and Rs. 41,35,008, respectively, and also made certain adjustments of the assessee's liabilities in respect of the said undertakings by way of compensation aggregating Rs. 3,35,84,552. The assessee contended that such compensation was insufficient and accepted the same without prejudice to its rights to claim further compensation under Section 7A of the Indian Electricity Act, 1910. The difference or dispute over the compensation payable to the assessee was referred to arbitration. The arbitrators failed to make any award and the disputes were referred to an umpire appointed in the arbitration proceeding for adjudication. The Board thereafter moved the civil court at Lucknow and obtained an order for stay of the proceedings before the umpire. At the material time, the proceedings before the umpire remained stayed under the said order of the civil court.
4. The assessee was assessed to income-tax for the assessment year 1965-66, the accounting period ending on March 31, 1965. The Income-tax Officer found that in the assessment year in question, the assets of the assessee had been taken over by the Board and that payments as aforesaid had been made by the Board to the assessee. The Income-tax Officer held that the assessee was liable to be taxed in respect of the amounts received by it from the Board under Section 41(2) of the Income-tax Act, 1961, as the amount received by the assessee exceeded the written down value of its assets, being the actual cost of such assets less the depreciation allowed.
The Income-tax Officer computed the written down value of the assets in the undertakings of the assessee after adjusting the depreciation allowed and held that the amount received by the assessee from the Board as purchase price, to the extent it exceeded the said written down value, was taxable. He brought to tax a sum of Rs 1,29,35,557 as profits of the assessee under Section 41(2) of the Income-tax Act, 1961.
5. Being aggrieved, the assessee preferred an appeal to the Appellate Assistant Commissioner. It was contended before the Appellate Assistant Commissioner, inter alia, that where the entire undertaking was transferred to and vested in the purchaser under a statute, there could be no agreement for sale of the individual assets of the undertaking as such and that the value of the entire undertaking would be greater than its component parts. The Appellate Assistant Commissioner accepted this contention of the assessee only in respect of the solatium to be paid under the Indian Electricity Act, 1910, over and above the market value of the undertakings. He accordingly directed exclusion of an amount of Rs. 55,92,425 from the total amount received by the assessee from the Board in the computation of profits under Section 41(2) of the Income-tax Act, 1961.
6. It was further contended before the Appellate Assistant Commissioner that the amount received from the Board was not taxable in the assessment year in question, under Section 41(2) of the Act of 1961, inasmuch as the amount payable as claimed by the assessee had neither been admitted nor settled in the year. Disputes had arisen over the price payable for the undertakings which were pending arbitration. Till the matter was finally adjudicated, the assessee was not liable to be taxed on the amounts. The Appellate Assistant Commissioner held that the compensation amount of Rs. 3,35,84,552 was taxable in the assessment year concerned as the right of the assessee to receive the same had arisen in the year. If additional amounts or interest on compensation became payable subsequently, the same would not be relatable to the assessment year.
7. The Appellate Assistant Commissioner, however, modified the assessment and directed the Income-tax Officer to allow deductions for items comprising of non-depreciable assets and also to take into account further additions to the assets of the assessee in the assessment year in question. The Income-tax Officer was further directed to consider the items which were not taken over by the Board and compute the written down value of the assets accordingly.
8. Being aggrieved, the assessee preferred a further appeal before the Income-tax Appellate Tribunal. It was contended on behalf of the assessee before the Tribunal that there was a sale of the two undertakings in entirety and the different components of the undertakings were not sold separately. The value of each of the undertakings was much more than its components considered separately. Therefore, the entire compensation could not be related to the component assets and Section 41(2) of the Act of 1961 was not applicable.
9. It was contended further that the compensation did not become due in the assessment year involved and could be not taxed under Section 41(2) of the Act in the said year. It was urged that during the relevant period, the assessed had received only an ad hoc payment which was accepted without prejudice to its right to get the amount of compensation determined in arbitration under Section 7A of the Indian Electricity Act, 1910. The arbitration proceedings initiated were pending. Compensation, it was submitted, did not become payable and due till it was settled. In support of the contentions of the assessee, decisions of High Courts were cited before the Tribunal.
10. It was contended on behalf of the Revenue that the undertakings of the assessee vested in the Board on their delivery under Section 6 of the Indian Electricity Act and the assessee became entitled to compensation on such delivery in the year under consideration under Section 7A of the Indian Electricity Act. Ascertainment of such compensation did not in any way affect its payability to the assessee. There was a sale of the undertakings and the price for the undertakings became due to the assessee when the delivery of the undertakings was taken over.
11. The Tribunal construed Section 7A of the Indian Electricity Act and held that compensation was payable under the said Act separately for the different components of the undertakings on compulsory purchase except goodwill or future profits or similar items. The purchase price of an undertaking would include solatium in addition to the market value. Section 41(2) of the Income-tax Act, 1961, would be attracted in such a case.
12. On the question whether the compensation payable to the assessee became due in the year under consideration, the Tribunal noted that the title to the undertakings vested in the Board in the said year on taking over of the undertakings. The Tribunal, however, held that the compensation payable to the assessee had not been settled in the assessment year as the umpire had not made any award. Following a decision of the Delhi High Court in P. C. Gulati v. CIT [1972] 86 ITR 501, the Tribunal held that the amount due to the assessee remained undetermined and unknown till it was finally settled and ascertained, only upon which it would become payable within the meaning of Section 41(2) of the Income-tax Act, 1961. The Tribunal held that the Income-tax Officer was not justified in making the addition to the income of the assessee under Section 41(2) of the Act in the year under consideration and directed the deletion of the said addition.
13. On an application of the Revenue under Section 256(1) of the Income-tax Act, 1961, the following questions have been referred as questions of law arising out of the order of the Tribunal for the opinion of this court:
"1. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the provisions of the Indian Electricity Act, 1910, the Tribunal was right in holding that the addition of the sum of Rs. 1,29,35,557 for the assessment year 1965-66 was not justified ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to raise objection to the charging of interest under Section 215 of the Income-tax Act, 1961, in the appeal before the Appellate Assistant Commissioner ?"
14. At the hearing, the learned advocate for the Revenue reiterated the contentions raised in the proceedings held earlier. He submitted that all the legal elements of a sale were present in the instant case. The undertakings of the assessee had duly vested in the Board by operation of the Indian Electricity Act, 1910, by way of compulsory purchase. The amounts which had been paid to the assessee had been paid on account of the price of the said undertakings and the assessee had received the same as the price thereof. On further adjudication and arbitration, the amount might be varied but it was unlikely that the price would be less than what had been paid by the Board and accepted by the assessee. The said amount was and should be held to be a major part of the price paid for the compulsory purchase of the undertakings of the assessee and there was no reason why the same should not be exigible to tax under Section 41(2) of the Income-tax Act, 1961. In support of his contentions, the learned advocate for the Revenue cited the following decisions:
(a) Fazilka Electric Supply Co. Ltd. v. CIT . In this case, the Supreme Court held that the sale of an electrical undertaking to a local authority under the conditions of the licence granted by the Government was not a compulsory purchase but a sale in pursuance of an agreement between the parties, within the meaning of Section 10(2)(vii) of the Indian Income-tax Act, 1922, and the excess realised by such sale which did not exceed the difference between the original cost and the written down value would be assessable as profits in the year in which the sale took place under the said Section 10(2)(vii) of the Act of 1922 (which is in pari materia to Section 41(2) of the Income-tax Act, 1961).
(b) Hoshiarpur Electric Supply Co. v. CIT . In this case, the State of Punjab exercised its option to purchase the electricity undertaking of the assessee on and from the date of the expiry of the licence and paid an amount towards the price. The Government also paid interest on the balance of the price after six months from the date of the expiry of the licence till the full amount was paid. In the assessment year involved, the assessee was assessed to income-tax on profits under the second proviso to Section 10(2)(vii) of the Indian Income-tax Act, 1922. It was contended by the assessee that the sale could only become effective on payment of the value of the whole property of the undertaking and, therefore, the initial payment being short of full payment, no sale was effected of the undertaking within the accounting year as the subsequent payment was made after the end of the accounting year. On these facts, it was held by the Punjab and Haryana High Court, on a reference, that the sale was effected in the accounting year in question though the full price was not paid on that date. The High Court followed the decision of the Supreme Court in the case of Fazilka Electric Supply Co. Ltd. [1962] 46 ITR 127 and held that the assessee was liable to be taxed in respect of the depreciation allowed to it earlier.
(c) CIT v. Hindusthan Housing and Land Development Trust Ltd. . In this case, lands belonging to the assessee were first requisitioned by the Government of West Bengal and, thereafter, acquired under the relevant statute. A sum of Rs. 24,97,249 was awarded as compensation by the Land Acquisition Collector. The assessee preferred an appeal and obtained an award fixing the amount of compensation at a higher figure of Rs. 30,10,875. Interest at the rate of 5% per annum was allowed on the enhanced compensation amount from the date of acquisition till the date of payment. The State of West Bengal preferred an appeal against the award to the High Court during the pendency of which the State deposited the sum awarded in court. The assessee withdrew the same after furnishing a security bond.
The Income-tax Officer assessed the said amount withdrawn from the court as the income of the assessee. The Tribunal, on appeal, however, held that as the appeal remained pending in the High Court where the validity of the enhanced amount was challenged, the claim of the assessee to receive the amount was sub judice and that the assessee had drawn the amount only after furnishing security as it had no absolute right to receive the extra amount. On a reference, it was held by a Division Bench of this court that the enhanced amount awarded by the arbitrator could not be said to be determined as it was subject to the appeal pending in the High Court. The right of the assessee to receive the additional amount remained unsettled and at that stage was a mere claim or an assertion on the part of the assessee to receive the said amount. The order of the Tribunal was upheld and it was held that the extra amount withdrawn by the assessee from the court was not income which accrued or arose during the relevant assessment year.
(d) Akola Electric Supply Co. Pvt. Ltd. v. CIT [1978] 113 ITR 265 (Bom). In this case, the Government of Bombay exercised its option on the expiry of the period of a licence of an assessee carrying on business of generation and supply of electricity through its undertaking and the State Electricity Board purchased the undertaking in December, 1959, when the possession of the assets was handed over to the Board. The Board informed the assessee in March, 1962, that the sale price had been fixed by mutual agreement which included a solatium. The price was sought to be assessed in the hands of the assessee in the assessment year 1962-63 to the extent it exceeded the written down value of the undertaking. The assessee contended that as the assets had been handed over to the Board in December, 1959, the balancing charge was assessable earlier. On these facts, it was held by the Bombay High Court that though the undertaking might have vested in the Board without a price being settled, the transaction became a sale when the price was settled and it was only after the price had been settled that it became due to the assessee. The money payable became due only when it was ascertained. The fact that interest was payable on the compensation amount from the date of taking over possession did not change the position. It was held that the balancing charge was taxable in the assessment year 1962-63.
(e) Mrs. Khorshed Shapoor Chenai v. Asst. CED . In this case, it was held by the Supreme Court that lands belonging to the deceased which were compulsorily acquired by the Government during his lifetime could not form part of his estate but the right to receive compensation for such land at market value on the date of the notification for acquisition had accrued to the deceased and would pass on his death. The Supreme Court held further that when lands were compulsorily acquired under the Land Acquisition Act, only one right vested in the owner of the land, i.e., a right to receive compensation for the lands at their market value on the date of the relevant notification. The owner did not have two separate rights, viz., right to receive compensation and the right to receive extra or further compensation. It was open to the owner to accept the order of the Collector determining compensation under protest and prosecute the matter further in court. The right to receive compensation would be kept alive thereby. For the purpose of assessment of estate duty, it was the duty of the Controller, after scrutinising the evidence, to value the estate including the compensation payable to the deceased in respect of the land acquired. It was not open to the estate duty authorities to reopen an assessment for estate duty merely on the ground that subsequently a higher authority had valued the land acquired at an enhanced figure.
(f) Modi Electric Supply Co. v. CIT . In this case, the Punjab State Electricity Board exercised its option under the Indian Electricity Act, 1910, to purchase from the assessee, a licensee, its electricity undertaking on the expiry of the licence on the midnight ending June 7, 1963. The assessee claimed that the taking over of the undertaking by the Government did not amount to a sale within the meaning of Section 41(2) and in any event, the amount received in excess of the market value of these assets should not be considered for the purpose of the said section.
On a reference, it was held by a Division Bench of the Punjab & Haryana High Court following the decision of the Supreme Court in Fazilka Electric Supply Co. Dd. [1962] 46 ITR 127, that there was a sale within the meaning of Section 41(2) of the Act of 1961, even though no sale deed was executed or registered on the date when the undertaking was taken over and stood vested in the Board. It was held further that the total amount paid by the Government to the assessee under Section 7 of the Electricity Act including solatium was the sale price.
(g) Fazilka Electric Supply Co. Ltd. v. CIT . In this case, the electricity undertaking of the asseseee was taken over by the Punjab Government in July, 1949, under Section 7(1) of the Indian Electricity Act, 1910. The Government fixed the compensation at Rs. 3,17,891. The assessee did not agree to the amount of compensation fixed and referred the matter to arbitration. The matter thereafter was taken to court and ultimately referred to two arbitrators. The arbitrators could not agree and the disputes were referred to an umpire. The umpire made his award in July, 1961, determining higher compensation. The umpire also awarded interest for 8 years. A decree was passed on the award in September, 1962. Under the award, interest of Rs. 1,55,620 was paid to the assessee in February, 1963. The question arose whether the interest received by the assessee was taxable in the assessment year 1963-64 and whether such interest became payable to the assessee under the Indian Electricity Act. On these facts, it was held by a Division Bench of the Delhi High Court that the right of the assessee to receive interest arose under the Indian Electricity Act, 1910, read with the Punjab Electricity Act, 1939. The High Court held further that the right to receive compensation was a definite right in praesenti and arose when the undertaking of the assessee was taken over. This right was not dependent on its quantification in accordance with the procedure laid down in the Electricity Act. Irrespective of the method of accounting, the interest had to be assessed on accrual basis and could not be assessed only in the assessment year 1963-64 when it was paid. The matter was remanded to the Tribunal for determination as to in which years the interest would be assessable.
15. Learned advocate for the assessee contended, on the other hand, that it has been found as a fact that the undertakings of the assessee had been taken over by the Government of Uttar Pradesh and the assessee had initiated arbitration under Section 7A of the Indian Electricity Act for determination of the compensation payable to it under the provisions of the said Act. The proceeding in arbitration pending before the umpire remained stayed under an order of the civil court at Lucknow. Learned advocate submitted that in this background though an ad hoc amount had been paid to the assessee, tax on the balancing profit under Section 41(2) of the Income-tax Act, 1961, could not be levied or assessed in the assessment year involved.
16. Learned advocate drew our attention to Section 41(2) of the Income-tax Act, 1961, and submitted that the said Section would be attracted only if the following conditions were satisfied : First, building, machinery or plant owned by the assessee had to be sold and, secondly, moneys payable in respect of such building, machinery or plant had to exceed the written down value. Only after these two conditions were satisfied, the excess of the money payable in respect of the items sold over the written down value thereof, to the extent it did not exceed the difference between the actual cost and written down value, would be chargeable to tax as the income of the business.
17. Learned advocate also submitted that under the Explanation to Section 41 of the Act of 1961, it was provided that the expression "moneys payable" and the expression "sold" in the said section would bear the same meaning as in Sub-section (1) of Section 32 of the Act of 1961. Explanation (1) to the said Section 32(1) provided that the moneys payable in respect of building, machinery and plant would include, where the said building, machinery and plant were sold, the price for which they were sold. Expla-nation (2) to the said Section 32(1) provided that the expression "sold" included a transfer by way of compulsory acquisition under any law for the time being in force.
18. Learned advocate for the assessee submitted that by reason of the said two Sections 32(1) and 41(2) of the Act of 1961, it was clear that a compulsory purchase under the Indian Electricity Act had to be treated as a sale for the purpose of Section 41(2). He did not dispute that the compulsory purchase in the instant case amounted to a sale.
19. Learned advocate, however, submitted that the balancing profit under Section 41(2) would be chargeable to tax only when the moneys payable for the building, machinery or plant would become due, that is, only after the said amount was ascertained. It would not be possible to say that the money had become payable to the assessee only because the building, machinery and plant had been taken over under the Indian Electricity Act. It would also not be possible to say what was the amount which would be payable on the date of the taking over because the amount remained unknown.
20. In support of his contentions, learned advocate for the assessee cited the following decisions :
(a) P. C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd. v. CIT . Here, the assessee was a licensee under the Indian Electricity Act and generated and distributed electricity under the licence through its undertaking. The Government of Punjab exercised its option on the expiry of the licence and took over possession of the undertaking on July 16, 1954. The assessee filed a suit forrecovery of compensation claimed at over Rs. 13 lakhs. The suit was ultimately settled on April 7, 1962. The assessee agreed to accept Rs. 2 1/2 lakhs and the State Electricity Board further agreed to discharge a loan advanced by the Government to the assessee. In the assessment year 1963-64, the Income-tax Officer sought to tax the profit under Section 41(2) of the Income-tax Act, 1961, being the excess over the depreciated value of the assets. The question was whether the excess was chargeable under Section 41(2) in the assessment year 1963-64. It was held, on a reference, by a Division Bench of the Delhi High Court that though the possession of the undertaking vested in the Government without the price being settled, the transaction became a sale only when the price became settled and only after the price was settled, it became due to the assessee. In the assessment year 1955-56, when the undertaking vested, the amount which was ultimately paid for the undertaking did not become taxable under Section 10(2)(vii) of the earlier Act of 1922. It was held further that the amount due to the assessee remained unknown till it was ascertained and it became due to the assessee in the previous year relevant to the assessment year 1963-64 and was assessable to tax in the said assessment year.
(b) Akola Electric Supply Co. Pvt. Ltd. v. CIT [1978] 113 ITR 265 (Bom). This case has been considered earlier.
(c) CIT v. Rohtak Textile Mills Ltd. [1982] 138 ITR 195 (Delhi). In this case, the assessee owned and ran electricity undertakings. Three of the undertakings were taken over by the Punjab State Electricity Board in the assessment year 1963-64 and the fourth undertaking was taken over by the Board in the assessment year 1965-66. The assessee received from the Board compensation of Rs. 19 lakhs in the assessment year 1963-64 and Rs. 12 lakhs in the assessment year 1965-66. The assessee was not satisfied with the amount of compensation and negotiations were had between the assessee and the Board. The Board also raised a dispute in respect of the compensation paid to the assessee for the cost of the service lines which have been put up with the money received from the consumers and claimed a return of the said amount. On these facts, it was held by a Division Bench of the Delhi High Court that the amounts paid in respect of the said transactions were not taxable under Section 41(2) in the relevant assessment years. Though payments had been made towards the price of the undertakings, the price payable had not been agreed to or adjudicated upon during the relevant previous years and the moneys payable in respect of the said undertakings could not be said to have become due in the respective previous years.
(d) Okara Electric Supply Company Ltd, v. CIT [1985] 154 ITR 493 (Delhi). In this case, the assessee owned and ran an electric supply undertaking in East Punjab under the permission granted by the Government of East Punjab in May, 1948. The Government retained its option to acquire the undertaking any time after October 26, 1950, after giving one year's notice in writing. On acquisition, the Government agreed to pay the price of the lands, buildings, works, materials and plants of the undertaking computed at their fair market value and in case of difference, such value was to be determined by arbitration.
The Government took over the assets of the undertaking on January 4, 1959, after payment of Rs. 60,000 on June 3, 1959. There was a dispute about the valuation of the assets. Thereafter, the Chief Engineer of the Punjab Electricity Board valued the assets at Rs. 2,02,781 recorded in a memorandum dated November 18, 1963. In the meantime, a further sum of Rs. 35,215 had been paid to the assessee on January 8, 1963. A sum of Rs. 70,388 claimed by the Government from the assessee on account of sale of power, consumers' deposits and contingency reserve was sought to be adjusted against the balance claim of the assessee. The adjustment was agreed to by the assessee and a sum of Rs. 40,000 was paid to the assessee on October 26, 1965.
The assessee had kept the said amounts of Rs. 60,000 and Rs. 35,215 received by it from the Government earlier in a suspense account. In the assessment year 1966-67, the assessee deducted from the total amount received from the Government on account of price, the depreciated value of the assets taken over and the balance of Rs. 82,237 was credited to the assessee's profit and loss account.
The Income-tax Officer sought to assess in the hands of the assessee, the balancing charge under Section 41(2) of the Income-tax Act, 1961, arising out of the price received by the assessee for its assets. On appeal by the assessee, the Appellate Assistant Commissioner held that the balancing charge would be taxable in the year when the assets were taken over, i.e., 1959-60 and not in the year 1966-67. Pursuant thereto the assessment of the assessee for the assessment year 1959-60 was reopened. The balancing charge was assessed in the said year and was confirmed by the Appellate Assistant Commissioner.
Appeals were preferred both by the assessee and the Revenue to the Income-tax Appellate Tribunal. The Tribunal held that the balancing charge became assessable in the assessment year 1966-67 when the amount of compensation was ascertained and the same was taxable as a part of the income of the assessee for the assessment year 1966-67. On a reference, the decision of the Tribunal was affirmed by a Division Bench of the Delhi High Court. It was held that under Section 41(2) of the Act of 1961, the moneys payable being ascertained in the assessment year 1966-67, became due only when the same was ascertained. Therefore, the said balancing charge was assessable in the later assessment year.
Learned advocate for the assessee also drew our attention to the Notes on Clauses to the Income-tax Act, 1961, which reads as follows ([1961] 42 ITR 161 (Supplement)):
"Clause 41, Sub-clause (2).--This corresponds to the provisions contained in the second and fourth provisos to the existing Section 10(2)(vii). The changes made here are verbal and seek to clarify that where the monies payable for sale or destruction are not determined in the year in which the sale, destruction, etc., took place, the profit will be assessable in the assessment year in the previous year of which that sum is determined. The Explanation clarifies that the provisions of this sub-section will apply even if the business or profession is not in existence in the year in which the sums fall to be assessed.
Sub-clauses (3) and (4) correspond to existing Section 10(2)(xiv) and Section 10(2)(xi), earlier half of first proviso respectively, of the existing Act."
21. At this stage, we may note the relevant sections of the Income tax Act, 1961:
"Section 32(1)--...
Explanation.--For the purposes of this clause,--
(1) 'moneys payable' in respect of any building, machinery, plant or furniture includes--...
(b) where the building, machinery, plant or furniture is sold, the price for which it is sold, ...
(2) 'sold' includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company."
"Section 41(2) 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 or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due :...
Explanation 2.--For the purpose of this sub-section, the expression 'moneys payable' and the expression 'sold' shall have the same meanings as in Sub-section (1A) of Section 32. "
22. On a plain reading of the said sections, it appears that an assessee can be taxed under Section 41(2) of the Act on the moneys payable on account of sale, voluntary or compulsory, under any law of its assets like plant, machinery or building. The expression "moneys payable" in the said section have to be equated with the prices at which the assets are sold. To the extent the said price exceeds the written down value but not the actual cost, that is, to the extent the price covers the depreciation allowed to the assessee over the years, the same can be brought to tax under Section 41.
23. In the instant case, undoubtedly, the assets of the assessee, viz., its two undertakings, had been sold within the meaning of Section 41(2) of the Act read with Section 32(1) thereof and the Explanation thereunder. To that extent Section 41(2) is attracted but an assessment under Section 41(2) can only be made after the price at which the assets of the assessee had been sold is determined. It is nobody's case that the price of the undertakings of the assessee has been finally determined. It is a matter of record that the assessee has not accepted the amount offered as compensa-tion and had taken the matter to arbitration for adjudication. The proceedings before the umpire were stayed at the instance of the Government of Uttar Pradesh and the matter remained sub judice. Therefore, it cannot be said that the amount which has been received uptil now by the assessee in respect of its two undertakings is the price at which the same had been sold.
24. In our view, Section 41(2) of the Income-tax Act, 1961, does not envisage that an assessee would be assessed piecemeal as and when he receives amounts on account of price when such price is in the process of being ascertained. In the Notes on Clauses to the Income-tax Act, 1961, it is made clear that moneys payable for sale of assets would be assessable in the previous year in which the sum is determined and not at any earlier stage.
25. In Hoshiarpur Electric Supply Co. Ltd. v. CIT , when the matter came before the High Court, it was not in dispute that the amount of the price had been fixed and paid initially. A part of the said price was paid and the balance of the price was paid thereafter. There was no controversy as regards the price.
26. In Fazilka Electric Supply Co. Ltd. v. CIT , it was found as a fact that the full value had been paid on the date on which the option to purchase was exercised by the State Government. The only question which was decided by the Supreme Court in that case was whether the compulsory acquisition of an electricity undertaking constituted a sale within the meaning of Section 10(2)(vii) of the Indian Income-tax Act, 1922. No other question was in issue. In the instant case, the language of Section 41(2) of the Act of 1961 is clear and a compulsory acquisition would amount to a sale.
27. The decisions relied on and cited on behalf of the assessee of the Delhi High Court and of the Bombay High Court, in our view, have considered the relevant aspect of the controversy which has been raised before us and with respect we agree with the said decisions.
28. We hold that Section 41(2) of the Act of 1961 does not and cannot come into play till the price is finally ascertained and in the facts of this case, as the price of the undertaking of the assessee had not been finally determined and only an ad hoc payment has been made which had been accepted on protest, it was not open to the Revenue to intervene and to proceed to assess the assessee under the Section 41(2) of Income-tax Act, 1961.
29. For the above reasons, we answer question No. 1 in the affirmative and in favour of the assessee.
30. So far as question No. 2 is concerned, the same is covered by the following decisions of this court.
(a) CIT v. Lalit Prasad Rohini Kumar and
(b) CIT v. Karam Chand Thapar & Bros. (P.) Ltd. .
31. Following the said decisions, we also answer question No. 2 in the affirmative and in favour of the assessee.
32. In the facts and circumstances of this case, there will be no order as to costs.
Monjula Bose, J.
33. I agree.