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This case raises the question of interpretation of section 10(2)(vii) of the Indian Income-tax Act, 1922, as amended by Central Act VIII of 1946 (hereinafter referred to as the Income-tax Act.) The Sonepat Light, Power & General Mills Ltd., Sonepat (hereinafter referred to as "the assessee"), now in liquidation, started its business in 1941, under a licence dated April 23, 1935, under the Indian Electricity Act No. 9 of 1910 (hereinafter called "the Electricity Act"). Section 7(1) of the Electricity Act reads as follows :

Clause (a) of sub-section (3) of section 7 is also relevant in the context of this case and is reproduced below :

"(3) Where a purchase has been effected under sub-section (1) or sub-section (2), -

(a) the undertaking shall vest in the purchasers free from any debts, mortgages or similar obligations of the licensee or attaching to the undertaking :

Provided that any such debts, mortgages or similar obligations shall attach to the purchase money in substitution for the undertaking."

In accordance with the requirements of section 7(1) of the Electricity Act the following provision was made in paragraph 9 of the licence granted to the assessee which was called "The Sonepat Electric Licence 1935" :