2003 (3) TMI 17 - HC - Income Tax

Scope of section 41(2) - Assets acquired by the State - On March 21, 1972, the Government issued an order - order made by the Government in March, 1972, is an unilateral order by which it came forward to disburse a part of the compensation which it was required to pay and the precise quantum of which had not as yet been ascertained either by agreement or by recourse to arbitration. Such voluntary disbursement of part of the unascertained amount which the Government had to pay for the assets taken over is, therefore, not capable of being regarded as an amount which had become due and payable as the result of an agreement. The fact that the assessee received the amount so disbursed by itself would not be sufficient to hold that the amount that was received was the result of an agreement between the parties, in order to bring it within the ambit of section 41(2)

Summary

Issues Involved:
1. Admission of additional ground by the Appellate Tribunal.
2. Binding nature of the Commissioner of Income-tax (Appeals) findings on the Assessing Officer.
3. Deletion of Rs. 55,21,856 being profit under section 41(2) from the total income for the assessment year 1972-73.

Issue-wise Detailed Analysis:

1. Admission of additional ground by the Appellate Tribunal:
The Tribunal permitted the assessee to raise an additional ground questioning the Commissioner of Income-tax (Appeals) finding that profits under section 41(2) on the sale of buses and other assets are properly assessable in the assessment year 1973-74. The Tribunal has the jurisdiction to allow additional grounds if they can be considered based on the materials already on record. The Tribunal exercised its discretion properly in permitting the assessee to raise the additional ground. The first question was answered in favor of the assessee.

2. Binding nature of the Commissioner of Income-tax (Appeals) findings on the Assessing Officer:
The second question concerned whether the findings of the Commissioner of Income-tax (Appeals) that the profits under section 41(2) are assessable in the assessment year 1973-74 and not in the assessment year 1972-73 are legally binding on the Assessing Officer. The court found that the answers to these questions are academic due to the statutory provision in section 153(3)(ii) and Explanation 2 under the proviso thereto. The effect of these provisions is to expand the period of limitation to permit the Revenue to bring to tax the amounts deleted or reduced from the assessment made for any year by reason of an order made in appeal or other proceedings. Therefore, no answer was recorded for the second question, having regard to section 153 of the Act.

3. Deletion of Rs. 55,21,856 being profit under section 41(2) from the total income for the assessment year 1972-73:
The Assessing Officer treated the sum of Rs. 51.50 lakhs as the income of the assessee for the assessment year 1972-73, considering it a balancing charge under section 41(2) of the Income-tax Act. The assessee contended that the amount received as compensation for the compulsory acquisition of its assets could not be regarded as part of its income and should only be included for assessment in the next assessment year, as the total amount of compensation was determined only under the notification of September 7, 1972. The Tribunal held that the amount was liable to be treated as income under section 41(2) but concluded that Rs. 51.50 lakhs could not be brought to tax in the assessment year 1972-73 as the amount had not become due.

The court emphasized that the determination of the amount payable is a pre-condition for bringing the amount to tax under section 41(2). The term "due" implies an amount the recovery of which can be enforced and is an ascertained sum. Since the total compensation was determined only in the assessment year 1973-74, the amount is to be brought to tax in that year. The fact that a part of the amount was disbursed in the earlier year does not make it liable for taxation in that year. The court answered the third question in favor of the assessee and against the Revenue.