1959 (4) TMI 28 - HC - Income Tax

Summary

Issues Involved:
1. Whether the transaction by which the Government acquired the undertaking could be regarded as a sale within the meaning of section 10(2)(vii) of the Income-tax Act.
2. Whether the statement of the case by the Income-tax Appellate Tribunal was defective.
3. Whether the transaction amounts to compulsory acquisition or sale.
4. Whether the transaction was a result of a contract between the parties.
5. Validity of the contract under section 175(3) of the Government of India Act, 1935.

Issue-wise Detailed Analysis:

1. Whether the transaction by which the Government acquired the undertaking could be regarded as a sale within the meaning of section 10(2)(vii) of the Income-tax Act:
The court analyzed whether the transaction could be considered a sale under section 10(2)(vii) of the Income-tax Act, which taxes the amount by which the written down value of any building, machinery, or plant exceeds the amount for which these properties have been "actually sold." The court concluded that the transaction amounted to a sale within the meaning of section 10(2)(vii) of the Income-tax Act.

2. Whether the statement of the case by the Income-tax Appellate Tribunal was defective:
The assessee's counsel argued that the statement of the case was defective because it did not include certain matters, such as the Government arbitrarily fixing the price and acquiring the undertaking despite the company's protest. The court found the statement sufficient to determine the question raised and refused to send the case back to the Appellate Tribunal under section 66(4) of the Income-tax Act.

3. Whether the transaction amounts to compulsory acquisition or sale:
The court discussed the nature of the transaction, noting that "compulsory purchase" is not equivalent to "compulsory acquisition." The court referred to previous cases, including Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax and John Hudson & Co. Limited v. Kirkness, to conclude that a compulsory acquisition does not amount to a sale. The court determined that the present transaction did not amount to compulsory acquisition but was a sale.

4. Whether the transaction was a result of a contract between the parties:
The court examined the statutory framework and terms of the licence, concluding that the licence granted by the Government amounted to a contract between the parties. The court noted that the licensee made an irrevocable offer to sell the undertaking, which the Government accepted by exercising its option. The court found that the transaction was brought about by mutual assent and was a result of bargaining between the parties.

5. Validity of the contract under section 175(3) of the Government of India Act, 1935:
The assessee's counsel argued that the licence was invalid because it did not conform to section 175(3) of the Government of India Act, 1935, which requires contracts to be made in the name of the Governor. The court noted that both parties had carried out the terms of the licence and that the Supreme Court in Chatturbhuj Vithaldas Jasani v. Moreshwar Parashram had held that such contracts are not void and can be ratified by the Government. The court found that the Government had ratified the contract by carrying out its terms.

Conclusion:
The court concluded that the transaction amounted to a sale within section 10(2)(vii) of the Income-tax Act. The Income-tax Commissioner was entitled to costs of the reference, with counsel's fee set at Rs. 250. The question was answered in the affirmative.