1992 (11) TMI 67 - HC - Income Tax

Due In S. 41(2), Balancing Charge, Compensation Received In Instalments, Construction Beneficial To Assessee

Summary

Issues Involved:
1. Interpretation of Section 41(2) of the Income-tax Act, 1961.
2. Determination of the "previous year" for taxability under Section 41(2).
3. Definition and implications of "moneys payable" and "moneys due".

Issue-wise Detailed Analysis:

1. Interpretation of Section 41(2) of the Income-tax Act, 1961:

The primary question revolves around whether the Tribunal was correct in holding that only the instalments due as on January 30, 1981, should be considered for computing profits under Section 41(2). Section 41(2) states that the excess amount received on the sale of assets, to the extent it exceeds the written down value and does not exceed the difference between the actual cost and the written down value, shall be chargeable to income-tax as income of the business for the previous year in which the moneys payable for the asset became due.

2. Determination of the "previous year" for taxability under Section 41(2):

The court needed to determine the "previous year" in which the moneys payable for the asset became due. The term "due" was interpreted to mean the date when the payment is actually due and enforceable, not merely when it is determined. The court emphasized that the moneys payable become due for payment on the date they are to be paid, which is usually referred to as the "due date." The court noted that unless the money payable is due, its recovery cannot be enforced.

3. Definition and implications of "moneys payable" and "moneys due":

The court examined the distinction between "moneys payable" and "moneys due." While "moneys payable" can imply a future liability, "moneys due" signifies an immediate right to demand payment. The court observed that in cases of compulsory acquisition, compensation becomes payable when it is determined, but it becomes due only on the date specified for payment. The court rejected the Revenue's contention that the entire compensation became due upon determination, stating that the instalments' due dates should be considered for taxability.

Conclusion:

The court held that the Tribunal was correct in considering only the instalments due as on January 30, 1981, for computing profits under Section 41(2). The court emphasized that the interpretation should lean in favor of the assessee if there is a conflict between the hardships faced by the Revenue and the assessee. The court referenced the Supreme Court's observations in CIT v. J. H. Gotla, emphasizing that a literal interpretation producing an unjust result should be modified to achieve the Legislature's intention.

The court also compared Section 41(2) with its predecessor under the Indian Income-tax Act, 1922, noting that Parliament departed from the earlier language, indicating a shift in the intended meaning. The court concluded that the year in which the instalments become due should be considered the "previous year" for taxability under Section 41(2).

Reference Answered:

The reference was answered in the affirmative and against the Revenue, confirming that only the instalments due as on January 30, 1981, should be taken into consideration for computing profits under Section 41(2).