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Issues Involved:
1. Applicability of section 10(2)(vii) of the Indian Income-tax Act, 1922. 2. Inclusion of solatium as part of the sale price. 3. Consideration of loss on service lines in the computation of profits and losses under section 10(2)(vii). Detailed Analysis: 1. Applicability of Section 10(2)(vii) of the Indian Income-tax Act, 1922: The primary issue was whether the surplus realized by the assessee was correctly assessed under section 10(2)(vii) of the Income-tax Act. The court referred to the judgment of the Supreme Court in Fazilka Electric Supply Co. Ltd. v. Commissioner of Income-tax, which established that the sale in question was not a compulsory acquisition but a result of a mutual agreement between the parties. The court noted that the option of purchase under the Electricity Act was part of a contractual agreement and not a compulsory acquisition. Therefore, the provisions of section 10(2)(vii) were applicable to the amount paid by the Punjab Government to the assessee. The court answered this question in the affirmative, favoring the revenue. 2. Inclusion of Solatium as Part of the Sale Price: The second issue was whether the solatium paid was rightly included as part of the sale price. The assessee argued that the additional 20% paid under the second proviso to section 7(1) of the Electricity Act was in the nature of solatium for the cessation of business and should not be included in the sale price. The court rejected this argument, stating that the additional amount was part of the agreed sale price and not a separate compensation for cessation of business. The court emphasized that the total amount paid by the government, including the additional 20%, constituted the sale price. Thus, the court held that the word "amount" in section 10(2)(vii) includes the total amount paid by the government, including the additional 20%. This question was also answered in the affirmative, favoring the revenue. 3. Consideration of Loss on Service Lines: The third issue was whether the loss on the service lines was rightly ignored in the computation of profits and losses under section 10(2)(vii). The assessee did not press this question before the court, and it was answered in the affirmative, favoring the revenue. Conclusion: All three questions referred to the court were answered in favor of the Commissioner of Income-tax. The court held that the surplus realized by the assessee was correctly assessed under section 10(2)(vii), the solatium paid was rightly included as part of the sale price, and the loss on service lines was rightly ignored in the computation of profits and losses. The parties were left to bear their own costs.
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