1972 (4) TMI 3 - HC - Income Tax

Whether on the facts and in the circumstances of the case the sale of the electrical undertaking to the Punjab Government falls in the assessment year 1955-56 when the undertaking was taken over by the Punjab Government by virtue of an option which was exercised in terms of the licence or whether it falls in the assessment year 1963-64 when the balance of the sale price was received by the assessee ? - The answer to the question under consideration as aforementioned is that the amount became due in the previous year corresponding to the assessment year 1963-64 and hence the answer to the question would be in the affirmative and in favour of the revenue.

Issues Involved:
1. Timing of the sale for tax assessment purposes.
2. Determination of the assessment year for tax liability.
3. Interpretation of "became due" in the context of Section 41(2) of the Income-tax Act, 1961.

Detailed Analysis:

1. Timing of the Sale for Tax Assessment Purposes:
The core issue was whether the sale of the electrical undertaking to the Punjab Government should be assessed in the year 1955-56, when the government took possession, or in the year 1963-64, when the balance of the sale price was received by the assessee. The Tribunal initially found that the sale could not be considered complete until the sale price was finally fixed, thus making the assessment year 1963-64 appropriate. The assessee argued that the sale took place on 16th July 1954, when the government acquired the assets, and thus should be taxed in the assessment year 1955-56.

2. Determination of the Assessment Year for Tax Liability:
The Tribunal's decision was challenged on the grounds that the sale should be considered complete in 1954, making the assessment year 1955-56 the relevant year for tax purposes. However, the Tribunal and the High Court focused on the year in which the amount "became due" rather than the date of the sale or receipt. The High Court noted that the term "became due" in Section 41(2) of the Income-tax Act, 1961, is crucial. It was determined that the amount in question should be taxed in the year when the consideration became due, not when the sale was executed or the amount was received.

3. Interpretation of "Became Due" in the Context of Section 41(2) of the Income-tax Act, 1961:
The High Court analyzed Section 41(2) of the Income-tax Act, 1961, which states that the excess amount over the written-down value of assets sold, discarded, demolished, or destroyed should be taxed in the previous year when the money "became due." The Court concluded that the amount "became due" only after the final settlement of the sale price through the compromise in 1962. The Court reasoned that the amount could not be considered due until it was ascertained and agreed upon. The Court referenced previous judgments, including E.D. Sassoon & Co. Ltd. v. Commissioner of Income-tax and Commissioner of Income-tax v. Ashokbhai Chimanbhai, to support the interpretation that income accrues when the right to receive it is established, even if the actual amount is determined later.

Conclusion:
The High Court concluded that the amount became due in the previous year corresponding to the assessment year 1963-64. Thus, the Tribunal was correct in treating the sum of Rs. 1,25,892 as income chargeable to tax under Section 41(2) of the Income-tax Act, 1961, for the assessment year 1963-64. The question was reframed and answered in the affirmative, favoring the revenue. Respondents were awarded costs, and counsel's fee was set at Rs. 250.

Separate Judgments:
The judgment was delivered collectively without separate judgments by the judges.

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