9911796707
TMI Blog1951 (1) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income-tax Act. The applicant objected to the treatment of this sum as income for the purpose of assessment. 3. Section 10(2)(vii) as it then was may be stated as follows:- "10. (2) Such profits or gains shall be computed after making the following allowances, namely:- "(vii) in respect of any machinery or plant which has been sold or discarded, the amount by which the written down value of the machinery or plant exceeds the amount for which the machinery or plant is actually sold or its scrap value: "Provided that such amount is actually written off in the books of the assessee: "Provided further that where the amount for which any such machinery or plant is sold exceeds the written down value, the excess shall be deemed to be profits of the previous year in which the sale took place;" (It may be stated that due to inadvertence the Tribunal had quoted in its order the amended Section 10(2)(vii). For the purpose of determination of this case we think it does not make any material difference). 4. It was submitted before the Tribunal by Mr. Mitra appearing on behalf of the applicant that when the plant was requisitioned under the Defence of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the applicant company from the Government of India in the circumstances of this case is taxable as profits under Section 10(2)(vii) of the Income-tax Act?" S. Mitra and B. Mitra, for the assessees Dr. S. K. Gupta and J. C. Pal, for the Commissioner JUDGMENT HARRIES, C.J.--This is a reference made at the instance of the assessees by the Income-tax Appellate Tribunal, Calcutta Bench, under Section 66(1) of the Indian Income-tax Act in which the following question is framed for the opinion of the Court:- "Whether the sum of ₹ 3,27,840 received by the applicant company from the Government of India in the circumstances of this case is taxable as profits under Section 10(2)(vii) of the Income-tax Act?" The assessees are the well-known Electric Supply Company which provide this city with electricity. The assessees had a stand-by electricity generating plant at Bhatpara about sixteen miles from Calcutta. The plant was not in use, but it was kept as a stand-by or reserve in the event of the main generating plant breaking down. It appears that the Government during the war desired to acquire this plant, but the company did not want to sell. Eventually the Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section has subsequently been amended. But it is common ground that the sub-section read as follows during the year 1942-43 when this acquisition was made:- "(2) Such profits or gains shall be computed after making the following allowances, namely:- (vii) in respect of any......machinery or plant which has been sold or discarded......, the amount by which the written down value of machinery or plant exceeds the amount for which the.... machinery or plant.....is actually sold or its scrap value: Provided that such amount is actually written off in the books of the assessee: Provided further that where the amount for which any such.... machinery or plant is sold exceeds the written down value......the excess....shall be deemed to be profits of the previous year in which the sale took place." It will be seen that if an assessee sells or discards any plant or machinery, he can claim an allowance in ascertaining the profits where the amount which he received for the machinery or plant was less than the written down value of such machinery or plant. The allowance, however, can only be claimed if the plant or machinery is sold or discarded. The second proviso deals with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay for the article is to be determined by Government itself. That amount is called "price", but it is to be observed that when this rule was amended a month or so after the present requisition order was served the word "price" appears to have been regarded as inappropriate and the word "compensation" appears in the rule as amended. Can plant or machinery requisitioned under this rule be regarded as plant or machinery sold or made the subject-matter of a sale? If it can then the Appellate Tribunal's view is right. But if it cannot then the amount sought to be taxed cannot be taxed in virtue of the second proviso to Section 10(2)(vii) of the Indian Income-tax Act. The word "sale" is not defined in the Indian Income-tax Act and, therefore, it must be given its ordinary grammatical meaning. According to the Oxford Dictionary "sale" means "an act of selling or making over to another for a price." It has also been defined as an exchange of a thing for a price. Making over anything for a price or exchanging it for a price suggests that the act is voluntary. The ordinary conception of "sale" is that something is h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s whatsoever. There was no other alternative open to them but to accept this money. Otherwise they would have been deprived of the property and of what Government considered to be the value of it. I do not think it can be said that because the assessees in the circumstances accepted the money and thus mitigated their loss they sold the plant for that sum to Government. Dr. Gupta has urged that the word "sale" is wide enough to cover not only voluntary sales but compulsory sales. As I have said, the ordinary meaning of the word "sale" is a transaction entered into voluntarily between two persons known as the buyer and the seller by which the buyer acquires property of the seller for an agreed consideration known as a price. In the case of King v. England*, the Court of Queen's Bench had to consider the meaning of the word "sale". Goods belonging to the defendant having been distrained for rent on a third person's premises, they were duly appraised, and the landlord, instead of actually selling, took them at the condemned price in satisfaction of the rent and costs, and then handed them as a gift to the plaintiff, upon which the defendant took ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a transaction cannot possible be said to be a sale as that word is ordinarily used. Dr. Gupta, however, has relied upon a decision of the House of Lords in England in Commissioners of Inland Revenue v. Newcastle Breweries Ltd.* In that case the respondent company carried on the business of brewers and wine and spirit merchants, and in the course of their business kept large stocks of rum which had to be reduced and blended before sale. The blended product was sold either wholesale or retail in relatively small quantities. In January, 1918, during the first world war the Admiralty, acting under the Defence of the Realm Regulations, took over about one-third of the stocks in question then owned by the respondent company. Payment of ? 10,315 was offered by the Admiralty based on the actual cost of the rum and allowing a profit of about 1s. per proof gallon, and this amount was accepted on account by the respondent company, without prejudice to its claim for a larger amount. In regard to this claim litigation ensued, but before its conclusion the Indemnity Act, 1920, was passed providing that any person who had sustained loss or damage by reason of interference with his property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nness, Son & Co. Ltd. v. Commissioners of Inland Revenue* had held that profits made in such circumstances could not be regarded as profits of the trade or business. The English Courts, however, held that the profit made was a profit of the assessee's trade or business as a wine merchant and supplier of rum and, therefore, taxable. Rowlatt, J., pointed out that it was the assessee's business to dispose of rum at a profit. The rum in question was disposed of at a profit and it did not appear to Rowlatt, J., at all material whether the disposition was voluntary or involuntary. What did it matter whether the assessees voluntarily sold this rum or not, if the transaction resulted in a profit as it did ? The profit was profit arising possibly not from a sale of rum in the true sense of the word, but from what the nature of the assessees' business substantially was, namely, the disposing or transferring of this rum to others for a consideration and thereby earning a profit. It had been contended that this could not be a business profit as it was not an ordinary business transaction. But Lord Hanworth, M.R., at page 944, observes:- "It is important to remember that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which the machinery was actually sold. In the proviso which we are now considering the amount for which the machinery is sold is again referred to and the profit shall be deemed to be the profits of the previous year in which the sale took place. The words "sale" and "sold" arise a number of times and it appears to me that unless a Court is compelled to give those words a wider meaning than they ordinarily have, we are bound to hold that a transaction described as a compulsory sale, which is nothing more than an acquisition, frequently against the will of the owner, by another, is not included in the proviso ; and, therefore, any profit made as a result of such acquisition would not be taxable. Dr. Gupta has contended that even if compulsory acquisition is not strictly a sale it is substantially a sale as the ownership of property has been transferred and the transferee has paid for the property acquired. An exchange involves the transfer of property from one person to another for a consideration but an exchange is not regarded as a sale. It has many of the incidents of sale but it is always treated as something different from a sale. Dr. Gupta further ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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