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TMI Blog1959 (4) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... to purchase the undertaking on the expiry of fifteen years with effect from 23rd July, 1949, and paid ₹ 3,74,000 for the same which was in excess of the written down value. The Income-tax Officer computed this excess to amount to ₹ 77,700 and held it to taxable under section 10(2)(vii) of the Income-tax Act. This decision has been upheld by all the authorities under the Income-tax Act in spite of the assessee's objections and now the Income-tax Appellate Tribunal has at the instance of the assessee company referred the following question for the opinion of this court under section 66(1) of the Income-tax Act: Whether on the facts and in the circumstances of this case, and on a true interpretation of section 7(1) of the Indian Electricity Act and clause 9 of the Fazilka Electric Licence, 1934, the transaction, by the which the Government acquired the undertaking could be regarded as a sale within the meaning of section 10(2)(vii) of the Income-tax? Before dealing with the case on merits, I may notice one submission made by the learned counsel for the assessee-company before the arguments started. He urged that the statement of the case by the Income-tax Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is to be made in the prescribed manner and with the prescribed particulars. A licence is not to be granted without previous consideration of objections if any received against the application. Section 3(2)(f) also lays down that the provisions contained in the Schedule to the Act shall be deemed to be incorporated with the licence subject to express exceptions, variations and additions of any terms mentioned therein. Section 5 and 7 deal with purchase of the undertaking in certain circumstances and section 10 empowers the Government to very the terms of purchase. In this case there has been no variation of the terms of purchase and therefore we are not concerned with section 10 of the Act. When a licence is revoked under section 4(1) of the Act, the local authority concerned with the written consent of the State Government may require the licensee to sell the undertaking to it at its fair market value and in case of dispute this value is to be determined by arbitration. If the local authority does not purchase it then the Government may do so on the same terms. If neither the local authority nor the State Government purchases the undertaking then the licensee has option of dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars. Rules have been framed, inter alia, to prescribe these matters. The rules have framed a draft licence in which clause 9 relates to section 7. This clause in the draft licence is in general terms and the periods for the exercise of option at different points of time subject to maximum of 50 years have to be fixed by the licensee. There are other clauses also in general terms and in the draft licence the licensee has to give specific and definite proposals. This draft licence is then advertised by the applicant. If objections are received then they are to be decided. Thereafter the draft licence with or without amendments is approved by the State Government. After this approval the licensee must inform the State Government that he is willing to accept the licence in the form approved by the State Government. When this has been done the licence is notified in the Gazette with the statement that it has been granted. It may be stated here that the above mentioned rules have been described from the 1937 rules (rules 11 to 19). The earlier rules are not available but the learned counsel for the respondents has informed us that the previous rules were the same as the 1937 rules tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st and it was held that the transaction or transfer thus brought about did not amount to sale within the meaning of section 10(2)(vii) of the Income-tax Act. There is a similar provision in the corresponding English Act. In John Hudson Co. Limited v. Kirkness (H.M. Inspector of Taxes) 36 Tax Cas. 28, certain wagons were requisitioned and then were acquired by the Government. A contention was raised in the case that the acquisition amounted to a transfer for price and therefore it was a sale. This contention was rejected by a majority of the House of Lords. This majority view has been approved and accepted as correct by our own Supreme Court in State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1959] S.C.R. 379; 9 S.T.C. 353 and the English decision in 12 Tax Cases was distinguished on the ground that in that case the scope of the expression profit and not that of sale had to be determined. It follows that if a transaction amounts to compulsory acquisition then the transaction does not come within section 10(2)(vii) of the Income-tax Act. The question arises whether the present transaction does or does not amount to compulsory acquisition. The contention raised on beh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether it is a sale within the Income-tax Act. As I have already stated sale is not defined in the Income- tax Act nor in the Electricity Act. There is nothing in the Act itself to give any special meaning or colour to that word. We have, therefore, to ascertain the exact connotation which the expression has in law in this country. Both in England and in India one of the essential factors of a transaction of sale is that there must be an agreement express or implied to sell, i.e., there must be a mutual assent between the parties. This has been so held in Hudson's case 36 Tax Cas. 28 and in Poppatlal Shah v. State of Madras [1953] S.C.R. 677, State of Bombay v. United Motors (India) Ltd [1953] S.C.R. 1069. and Sate of Madras v. Gannon Dunkerley Co. (Madras) Ltd [1959] S.C.R. 379. The learned counsel for the assessee company argued that this element of mutuality is lacking in the present case and therefore the transaction cannot be considered to be a sale which has been brought about by a contract between the parties. I find it impossible to accept this contention. The rule show that a draft licence has to be sent by an applicant for licence containing definite and specific t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t not exceeding 20 per cent. as compensation for compulsory purchase. The amount of percentage is to be fixed by agreement between the parties. In the present case this amount has been fixed at 20 per cent. Obviously, this was matter of bargaining between the parties and they agreed that on exercise of option to purchase the undertaking the licensee should get fair market value and additional 20 per cent. In my view this agreement was a result of bargaining between the parties and came about by mutual assent. Finally, the learned counsel for the assessee-company urged that if the licence amounts to an agreement of sale then it is invalid in law because it does not conform with the provisions of section 175(3) of the Government of India Act, 1935. This provision of the 1935 Act has been reproduced in article 299(1) of our present Constitution. It is true that the licence is not signed by the licensee but the licensee has assented to its terms in writing in the application or thereafter under rule 19. Admittedly the licence is not in the name of the Governor of the Punjab Sate. We are however not concerned with the validity of the contract in this case. Both parties have carried o ..... 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