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TMI Blog2000 (4) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Indian Electricity Act, 1910, the Tribunal was right in holding that the addition of the sum of Rs. 1,29,35,557 under section 41(2) of the Income-tax Act, 1961, in the assessment year 1965-66 was not justified ?" The High Court answered the said question in favour of the assessee and against the Revenue by holding that section 41(2) of the Act does not and cannot come into play till the price is finally ascertained and in the facts of the case as the price of the undertakings of the assessee had not been finally determined and only an ad hoc payment has been made which has been accepted under protest, it was not open for the Revenue to intervene and proceed to assess the assessee under section 41(2) of the Act. Hence, this appeal. The aforesaid question arises for the assessment year 1965-66, i.e., relevant accounting year ending on March 31, 1965. Admittedly, the business of the respondent-assessee was of generating and of supply of electricity to the consumers. The assessee had two undertakings-one at Allahabad and the other one at Lucknow. By exercising power under section 6 of the Indian Electricity Act, 1910, the Government of Uttar Pradesh purchased bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only be made after the price at which the assets of the assessee had been sold is determined.' As the price is not finally determined, it cannot be said that the amount which has been received by the assessee in respect of its two undertakings is the price at which the same had been sold." The court further held that section 41(2) does not envisage that an assessee would be assessed piecemeal as and when the amount on account of price is received. Hence, the question was answered in favour of the assessee as stated above. At the time of hearing of the appeal, Mr. K. N. Shukla, senior advocate, appearing for the Revenue, submitted that the compensation amount is determined by the State and paid to the assessee, hence under section 41(2) it would be assessable and taxable income as provided therein. It is his contention that merely because the assessee has filed an application for enhancement of the compensation, it would not mean that the assessee has not received the compensation. According to his submission, it would be the income of the assessee during the relevant accounting year and, therefore, the order passed by the Income-tax Officer was in accordance with the law. As agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputation of business income". The entire section makes it abundantly clear that income arising as provided therein is to be considered as income of business or profession and is chargeable to income-tax as income of business or profession. Once it is held to be a business income, unless provided otherwise, it would be taxable in the previous year in which the same is received. Section 41(2) provides the method of calculating the balancing charge. It, inter alia, states that where any building, machinery, plant or furniture is sold and the moneys payable in respect of such building, machinery, plant or furniture exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value is chargeable to income-tax as income of the business of the previous year in which the "moneys payable" became "due". The Explanation to the phrase "moneys payable" is wide enough and. includes "any compensation moneys payable in respect thereof". Similarly, the Explanation "sold" includes a compulsory acquisition under any law for the time being in force. Hence, in the case of acquisition of property under any law, the balancing charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... geable to income-tax as the income of that previous year. Receipt of such amount may or may not be in the same year. It can be during more than one subsequent year. In such a case, it would be taxable in the previous year in which it is received. Similarly, sub-section (4) provides for deduction allowed in respect of a bad debt or part of debt and if the amounts of such bad debt or part thereof is subsequently recovered then it is to be taxed as profit as provided therein. This recovery of debt may not be in the same year. Further, considering the fact that this is to be deemed to be business profit, such receipt is to be taxed as income in the year in which it is received. In such situation, there is no question of piecemeal assessment as it is to be taxed when the amount on account of trading loss, bad debt or compensation is received. Learned counsel for the assessee submitted that till the compensation amount is finally ascertained and determined, the amount received by the assessee is to be treated as ad hoc amount and after receipt of the ascertained final amount it would be taxable as a business income in the previous year in which the said amount is determined as in that ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ator for its enhancement, it would not cease to be compensation moneys paid to the assessee. The amount so received by the assessee represents compensation in respect of acquisition of building, plant, machinery or furniture. Learned counsel for the assessee further submitted that as held by this court in CIT v. Bipinchandra Maganlal and Co. Ltd. [1961] 41 ITR 290, capital receipts are taxed under the head, "Profits and gains from business or profession" by virtue of deeming fiction, but the receipts do not become business profits. He, therefore, submitted that notional receipt of profit is in the nature of capital receipt and as there is no provision or procedure in the Act for taxing it again after receipt of additional amount, it should be held that the amount becomes taxable only when the compensation is finally determined. In the said case, the court dealt with a similar provision of section 10(2)(vii) of the Indian Income-tax Act, 1922, and observed that such income is notionally regarded as profit in the year in which the asset is sold and by a fiction it is regarded for the purpose of the Act as income. The relevant part of the observation is as under : "What in truth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed profit" it is necessary to know both the sale consideration of each asset as well as its written down value and in the year under consideration the sale price of each individual asset is not known. Therefore, section 41 cannot be applied by taking the overall compensation and reducing there from the overall written down value of depreciable assets as has been done by the Income-tax Officer. He submitted that the balancing charge has to be calculated with respect to each individual asset. In support of his contention, he referred to the decision of this court in CIT v. Artex Manufacturing Co. [1997] 227 ITR 260 ; [1997] 6 SCC 437. In our view in the present appeal, we are only concerned with the limited question which was referred to the High Court-whether, on the facts and in the circumstances of the case and on an interpretation of the provisions of the Indian Electricity Act, 1910, the provisions of section 41(2) of the Act are applicable to the receipts of the amount by the assessee towards the compensation payable to him ? Therefore, the additional question raised by learned counsel for the appellant which depends upon the facts, is not required to be dealt with or deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972] 86 ITR 501 (Delhi), and held that moneys payable became due when they were ascertained and not on the date of possession of the properties. In CIT v. Rohtak Textile Mills Ltd. [1982] 138 ITR 195 (Delhi), the Delhi High Court followed its earlier decision and the decision rendered by the Bombay High Court. In CIT v. Sheshappa Hegde [1984] 150 ITR 164 (Kar), the assessee had purchased two motor vehicles in 1973 and 1975. They were acquired by the Government under the Contract Carriages (Acquisition) Act, 1976, which came into force on January 30, 1976, and the vehicles were taken over on the same day. For the assessment year 1976-77, the assessee filed a revised return claiming loss which included the cost of the vehicle taken over by the Government. The court held that the year of taxability under section 41(2) is the year of receipt or the year in which it becomes due. Learned counsel for the assessee further referred to the decision in Okara Electric Supply Company Ltd. v. CIT [1985] 154 ITR 493 (Delhi). In that case also, the court followed P. C. Gulati's case [1972] 86 ITR 501 (Delhi) and Akola Electricity Supply Co.'s case [1978] 113 ITR 265 (Bom). The court considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an amount or price due has no relevancy so far as the taxability of such accrued income is concerned. The likelihood of the income being reduced in the subsequent assessment year as a result of the litigation may give rise to resort to other remedies available in the Act for rectification and refund of the tax, but on that ground it cannot be held that no income had accrued to the assessee for the relevant assessment year. We find great support for our decision from the decision of the Supreme Court in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. As for the wealth-tax so also the income-tax, the liability to pay income-tax arises in the relevant financial year on accrual of income in that year and if the income is ascertainable and quantified, it can be brought to tax in the relevant assessment year." We agree with the observation of the Madhya Pradesh High Court that pendency of litigation in respect of an amount or price due has no relevancy so far as the taxability of such accrued income is concerned. The likelihood of the income being reduced in the subsequent assessment year as a result of the litigation may give rise to resort to other re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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