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TMI Blog1986 (8) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... e Electricity Board paid to the assessee Rs. 62,60,668 and Rs. 41,35,008, respectively, and also made certain adjustments of the assessee's liabilities in respect of the said undertakings by way of compensation aggregating Rs. 3,35,84,552. The assessee contended that such compensation was insufficient and accepted the same without prejudice to its rights to claim further compensation under section 7A of the Indian Electricity Act, 1910. The difference or dispute over the compensation payable to the assessee was referred to arbitration. The arbitrators failed to make any award and the disputes were referred to an umpire appointed in the arbitration proceeding for adjudication. The Board thereafter moved the civil court at Lucknow and obtained an order for stay of the proceedings before the umpire. At the material time, the proceedings before the umpire remained stayed under the said order of the civil court. The assessee was assessed to income-tax for the assessment year 1965-66, the accounting period ending on March 31, 1965. The Income-tax Officer found that in the assessment year in question, the assets of the assessee had been taken over by the Board and that payments as afore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on compensation became payable subsequently, the same would not be relatable to the assessment year. The Appellate Assistant Commissioner, however, modified the assessment and directed the Income-tax Officer to allow deductions for items comprising of non-depreciable assets and also to take into account further additions to the assets of the assessee in the assessment year in question. The Income-tax Officer was further directed to consider the items which were not taken over by the Board and compute the written down value of the assets accordingly. Being aggrieved, the assessee preferred a further appeal before the Income-tax Appellate Tribunal. It was contended on behalf of the assessee before the Tribunal that there was a sale of the two undertakings in entirety and the different components of the undertakings were not sold separately. The value of each of the undertakings was much more than its components considered separately. Therefore, the entire compensation could not be related to the component assets and section 41(2) of the Act of 1961 was not applicable. It was contended further that the compensation did not become due in the assessment year involved and could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act in the year under consideration and directed the deletion of the said addition. On an application of the Revenue under section 256(1) of the Income-tax Act, 1961, the following questions have been referred as questions of law arising out of the order of the Tribunal for the opinion of this court: " 1. Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the 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 for the assessment year 1965-66 was not justified ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee was entitled to raise objection to the charging of interest under section 215 of the Income-tax Act, 1961, in the appeal before the Appellate Assistant Commissioner ? " At the hearing, the learned advocate for the Revenue reiterated the contentions raised in the proceedings held earlier. He submitted that all the legal elements of a sale were present in the instant case. The undertakings of the assessee had duly vested in the Board by operation of the Indian Electricity Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year. On these facts, it was held by the Punjab and Haryana High Court, on a reference, that the sale was effected in the accounting year in question though the full price was not paid on that date. The High Court followed the decision of the Supreme Court in the case of Fazilka Electric Supply Co. Ltd. [1962] 46 ITR 127 and held that the assessee was liable to be taxed in respect of the depreciation allowed to it earlier. (c) CIT v. Hindusthan Housing and Land Development Trust Ltd. [1977] 108 ITR 380 (Cal). In this case, lands belonging to the assessee were first requisitioned by the Government of West Bengal and, thereafter, acquire under the relevant statute. A sum of Rs. 24,97,249 was awarded as compensation by the Land Acquisition Collector. The assessee preferred an appeal and obtained an award fixing the amount of compensation at higher figure of Rs. 30,10,875. Interest at the rate of 5% per annum was allowed on the enhanced compensation amount from the date of acquisition till the date of payment. The State of West Bengal preferred an appeal against the award to the High Court during the pendency of which the State deposited the sum awarded in court. The assessee withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sition. It was held that the balancing charge was taxable in the assessment year 1962-63. (e) Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 (SC). In this case, it was held by the Supreme Court that lands belonging to the deceased which were compulsorily acquired by the Government during his lifetime could not form part of his estate but the right to receive compensation for such land at market value on the date of the notification for acquisition had accrued to the deceased and would pass on his death. The Supreme Court held further that when lands were compulsorily acquired under the Land Acquisition Act, only one right vested in the owner of the land, i.e., a right to receive compensation for the lands at their market value on the date of the relevant notification. The owner did not have two separate rights, viz., right to receive compensation and the right to receive extra or further compensation. It was open to the owner to accept the order of the Collector determining compensation under protest and prosecute the matter further in court. The right to receive compensation would be kept alive thereby. For the purpose of assessment of estate duty, it was the duty o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the assessment year 1963-64 and whether such interest became payable to the assessee under the Indian Electricity Act. On these facts, it was held by a Division Bench of the Delhi High Court that the right of the assessee to receive interest arose under the Indian Electricity Act, 1910, read with the Punjab Electricity Act, 1939. The High Court held further that the right to receive compensation was a definite right in presenting and arose when the undertaking of the assessee was taken over. This right was not dependent on its quantification in accordance with the procedure laid down in the Electricity Act. Irrespective of the method of accounting, the interest had to be assessed on accrual basis and could not be assessed only in the assessment year 1963-64 when it was paid. The matter was remanded to the Tribunal for determination as to in which years the interest would be assessable. Learned advocate for the assessee contended, on the other hand, that it has been found as a fact that the undertakings of the assessee had been taken over by the Government of Uttar Pradesh and the assessee had initiated arbitration under section 7A of the Indian Electricity Act for determinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be possible to say that the money had become payable to the assessee only because the building, machinery and plant had been taken over under the Indian Electricity Act. It would also not be possible to say what was the amount which would be payable on the date of the taking over because the amount remained unknown. In support of his contentions, learned advocate for the assessee cited the following decisions : (a) P. C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd. v. CIT [1972] 86 ITR 501 (Delhi). Here, the assessee was a licensee under the Indian Electricity Act and generated and distributed electricity under the licence through its undertaking. The Government of Punjab exercised its option on the expiry of the licence and took over possession of the undertaking on July 116, 1954. The assessee filed a suit for recovery of compensation claimed at over Rs. 13 lakhs. The suit was ultimately settled on April 7, 1962. The assessee agreed to accept Rs. 21 lakhs and the State Electricity Board further agreed to discharge a loan advanced by the Government to the assessee. In the assessment year 1963-64, the Income-tax Officer sought to tax the profit unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Okara Electric Supply Company Ltd. v. CIT [1985] 154 ITR 493 (Delhi). In this case; the assessee owned and ran an electric supply undertaking in East Punjab under the permission granted by the Government of East Punjab in May, 1948. The Government retained its option to acquire the undertaking any time after October 26, 1950, after giving one year's notice in writing. On acquisition, the Government agreed to pay the price of the lands, buildings, works, materials and plants of the undertaking computed at their fair market value and in case of difference, such value was to be determined by arbitration. The Government took over the assets of the undertaking on January 4, 1959, after payment of Rs. 60,000 on June 3, 1959. There was a dispute about the valuation of the assets. Thereafter, the Chief Engineer of the Punjab Electricity Board valued the assets at Rs. 2,02,781 recorded in a memorandum dated November 18, 1963. In the meantime, a, further sum of Rs. 35,215 had been paid to the assessee on January 8, 1963. A sum of Rs. 70,388 claimed by the Government from the assessee on account of sale of power, consumers' deposits and contingency reserve was sought to be adjusted against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year in the previous year of which that sum is determined. The Explanation clarifies that the provisions of this sub-section will apply even if the business or profession is not in existence in the year in which the sums fall to be assessed. Sub-clauses (3) and (4) correspond to existing section 10(2)(xiv) and section 10(2)(xi), earlier half of first proviso respectively, of the existing Act." At this stage, we may note the relevant sections of the Income-tax Act, 1961 : " Section 32(1)-... Explanation.-For the purposes of this clause, (1) 'moneys payable' in respect of any building, machinery, plant or furniture includes-... (b) where the building, machinery, plant or furniture is sold, the price for which it is sold,..... (2) 'sold' includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is an Indian company." "Section 41. (2) Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd when he receives amounts on account of price when such price is in the process of being ascertained. In the Notes on Clauses to the Income-tax Act, 1961, it is made clear that moneys payable for sale of assets would be assessable in the previous year in which the sum is determined and not at any earlier stage. In Hoshiarpur Electric Supply Co. Ltd. v. CIT [1971] 79 ITR 164 (P H), when the matter came before the High Court, it was not in dispute that the amount of the price had been fixed and paid initially. A part of the said price was paid and the balance of the price was paid thereafter. There was no controversy as regards the price. In Fazilka Electric Supply Co. Ltd. v. CIT [1962] 46 ITR 127 (SC), it was found as a fact that the full value had been paid on the date on which the option to purchase was exercised by the State Government. The only question which was decided by the Supreme Court in that case was whether the compulsory acquisition of an electricity undertaking constituted a sale within the meaning of section 10(2)(vii) of the Indian Income-tax Act, 1922. No other question was in issue. In the instant case, the language of section 41(2) of the Act of 1961 is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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