- (1.) At the instance of revenue, two questions were referred to the High Court by the Income-tax Appellate Tribunal under Section 256 (1) of the Income Tax Act, 1961 (herein referred to as "the Act"). First question for which leave to appeal was granted by this Court is as under: - "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/- under Section 41 (2) of the Income-tax Act, 1961, in the assessment year 1965-66 was not justified -
(2.) 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.
(3.) The aforesaid question arises for the assessment year 1965-66 i. e. relevant accounting year ending on 31.3.1965. 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 at Lucknow. By exercising power under Section 6 of the Indian Electricity Act, 1910, the Government of U. P. purchased both the undertakings for the UP State Electricity Board ('electricity Board' for short). The possession of the undertakings was handed over to the Electricity Board w. e. f. 17.9.1964 and the Board paid Rs. 62,60,668. 00 and Rs. 41,35,398. 00 to the assessee as compensation for the compulsory purchase of the said undertakings respectively. Besides these payments, the Board also made certain adjustments in respect of assessee's liabilities for loans and the final compensation paid to the assessee amounted to Rs. 3,35,84,552. 00 The assessee accepted the said amount without prejudice to its right to claim the compensation payable as provided under Section 7a of the Electricity Act, 1910. Thereafter, assessee went for arbitration for determining the compensation payable to it under the said Act. As the arbitrators failed to make any award, they referred the matter for decision to an umpire. It is alleged that Electricity Board moved the civil court at Lucknow and obtained an order of stay of the proceedings before the umpire.;