- (1.) On July 23, 1934 the then Government of the Punjab granted a license under S. 3 of the Indian Electricity Act, 1910 (IX of 1910) (hereinafter called the Electricity Act) to two persons named Harbhagwan Nanda and Harcharan Dass for the generation and supply of electric energy in the town of Fazilka. The license, which is marked annexure 'A' and forms part of the statement of the case, contained a clause. viz. Cl. 9(l) which read as follows : "9 (1) The option of purchase given by sub-sec. (1) of S. 7 of the Electricity) Act shall first be exercisable on the expiration of 15 years from the date of the notification this license and on the expiration of every subsequent period of 10 years. The percentage of the value to be determined in accordance with and for the purpose of subject sub-sec. (1) of S 7 of the Electricity) Act of lands, buildings works, materials and plant of the licensee, therein mentioned to be added under the second proviso of that sub-section such value on account of compulsory purchase shall be 20 per cent." Under this clause, read with S. 7 of the Electricity Act, the Government had an option of purchasing the undertaking on the expiration of 15 years from the date of the license and on the expiration of every subsequent period of ten years. In 1435, about a year after the grant of the license, a public limited company under the name and style of the Fazilka Electric Supply Co. Ltd., which is the appellant herein, was incorporated, and it acquired the rights and privileges of the license known as the Fazilka Electric License, 1934. The appellant carried on the business of generating and supplying electricity in the town of Fazilka in accordance with the terms of the license for 15 years. On the expiration of 15 years from the date of licence, the Government of the Punjab exercised its option and acquired the undertaking on July 23, 1949 on a total payment of Rs. 3,74,000, which was in excess of the written down value of the building, machinery and plant of the undertaking. In connection with the assessment of the appellant for the year 1950-51, the Income-tax Officer computed such excess realisation over the written down value as did not exceed the difference between the original cost and the written down value, at Rs. 77,700 and held that this sum of Rs. 77,700 was taxable in the hands of the appellant by reason of the provisions in S. 10(2)(vii) of the Indian Income-tax Act, 1922. The appellant contended that no part of the excess over the written down value was taxable since the undertaking had not been voluntarily sold, but had been compulsorily acquired by the Government; therefore, the transaction was not a sale within the meaning of the provisions in S. 10(2) (vii) of the Income-tax Act.
(2.) Both the Income-tax Officer and the Appellate Assistant Commissioner repelled this contention of the appellant. On an appeal to the Income-tax Appellate Tribunal, the Tribunal also held against the appellant and came to the conclusion that there was a sale of the building, machinery and plant of the undertaking within the meaning of S. 10 (2). (vii) of the Income-tax Act. The appellant then moved the Tribunal for a reference of the following question of law which it said arose out of the Tribunal's order: 'Whether on the facts and in the circumstances of this case, and on a true interpretation of S. 7(1) of the Indian Electricity Act and Cl. 9 of the Fazilka Electric License, 1934, the transaction, by which the Government acquired the undertaking, could be regarded as a sale within the meaning of S. 10 (2) (vii) of the Income-tax Act - The Tribunal referred the question to the High Court. The High Court answered the question against the appellant. The appellant then asked for a certificate under S. 66A (2) of the Income-tax Act and having obtained such a certificate, has preferred the present appeal to this Court.
(3.) Section 10(1) of the Income-tax Act states that income-tax shall be payable by an assessee under the head "Profits and gains of business, profession or vocation" in respect of the profit or gains of any business, profession or vocation carried on by the assessee. Sub-section (2) of the said section states that such profits or gains shall be computed after making certain allowances referred to in cls. (i) to (xv) Clause (vii) relates to an allowance in respect of any building, machinery or plant which has been sold or discarded or demolished or destroyed, the allowance being the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value; the second proviso to the clause states that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place. It is not disputed before us that if what took place on July 23, 1949 in exercise of the option given to the Government under Cl. 9 of the license read with S. 7 and other provisions of the Electricity Act, was a sale within the meaning of cl. (vii), then 'the' amount which the Income-tax Officer determined to be Rs. 77,700 would be taxable in the hands of the appellant as profit's within the meaning of the said clause. Therefore, the answer to the question which was referred to the High Court depends on whether there was a sale of the building, machinery and plant of the undertaking in question.;