- (1.) THIS is a reference under Section 66 (1) of the Indian Income-tax Act.
(2.) A plot of land belonging to the assessee, who was carrying on real estate business, was acquired by Government under the provisions of the Land Acquisition Act 1894. As the amount of compensation paid to the assessee was in excess of the amount which was actually spent by him, the Income-tax Officer treated the excess as the assessee's income for the account year in which it was received, and the order of the Income-tax Officer was upheld by the Tribunal in appeal. At the request of the assessee, the Tribunal has referred the following question of law to this Court for decision, "whether, on the facts and in the circumstances of this case, the amount in excess of the cost price of the land (which was the assessee's stock-in-trade) received by him from Government for its compulsory acquisition under the Acquisition Act was revenue receipt of the relevant year of account"?
(3.) MR. A. N. Kirpal who appears for the assessee admits that the compensation paid to his client by Government exceeded the total of all costs incurred by him for the purchase and development of the land; but he contends that the excess of compensation over cost cannot be said to fall within the ambit of the expression "profits and gains of business" for profits can arise only when the price for which property is sold is higher than the price for which it was purchased. The expression 'sale' according to him means a voluntary transfer of property for a price, if a person is compelled to part with property not voluntary but under the mandate of a statute the transaction by which the transfer is effected cannot be designated a sale and the income which accrues cannot be designated as profit. Our attention has been invited to Calcutta Electric Supply co. Ltd. v. Commr. of Incomer' tax. West Bengal, Calcutta, 1951-19 ITR 406: (AIR 1951 Cal 151 ). In this case the Government requisitioned an electricity generating plant belonging to the assessee under the provisions of Defence of India Rules, the assessee having been paid a sum of rs. 3,27,840/- over and above the written down value of the plant. The taxing authorities treated the excess as assessee's pro-fit under Section 10 (2) (vii) of the Indian Income-tax Act 1922, which provides that profits and gains in respect of any building, machinery or plant which has been sold or discarded or demolished or destroyed, shall be computed after allowing for the amount by which the written down value thereof exceeds the amount for which the building, machinery or plaint, is actually sold or its scrap value. A Division Bench of the Calcutta High Court, however, came to a contrary conclusion. It held that the transaction by which Government acquired the plant could not be regarded as a 'sale' within the meaning of Section 10 (2) (vii) for the ordinary conception of sale is that something is handed over for ft price as a result of negotiations and agreement. It held further that the amount paid by Government on account of the price was not taxable as profit under the provisions of Section 10 (2) (vii ). This decision appears to me to be wholly irrelevant to the matter in controversy before us for it endeavours to continue the meaning of the expression "sold" appearing in Section 10 (2) (vii) of the Income-tax Act and not the meaning of the expression "profits and gains" appearing in Section 10 (i) of the said Act.;