FAZILKA ELECTRIC SUPPLY COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX DELHI

JUDGEMENT

(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 :

(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:

(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.