LexCOMMISSIONER OF INCOME-TAX WEST BENGAL-I, CALCUTTA versus UNITED PROVINCES ELECTRIC SUPPLY COMPANY
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).... A COMMISSIONER OF INCOME-TAX WEST BENGAL-I, CALCU'ITA ~ ' . ..- v. UNITED PROVINCES ELECTRIC SUPPLY COMPANY APRIL 17, 2000 B [D.P. WADHWAAND M.B. SHAH, JJ.] --- Income Tax Act, 1961-Section 41(2)-Business Profit-Ta:xability- Accrual of income-Balancing charge-Compulsory acquisition of business undertaking-Compensation received-Pendency of litigation in respect of an c amount or price due-Whether relevant so far as ta:xability of accrued income is concerned-Held, No-Additional income can be taxed at a subsequent stage. ;.. The respondent-assessee was carrying on the business of generating and supply of electricity to the consumers. The Government of Uttar D Pradesh by exercising power under Section 6 of the Indian Electricity Act, 1910, purchased the undertakings of the assessee. The possession of the two undertakings was handed over to the Electricity Board and the Board paid Rs. 3,35,84,552 to the assessee as final compensation for the compulsory ,J.. purchase of the undertakings. The assessee accepted the amount without E prejudice to its right to claim the compensation payable and thereafter went for arbitration for determining the compensation payable to it under · the Electricity Act. The Income-tax Officer taking the amount of Rs. • 3,35,84,552 as sale proceeds of depreciable assets of the assessee, deter- mined the profit of Rs. 1,29,35,557 under Section 41(2) of the Income-tax F Act, 1961 and added the same to the income of the assessee. In appeal, the assessee contended that no profit under Section 41(2), could be taxed in the assessment year under consideration as claim of the assessee for compensa- tion was not settled during the year and that dispute was still pending before the arbitrators. The Tribunal accepting the assessee's case held as the compensation payable to the assessee was not settled and finalised, the G ITO was not justified in making addition to the income of the assessee under Section 41 (2) in the year under consideration. In reference, the High ..,.... Court he~d 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 instance case as the price of the undertak- H ings of the assessee had not been finally determined and only an ad hoc 22 C.l.T. v. UNITED PROVINCES ELECTRIC SUPPLY CO. 23 ,J.. payment had been made which had been accepted under protest, it was not A open for the Revenue to intervene and assess the assessee under Section 41(2) of the Act. Hence this appeal. The limited question raised for consid- eration was whether on the facts and in the circumstances of the case, the provisions of Section 41(2) of the Act are applicable to the receipt of the amount by the assessee towards the compensation payable to him. B Allowing the appeal, the Court HELD : 1.1. In case of acquisition of property under any law, the balancing charge under Section 41(2) of the Income Tax Act is taxable to income-tax as income of the business of the previous year in which moneys c payable-became due. Determination of compensation and its payment by the authority would certainly mean that moneys payable became due. Receipt of the compensation payable in respect of acquisition is a stage ..... subsequent to its becoming due. In the present case, income has accrued and is actually received. The amount received is compensation amount in respect of acquisition of the property and is to be accounted for the purpose D of income tax as income of the business of the previous year. For the market value determined by the authority if there is no difference or dispute, whatever amount is determined and paid would be compensation payable ·""'- for the acquisition. The determination of the amount of compensation would mean 'moneys payable' became 'due'. However, in case of dispute or E difference for the determination of the market value the matter is required to be determined by the arbitrator under Section 7 A of the Indian Electric- ity Act but this would not mean that whatever the amount is determined and paid by the authority would cease to be compensation moneys payable. Pendency of proceeding for additional moneys payable would not be rel- evant so far as taxability of the compensation amount received is con- F cerned. If additional amount is received in the subsequent year it would be a business income of t
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