LexNECTAR BEVERAGES PVT. LTD. versus DEPUTY COMMISSIONER OF INCOME TAX
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[2009] 9 S.C.R. 1174 A NECTAR BEVERAGES PVT. LTD. v. B DEPUTY COMMISSIONER OF INCOME TAX (Civil Appeal No. 5291 of 2004) JULY 6, 2009 [S.H. KAPADIA AND AFTAB ALAM, JJ.] Income Tax Act, 1961 - s. 41(1) and (2) - 'Balancing _ charge' - Concept of-Assessment years 1990-91 - 1998-99 C -Purchase of bottles and crates before 1.4.1995, costing less than Rs. 50001- - Sale proceeds of 100% depreciable assets in subsequent years - Profit on sale of assets - Taxability of, on account of deletion of s. 41 (2) - Balancing charge in s. 41(2), if could be read into s. 41(1) - Held: Each of the sub- D sections to s. 41 deal with different and distinct circumstances - One cannot read recoupment under one sub-section into another- Bottles and crates purchased prior to 31.3.1995 not part of block of assets, hence, profits on sale of assets not taxable as balancing charge either uls. ·41 (1) ors. 50 - Bottles E and crates purchased after 1.4.1995, on account of deletion of proviso to s. 31 (1 )(ii), formed part of block of assets, thus, exigible to capital gains tax uls. 50. The question which arose for consideration in these appeals pertaining to assessment years 1990-91 to 1998- F 99, was whether the concept of 'balan_cing charge'-profit on sale of depreciable asset, ins. 41(2) of the Income Tax Act, 1961 could be read into s. 41(1) of the Act and be taxed under the same, even though s. 41(2) stood deleted between the assessment year 1988-89 to 1998-99. G Disposing of the appeals, the Court HELD: 1.1 Section 41 of the Income Tax Act, 1961 falls under Chapter IV which deals with computation of H 1174 NECTAR BEVERAGES PVT. LTD. v. DEPUTY 1175 COMMISSIONER OF INCOME TAX business income. It has a Head Note which says "Profits A chargeable to tax". Section 41 (1 ). has remained unchanged, both, before 1.4.1988 and even after 1.4.1998. Section 41(2), however, stood deleted between assessment years 1988-89 and 1998-99 for about ten years. Under s. 41(1), where any allowance or deduction B has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee, and subsequently during any previous year the assessee had obtained, such loss or expenditure in respect of such trading liability by way of remission or c cessation thereof, the amount obtained by him, shall be deemed to be income of that previous year in which the recoupment takes place. It cannot be said that notwithstanding, the deletion of s. 41 (2), since the assessee had obtained the benefit of depreciation in the 0 earlier years as allowance or deduction in respect of expenditure incurred by it when it bought bottles and crates, on recoupment in the assessment years in question, such recoupment was liable to be taxed as deemed income under s. 41(1). Prior to 1.4.1988, s. 41(1) E and s. 41(2), both, existed on the statute book. Section 41(2) specifically brought to tax the balancing charge as a deemed income under the 1961 Act. It stated that where any plant owned by the assessee and used for business purposes was sold, discarded or destroyed and the moneys payable in respect of such plant exceeded the written down value, then, so much of the surplus which F did not exceed the difference between the actual and the written down value was made chargeable to tax as business income of the previous year in which moneys payable for the plant became due. If the submission of G reading the balancing charge under s. 41(2) into s. 41(1) was to be accepted then it was not necessary for Parliament to enact s. 41(2) in the first instance. In that event, s. 41(1) alone would have sufficed. Section 41(1), s. 41(2), s. 41(3) ands. 41(4) operated in different spheres. H 1176 SUPREME COURT REPORTS [2009] 9 s.c:R. A Each of the sub-sections to s. 41 deal with different and f distinct circumstances. Therefore, one cannot read recoupment under one sub-section into another. [Para 8] [1182-D-H; 1183-A-F] / B 1.2 Where any allowance or deduction had earlier been made in respect of any loss, expenditure or trading liability and subsequently the assessee has obtained or realized any amount towards such loss, expenditure or t trading liability, s. 41(1) of the Act deems such realization/ c recoupment as assessee's: income for the year in which it is realized. Section 41(2) as it stood at the material time stated that if in respect of any plant and machinery,
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