LexTHE FAZILKA ELECTRIC SUPPLY CO. LTD . versus THE COMMISSIONER OF INCOME-TAX, DELHI
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1162
. Match J.
496 SUPREME COURT REPoRTS [1962] stJt>i>.
THE FAZTLKA ELECTRIC >SUPPLY CO. LTD .
v.
THE CO:IJMISS!ONER OF JNCO)IE-TAX, DELHI
("'. K. DA~, J. c. SHAH, .T.J.)
income Ta:r-.1Js~·ts81nent of };xces8 anlount rtaliscd over
21,•riltc11
dou:n
1:uf-ue-Ellclric
Supply Company-Term of
license-Option for Got·trnment or local bodies to parcltasc the
Company-Sale by Company, 1f sale or compulsory rzcqui,,if;on
-India EIPdricity Ad 19/0JX of 1910), ,,., 3.7 Indian Income
1'ax Act 1922 (/ l of 1922), s. 10(2) (vii).
1'hc appellant carried on the business of generating and
suppl)ing tlcctricity in the to\\111 of Fazilka in accordance with
the tcrn1s
of
a
license
for fifteen
vcars.
Clause
9(a) of the license gave the Government' an
option to
acquire the undertaking on expiration of fifteen years fron1 the
date of the license.
'l'he said option was in accordance to
sub. s. ( 1) of s. 7 of the Electricity Ar.t, 1910.
The Govern-
ment of Punjab exercised its option and acquired lhe under-
taking on a payment which \\·aa in excess of the written down
value of the building, machinery and plant of the undertaking.
For the assessrnent of the appcllanl for the rele\·enl year, the
Income ·rax Officer cOrnputed such excess realisation over the
writ •en do\\'n \'i:due ;;s did not exceed the difference he tween
the original cost and the written down value and held the
said sum as taxable in the hands of the appellant by reason of
the provisions ins. 10(2)(vii) of the Income Tax Act.
The
appellant contended that no part of the excess was taxable
since 1hc undcrlaking had not been voluntarily sold, but had
been cornpulsorily acquired by the Govrrnment ; and on a
proper construction of 1 he Electricity Act and the rules made
thereunder, this so-called sale was really a compulsory acquisi-
tion of property and not a S>ie as legally understood.
'
lleld, that from the provisions of the Electricity Act,
1910, read along~·ith thr. rules marle thereunder, it is manifest
that the condition as to the option of purchase either by the
local authority or Governrnent. is the result of- an agreement
between the applicant who had applied for license and the
Government who granted the lh:ense.
The true scope and effect of s. 7 of the Electricity Act is tha
it is an enabling ::icction and merely provides for the optio11
of purchase to he exercised Cln the expiration of a certain
period agreed to between rhe parties, and s. IO of the Act
3 s.c.:R.
SUPREME CobRT REPORTS
497
further provides that in an appropriate case Government may
even forego the option. The scheme of the Electricity Act as
indicated by the relevant provisions thereof and the rules made
thcreuµder, shows beyond any doubt that the option of pur-
chase is the result of a mutual agreement between the parties,
the applicant for the license on one hand and the Government
on the other.
Held, further, thats. 7 docs not provide for a compul-
sory purchase or compulsory acquisition without reference to
and independent of any agreement by the licensee.
The
expression "compulsory purchase" in the second proviso to
sub-s. (1) of s. 7 is another enabling provision which enables
a party to specify in the license such percentage as should be
added to the value of the building, plant and machinery etc.
when the option is exercised, notwithstanding the use of the
expression "compulsory
purchase" in
the
said
second
proviso, there is no compulsory
purchase
or compulsory
acquisition in the sense in which that expression is ordinarily
understood.
Sakalaguna Nayudu v. Chinna Munuswami Nayakar,
(1928) L. R. 55 I.A. 243, Calcutta Electric Supply Corporation
v. Commissioner of Income-tax, WMt Bengal, (1951) 19 I.T.R.
406.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 183 of 1961.
Appeal from the judgment and order dated'
April 24, 1959. of the Punjab High Court in I.T.R.
No. 18 of 1954.
S. K. Kapur, Bislw,mbar Das and K.K. Jain, for
the appellant. ·
K. N. Rajagopal Sa8tri and D. ,Gupta, for the
respondent.
1962, March 1.
The Judgment · of the Court
was delivered bJ
S. K. DAa, J.-On July 23, 1934 the then
Government of the Punjab granted a licence under
a. 3 of Indian Electricity Act, 1910 (IX of 1910)
(hereinafter called the Electricity Act) to two per-
sona named Harbhagwan Nanda and Harcharan
. Dass for the generation and supply of electric energy
J96t
The Ft1;:,ilkti EJ1ctric
SupplJ Co. Lti.
v •
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