Compulsory acquisition of machinery was not a sale for tax purposes, so excess compensation escaped profits tax.

Excess compensation received on compulsory requisition of plant and machinery under the Defence of India Rules was not taxable as profits under Section 10(2)(vii) of the Indian Income-tax Act, 1922. The court held that the provision applied only where plant or machinery had been sold or discarded, and a compulsory acquisition by Government, made without the assessee's consent, was not a sale in the ordinary and natural meaning of that term. Because a taxing provision must be strictly construed, the receipt could not be brought within the charge.

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Issues: Whether the excess amount received by the assessee on compulsory requisition of plant and machinery under Rule 83 of the Defence of India Rules was taxable as profits under Section 10(2)(vii) of the Indian Income-tax Act, 1922.

Analysis: The provision applied only where machinery or plant had been sold or discarded, and the excess over written down value was treated as profits only in that situation. The acquisition in question was made compulsorily by Government under the Defence of India Rules, against the will of the assessee, and the assessee had no voluntary bargain or agreement for sale. The ordinary meaning of sale requires a voluntary transfer for a price between buyer and seller. A compulsory acquisition, even though compensation was paid and ownership passed, was not treated as a sale within the ordinary and natural meaning of the taxing provision. Since a taxing provision must be strictly construed, no wider meaning could be given to bring such a transaction within the charge.

Conclusion: The receipt was not taxable as profits under Section 10(2)(vii) because the transaction was not a sale within the meaning of the section and the answer was against the revenue.

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