1951 (1) TMI 31 - HC - Income Tax

Government requisition not a sale under Income-tax Act, transaction compulsory not voluntary, no tax on sum, taxpayer wins costs.

CALCUTTA ELECTRIC SUPPLY CORPORATION LTD. Versus COMMISSIONER OF INCOME-TAX, WEST BENGAL

CALCUTTA ELECTRIC SUPPLY CORPORATION LTD. Versus COMMISSIONER OF INCOME-TAX, WEST BENGAL - [1951] 19 ITR 406 (Cal) Issues Involved:1. Whether the sum of Rs. 3,27,840 received by the applicant company from the Government of India is taxable as profits under Section 10(2)(vii) of the Income-tax Act.Issue-Wise Detailed Analysis:1. Interpretation of Section 10(2)(vii) of the Income-tax Act:The core issue revolves around the interpretation of Section 10(2)(vii) of the Income-tax Act, which addresses the computation of profits or gains after making allowances for machinery or plant that has been sold or discarded. The proviso states that if the amount received from the sale exceeds the written down value, the excess shall be deemed as profits for the year in which the sale took place.2. Nature of the Transaction:The applicant company argued that the requisition of the plant by the Government under Rule 83(1) of the Defence of India Rules did not constitute a sale. The company did not voluntarily sell the plant; rather, it was compelled to hand it over due to the requisition order. The Government's payment of Rs. 5 lakhs was considered compensation, not a sale price.3. Voluntariness of the Sale:The applicant emphasized that a sale, by definition, involves a voluntary transaction where both parties agree on the price. The requisition by the Government was against the company's will, and therefore, the transaction could not be deemed a sale. The company had no choice but to accept the Government's determination of the amount payable.4. Department's Argument:The Department contended that even if the acquisition was compulsory, the compensation paid should be regarded as the price of the property acquired. Thus, the excess amount over the written down value should be treated as profits under Section 10(2)(vii).5. Tribunal's Conclusion:The Tribunal concluded that the price received by the applicant company was indeed the sale price, thereby making Section 10(2)(vii) applicable. This led to the question of law being referred to the High Court.6. High Court's Analysis:The High Court examined the ordinary meaning of the term 'sale,' which implies a voluntary transaction. The Court noted that the requisition under Rule 83 was a compulsory acquisition, not a sale. The Government's determination of the amount payable and the company's lack of choice in the matter further supported this view.7. Reference to Case Law:The Court referred to the case of King v. England, where it was held that a sale involves a voluntary transfer of property. The Court also discussed the decision in Commissioners of Inland Revenue v. Newcastle Breweries Ltd., where the profit from a compulsory acquisition was considered taxable. However, the Court distinguished this case, noting that the English Courts were concerned with whether the profit was from the trade or business, not the definition of a sale.8. Strict Construction of Taxing Statutes:The Court emphasized the principle that taxing statutes should be construed strictly. If the language of the statute does not clearly impose a tax obligation, the interpretation most favorable to the taxpayer should be adopted. The Court found that the term 'sale' in Section 10(2)(vii) could not include a compulsory acquisition under Rule 83.Conclusion:The High Court concluded that the requisition of the plant by the Government did not constitute a sale under Section 10(2)(vii) of the Income-tax Act. Therefore, the sum of Rs. 3,27,840 received by the applicant company could not be taxed as profits. The reference was answered in the negative, and the applicant was entitled to the costs of the proceedings.