1994 (12) TMI 4 - HC - Income Tax

Tax Court Decides: Revenue wins in profit taxation dispute under Income-tax Act

The court ruled in favor of the Revenue, holding that the profit under section 41(2) of the Income-tax Act was taxable in the assessment year when the ... Assessment Year, Balancing Charge, Financial Year Issues:1. Interpretation of section 41(2) of the Income-tax Act for the assessment year 1969-70.Analysis:The case involved a dispute regarding the taxability of profit under section 41(2) amounting to Rs. 57,175 for the assessment year 1969-70. The assessee-company was granted a license by the Government of Punjab for the generation and distribution of electricity in Moga Town. The Government exercised its option to purchase the undertaking after the license expired, fixing the compensation at Rs. 1,88,640. Subsequently, an arbitrator enhanced the compensation to Rs. 2,46,801, which was paid in installments. The matter was then taken to the Supreme Court, and a retired Chief Justice was appointed as the arbitrator, who determined the purchase price at Rs. 4,80,000. The Government disputed this award but eventually paid the amount after a compromise with the company. The Income-tax Officer initially held that the profit under section 41(2) was not taxable in the assessment year 1969-70. However, the Additional Commissioner reversed this decision, stating that the monies payable became due only when the matter was settled during the assessment year. The Appellate Tribunal disagreed and restored the Income-tax Officer's order, leading to the reference at the instance of the Revenue.The Appellate Tribunal distinguished a previous court decision, emphasizing that the money became payable only when it was actually ascertained. The court analyzed the provisions of section 41(2) and the concept of when the price became due. It highlighted the practical method by which the assessee could claim a deduction and the importance of the amount being ascertainable as due. Referring to previous court decisions, the court emphasized that the money payable became due when it was ascertained, not merely at the date of sale of the assets. The court concluded that the amount due to the assessee remained unknown until ascertained through compromise, and thus, the profit under section 41(2) was taxable in the assessment year when the amount became due. Citing relevant precedents, the court answered the question in the negative and in favor of the Revenue, emphasizing the importance of when the money payable became due for taxability under section 41(2) of the Income-tax Act.In summary, the judgment clarified the interpretation of section 41(2) of the Income-tax Act for the assessment year 1969-70 in a dispute regarding the taxability of profit arising from a compensation dispute between an assessee-company and the Government of Punjab. The court emphasized the significance of when the money payable became due for determining tax liability under section 41(2), relying on precedents and practical considerations to support its decision in favor of the Revenue.