Statutory licence purchase treated as a sale for tax purposes where mutual assent and bargaining were established.

A transfer of an electricity undertaking under a statutory licence was treated as a sale for tax purposes because the arrangement showed offer, acceptance, bargaining and mutual assent. Although the purchase option was exercised within the Indian Electricity Act framework and no separately signed governmental contract existed, the licence application, draft licence and approved conditions together formed a binding agreement, and the Government's conduct in carrying out the terms amounted to ratification. The transaction therefore fell within section 10(2)(vii) of the Income-tax Act, 1922, and was taxable as a sale in favour of Revenue.

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Issues: Whether the Government's purchase of an electricity undertaking under the licence and the Indian Electricity Act amounted to a sale within section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: The transaction arose under a statutory licence that incorporated an option to purchase on specified terms. The Court held that a compulsory acquisition is not the same as a sale, because sale requires an element of agreement and mutual assent. Here, the licence application, draft licence, and approved conditions constituted an offer and acceptance framework, and the price mechanism in the licence showed bargain and assent between the parties. The Court further held that the absence of a separately signed governmental contract did not defeat the arrangement, since the parties had acted upon it and the Government had ratified the terms by carrying them out.

Conclusion: The transaction was a sale and fell within section 10(2)(vii) of the Income-tax Act, 1922, in favour of Revenue.

Ratio Decidendi: A transfer under a statutory licence is a sale for tax purposes where the arrangement embodies mutual assent and bargaining, even if the purchase option is exercised under a statutory framework rather than by a conventional private conveyance.

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