Compulsory acquisition and section 41(2): balancing charge arises only when compensation is finally determined, not on provisional receipts.

Compulsory acquisition of an electricity undertaking is treated as a sale for section 41(2) purposes, but the balancing charge is not assessable until the compensation or sale price is finally ascertained and becomes due; provisional or ad hoc receipts pending arbitration do not justify piecemeal assessment. Earlier binding rulings also recognised that an assessee may challenge the levy of interest in appeal before the Appellate Assistant Commissioner.

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Issues: (i) whether the amount received on compulsory purchase of the electricity undertakings was taxable under section 41(2) of the Income-tax Act, 1961, in the assessment year 1965-66 when the compensation was still under arbitration and had not been finally ascertained; (ii) whether the assessee was entitled to object in appeal before the Appellate Assistant Commissioner to the levy of interest under section 215 of the Income-tax Act, 1961.

Issue (i): whether the amount received on compulsory purchase of the electricity undertakings was taxable under section 41(2) of the Income-tax Act, 1961, in the assessment year 1965-66 when the compensation was still under arbitration and had not been finally ascertained.

Analysis: The expression "sold" under section 41(2), read with section 32(1), includes compulsory acquisition, so the takeover of the undertakings answered the statutory description of a sale. However, the charging provision operates only when the moneys payable, meaning the price for the assets, become due. The compensation had not been finally settled in the relevant previous year, the dispute was pending before the umpire, and only an ad hoc amount had been paid and accepted under protest. The section does not contemplate piecemeal assessment on provisional receipts while the price remains under determination.

Conclusion: The addition under section 41(2) was not justified for the assessment year 1965-66 and the issue was decided in favour of the assessee.

Issue (ii): whether the assessee was entitled to object in appeal before the Appellate Assistant Commissioner to the levy of interest under section 215 of the Income-tax Act, 1961.

Analysis: The point stood covered by earlier binding decisions of the same court recognising the assessee's right to raise such an objection in appeal.

Conclusion: The assessee was entitled to raise the objection in appeal and the issue was decided in favour of the assessee.

Final Conclusion: Both referred questions were answered in favour of the assessee, leaving the Revenue unable to sustain the disputed addition or the objection on interest in the present reference.

Ratio Decidendi: For purposes of section 41(2), a compulsory acquisition is treated as a sale, but the balancing charge becomes assessable only when the sale price is finally ascertained and becomes due, not when provisional or ad hoc receipts are made pending determination of compensation.

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