Statutory option to purchase completes a sale, and a reconstituted firm remains the same assessable unit for tax purposes.

Exercise of a statutory option to purchase under the Electricity Act completed the sale of the electricity undertaking for income-tax purposes, and the date of sale was treated as February 24, 1955; later payment of the balance price and the absence of a fixed date did not change that legal character. The note also explains that depreciation allowed from the undertaking's inception could be taxed in the assessee's hands despite changes in the partnership, because a firm is treated as a separate assessable unit and a reconstituted firm carrying on the same business remains the same unit for assessment.

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Issues: (i) Whether the taking over of the electricity undertaking by the Government constituted a sale for the purposes of section 10(2)(vii) of the Income-tax Act, 1922, and whether it took place on February 24, 1955. (ii) Whether depreciation allowed to the undertaking from its inception could be brought to tax in the hands of the assessee notwithstanding changes in the constitution of the partnership.

Issue (i): Whether the taking over of the electricity undertaking by the Government constituted a sale for the purposes of section 10(2)(vii) of the Income-tax Act, 1922, and whether it took place on February 24, 1955.

Analysis: The exercise of the statutory option to purchase under the Electricity Act completed the contract of sale. The later payment of the balance of the price and the absence of a fixed date under the Punjab enactment did not alter the legal character of the transaction or defer the date of sale. The prior decision on a similar electricity undertaking was treated as governing the point.

Conclusion: The transaction was a sale and it took place on February 24, 1955, against the assessee.

Issue (ii): Whether depreciation allowed to the undertaking from its inception could be brought to tax in the hands of the assessee notwithstanding changes in the constitution of the partnership.

Analysis: For income-tax purposes a firm is treated as a distinct assessable unit. Mere changes in partners, admission of a minor to benefits, retirement, death, or substitution of members did not destroy the identity of the business where the same undertaking continued as the same unit. The technical rules of partnership law were held not to control the tax position, and the reconstituted firm remained the same unit for assessment.

Conclusion: The depreciation allowed from inception was taxable in the hands of the assessee, against the assessee.

Final Conclusion: All the questions were answered against the assessee, and the revenue's position was upheld in full.

Ratio Decidendi: For income-tax purposes, an exercise of a statutory option to purchase completes the sale of the undertaking, and a reconstituted firm carrying on the same business remains the same assessable unit despite changes in its partners.

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