http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 10  

PETITIONER: THE COMMISSIONER OF INCOME-TAX, WEST BENGAL-I, CALCUTTA.

       Vs.

RESPONDENT: UNITED PROVINCES ELECTRIC SUPPLY COMPANY

DATE OF JUDGMENT:       17/04/2000

BENCH: M.B.Shah, D.P.Wadhwa,

JUDGMENT:

     Shah, J.

     At  the  instance  of   revenue,  two  questions  were referred  to  the  High Court by  the  Income-tax  Appellate Tribunal  under  Section 256(1) of the Income Tax Act,  1961 (herein referred to as the Act).  First question for which leave to appeal was granted by this Court is as under:  -

     Whether, on the facts and in the circumstances of the case and on a proper interpretation of the provisions of the Indian  Electricity  Act,  1910, the Tribunal was  right  in holding  that  the addition of the sum  of  Rs.1,29,35,557/- under  Section  41(2)  of the Income-tax Act, 1961,  in  the assessment year 1965-66 was not justified?

     The High Court answered the said question in favour of the assessee and against the revenue by holding that Section 41(2) of the Act does not and cannot come into play till the price is finally ascertained and in the facts of the case as the  price of the undertakings of the assessee had not  been finally  determined and only an ad hoc payment has been made which  has been accepted under protest, it was not open  for the  revenue to intervene and proceed to assess the assessee under Section 41(2) of the Act.  Hence this appeal.

     The  aforesaid question arises for the assessment year 1965-66  i.e.  relevant accounting year ending on 31.3.1965. Admittedly,  the business of the respondent-assessee was  of generating  and  of supply of electricity to the  consumers. The assessee had two undertakings  one at Allahabad and the other  at  Lucknow.  By exercising power under Section 6  of the  Indian  Electricity Act, 1910, the Government  of  U.P. purchased both the undertakings for the UP State Electricity Board  (Electricity  Board for short).  The possession  of the  undertakings  was handed over to the Electricity  Board w.e.f.   17.9.1964  and  the Board paid  Rs.62,60,668/-  and Rs.41,35,398/-  to  the  assessee as  compensation  for  the compulsory  purchase of the said undertakings  respectively. Besides   these  payments,  the   Board  also  made  certain adjustments  in respect of assessees liabilities for  loans and  the final compensation paid to the assessee amounted to Rs.3,35,84,552/-.   The  assessee accepted the  said  amount

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 10  

without  prejudice  to its right to claim  the  compensation payable as provided under Section 7A of the Electricity Act, 1910.   Thereafter,  assessee  went   for  arbitration   for determining  the  compensation payable to it under the  said Act.   As  the  arbitrators failed to make any  award,  they referred  the  matter  for  decision to an  umpire.   It  is alleged  that  Electricity  Board moved the civil  court  at Lucknow  and  obtained an order of stay of  the  proceedings before the umpire.

     The   Income   Tax   Officer   took  the   amount   of Rs.3,35,84,552/-  as sale proceeds of the depreciable assets of  the  assessee and as per the details given in his  order computed  the  written  down  value   of  those  assets   at Rs.2,06,48,985/-    and    determined     the   profit    of Rs.1,29,35,557/-  under  Section 41(2) of the Act and  added the  same  to the income of the assessee.  In appeal  before the  Appellate Assistant Commissioner, it was contended that no  profit  under  Section  41(2)  could  be  taxed  in  the assessment  year  under consideration because claim  of  the assessee  for  compensation was not settled during the  year and  that dispute was still pending before the  arbitrators. The  Appellate  Asstt.   Commissioner   rejected  the   said contention.   In  further appeal, the Tribunal held  as  the compensation  payable  to the assessee was not  settled  and finalized,  the ITO was not justified in making addition  to the income of assessee under Section 41(2) in the year under consideration.

     The  High  Court  arrived at the conclusion  that  the assets  of  the assessee, namely, two undertakings had  been sold  within  the meaning of Section 41(2) of the  Act  read with Section 32(1) thereof and the explanation therein.  The High  Court held that, hence, Section 41(2) to that  extent is  attracted but an assessment under Section 41(2) can only be  made after the price at which the assets of the assessee had  been  sold is determined.  As the price is not  finally determined, it cannot be said that the amount which has been received  by the assessee in respect of his two undertakings is  a  price  at which the same had been  sold.  The  Court further  held  that Section 41(2) does not envisage that  an assessee would be assessed piece-meal as and when the amount on  account  of price is received.  Hence the  question  was answered in favour of the assessee as stated above.

     At  the  time  of  hearing of the  appeal,  Mr.   K.N. Shukla,  Sr.   Advocate appearing for the revenue  submitted that compensation amount is determined by the State and paid to  the  assessee,  hence under Section 41(2)  it  would  be assessable  and  taxable income as provided therein.  It  is his  contention  that merely because assessee has  filed  an application  for  enhancement of the compensation, it  would not   mean   that  the  assessee   has  not   received   the compensation.   According to his submission, it would be the income  of the assessee during the relevant accounting  year and,  therefore,  the  order  passed  by  the  ITO  was   in accordance  with  the  law.  As against  this,  Mr.   Joseph Vellapally,  Sr.   Advocate  appearing   for  the   assessee submitted  that  the amount received by the assessee is  not full and final payment towards the compensation.  It is only ad  hoc  payment made by the State Government.  That  amount cannot  be  taken  into  consideration for  the  purpose  of Section  41(2)  of  the  Act.  He relied  upon  the  various decisions of the High Court in support of his contention.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 10  

     For  deciding  the  rival  contention  raised  by  the learned  counsel  for the parties, we would first  refer  to Section  41(2), which was in force at the relevant time.  It reads as under:  41.  Profits chargeable to tax.

     (1)

     (2)  Where any building, machinery, plant or furniture which  is  owned by the assessee and which was or  has  been used  for  the purposes of business or profession  is  sold, discarded, demolished or destroyed and the moneys payable in respect  of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any, exceed the written down value, so much of the excess as does  not exceed the difference between the actual cost  and the  written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which  the moneys payable for the building, machinery, plant or furniture became due:

     Explanation:   For  the purposes of this  sub-section, the  expression  moneys payable and the expression  sold shall  have  the  same meanings as in  sub-section  (1A)  of section 32.

     Explanation to Section 32(1A) is :

     Explanation:  For the purposes of this clause,--

     (i)  moneys payable, in respect of any structure  or work, includes

     (a)  any  insurance or compensation moneys payable  in respect thereof;

     (b) where the structure or work is sold, the price for which it is sold;  and

     (ii)  sold shall have the meaning assigned to it  in the Explanation to clause (iii) of sub-section (1).

     Explanation  (2) to clause (iii) of sub-Section (1) of Section  32  gives following meaning to  expression  sold: sold  includes  a  transfer  by   way  of  exchange  or  a compulsory  acquisition under any law for the time being  in force  but  does  not  include a transfer, in  a  scheme  of amalgamation,  of  any asset by the amalgamating company  to the  amalgamated company where the amalgamated company is an Indian company;

     Section  41  is  under  the  heading  Computation  of Business  Income.   The entire section makes it  abundantly clear  that  income  arising as provided therein  is  to  be considered  as  income  of  business or  profession  and  is chargeable   to  income  tax  as   income  of  business   or profession.   Once it is held to be a business income unless provided  otherwise it would be taxable in the previous year in  which the same is received.  Section 41(2) provides  the method  of  calculating  balancing charge.   It  inter  alia states   that  where  any   building,  machinery,  plant  or furniture  is  sold  and moneys payable in respect  of  such building,  machinery, plant of furniture exceed the  written down  value,  so much of the excess as does not  exceed  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 10  

difference between actual cost and the written down value is chargeable  to  income tax as income of the business of  the previous  year  in which the moneys payable became  due. Explanation  to  the phrase moneys payable is wide  enough and  includes  any compensation moneys payable  in  respect thereof.   Similarly,  the  explanation sold  includes  a compulsory  acquisition under any law for the time being  in force.   Hence, in case of acquisition of property under any law,  the balancing charge under Section 41(2) is taxable to income-tax as income of the business of the previous year in which  moneys payable became due.  Question would be   when moneys  payable  become due.  Determination of  compensation and  its payment by the authority would certainly mean  that moneys  payable  became  due.  Receipt of  the  compensation payable  in respect of acquisition is a stage subsequent  to its  becoming due.  In the present case, income has  accrued and   is   actually  received.    The  amount  received   is compensation  amount  in  respect  of  acquisition  of   the property  and  is to be accounted for the purpose of  income tax as income of the business of the previous year.  For the market  value  determined  by the authority if there  is  no difference  or  dispute, whatever amount is  determined  and paid  would  be  compensation payable for  the  acquisition. That  determination of the amount of compensation would mean moneys  payable became due.  However, in case of dispute or  difference for the determination of the market value the matter  is required to be determined by the arbitrator under Section  7A of the Indian Electricity Act but this would not mean  that whatever the amount is determined and paid by the authority  would  cease to be compensation  moneys  payable. Pendency  of proceeding for additional moneys payable  would not  be  relevant so far as taxability of  the  compensation amount  received  is  concerned.  If  additional  amount  is received  in  the  subsequent year it would  be  a  business income  of  that year.  In the present case, presuming  that the assessee is entitled to have additional amount than what is  paid by the acquiring authority, yet for the purpose  of tax,  moneys  payable became due and are paid and  received. In  case he gets any additional amount that would be taxable subsequently as profits in accordance with the provisions of the  Act.   This interpretation would be in-conformity  with sub-sections  (1)  and (4) of Section 41.  Sub- section  (1) deals  with allowance or deduction made in respect of  loss, expenditure  or  trading liability incurred by the  assessee and  subsequently  the assessee has obtained any  amount  in respect of such loss, expenditure or some benefit in respect of  such trading liability by way of remission or  cessation thereof,  the amount obtained by him or the value of benefit accruing  to  him  is  deemed to be  profits  and  gains  of business  or  profession  and   accordingly  chargeable   to income-tax  as the income of that previous year.  Receipt of such  amount may or may not be in the same year.  It can  be during  more  than one subsequent year.  In such a case,  it would  be  taxable  in  the previous year  in  which  it  is received.  Similarly, sub-section (4) provides for deduction allowed  in  respect of bad debt or part of debt and if  the amounts  of  such bad debt or part thereof  is  subsequently recovered  then  it  is to be taxed as  profit  as  provided therein.  This recovery of debt may not be in the same year. Further,  considering the fact that this is to be deemed  to be business profit, such receipt is to be taxed as income in the  year in which it is received.  In such situation, there is no question of piece-meal assessment as it is to be taxed when  the  amount  on account of trading loss, bad  debt  or compensation is received.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 10  

     The  learned  counsel for the assessee submitted  that till  the  compensation  amount is finally  ascertained  and determined,  the  amount received by the assessee is  to  be treated   as  ad  hoc  amount   and  after  receipt  of  the ascertained  final amount it would be taxable as a  business income  in  the  previous year in which the said  amount  is determined  as  in that year moneys payable became due.   He submitted that there is a marked variation from the language of  Section 10(2)(vii) of the 1922 Act.  In the earlier Act, the  balancing  charge was chargeable in the year  of  sale. However, under the 1961 Act, the balancing charge is taxable only  in the year of final determination of sale price.  For this  purpose,  he referred to the Notes on Clauses  to  the Income  Tax  Bill,  1961 to contend that there  is  material change in the new provision.  Clause 41(2) of the said Notes reads  as  under:   This   corresponds  to  the  provisions contained  in the second and fourth provisos to the existing section  10(2)(vii).   The changes made here are verbal  and seek  to  clarify that where the monies payable for sale  or destruction  are  not  determined in the year in  which  the sale,  destruction  etc.   took place, the  profit  will  be assessable  in  the assessment year in the previous year  of which  that  sum is determined.  The  Explanation  clarifies that  the provisions of this sub-section will apply even  if the  business or profession is not in existence in the  year in which the sums fall to be assessed

     The aforequoted object does not in any way advance the submission  made by the learned counsel for the  respondent. It  is specifically stated that changes made are verbal  and seek to clarify that in case moneys payable for sale are not determined  in  the year in which the sale took  place,  the profit  will  be  assessable in the assessment year  in  the previous  year of which that sum is determined.  This object nowhere  talks  of final determination of  compensation  and this  would  not mean that as the assessee has the right  to move the arbitrator for enhancement of the compensation, the compensation amount determined by the authority is not to be taken  into account till the proceedings for enhancement are finalized.   The  moneys  payable  as  per  the  explanation includes any compensation moneys payable in respect thereof. Hence,  when  compensation moneys payable is  determined  or fixed  even  though  it is not received it would  amount  to moneys  payable.  Under the Explanation as quoted above, the expression   moneys   payable  is   defined   to   include compensation   moneys  payable  in   respect  thereof.    As discussed  above, once the compensation is determined by the authority  and is received by the assessee under protest and the   dispute  is  referred  to   the  arbitrator  for   its enhancement,  it  would not cease to be compensation  moneys paid  to  the  assessee.   The amount  so  received  by  the assessee  represents compensation in respect of  acquisition of building, plant, machinery or furniture.

     The learned counsel for the assessee further submitted that  as held by this Court in CIT, Bombay v.   Bipinchandra Maganlal  & Co.  Ltd.  [(1961) 41 ITR 291] capital  receipts are  taxed under the head, Profits and gains from  business or  profession  by  virtue  of  deeming  fiction,  but  the receipts  do  not become business profits.   He,  therefore, submitted  that notional receipt of profit is in the  nature of capital receipt and as there is no provision or procedure in  the Act for taxing it again after receipt of  additional

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 10  

amount,  it  should be held that the amount becomes  taxable only  when  the compensation is finally determined.  In  the said case, the Court dealt with similar provision Section 10 (2)(vii)  of  Income  Tax Act, 1922 and observed  that  such income is notionally regarded as profit in the year in which the  asset  is sold and by a fiction it is regarded for  the purpose  of  Act  as  income.   The  relevant  part  of  the observation is as under:  -

     What  in  truth is a capital return is by  a  fiction regarded  for  the purposes of the Act as  income.   Because this  difference between the price realized and the  written down  value is made chargeable to income-tax, its  character is  not altered, and it is not converted into the assessees business  profits.   It does not reach the assessee  as  his profits:   it reaches him as part of the capital invested by him,  the  fiction  created by  section  10(2)(vii),  second proviso,  notwithstanding.  The reason for introducing  this fiction appears to be this.  Where in the previous years, by the  depreciation  allowance, the taxable income is  reduced for  those years and ultimately the asset fetches on sale an amount  exceeding the written down value, i.e., the original cost  less depreciation allowance, the Revenue is  justified in  taking  back what it had allowed in  recoupment  against wear  and  tear,  because in fact the depreciation  did  not result.   But the reason of the rule does not alter the real character  of  the  receipt.  Again, it is  the  accumulated depreciation  over  a number of years which is  regarded  as income  of  the  year  in  which the  asset  is  sold.   The difference  between  the written down value of an asset  and the  price realized by sale thereof though not profit earned in the conduct of the business of the assessee is notionally regarded  as profit in the year in which the asset is  sold, for  the purpose of taking back what had been allowed in the earlier years.

     From  the aforesaid observations, it is apparent  that for  the purpose of tax, the difference between the  written down  value  of  an  asset and the price  realized  by  sale thereof,  though  no  profit  is earned in  conduct  of  the business  of the assessee, is notionally regarded as  profit in  the year in which the asset is sold.  Once it is held to be  a business profit, then there is no question of treating it as a capital receipt and taxing it accordingly.  Further, once it is a business profit as per the provision of the Act it  is to be taxed on its accrual and it cannot be said that there  is no provision for taxing the receipt of  additional amount   at   a  subsequent   stage.   As  stated   earlier, sub-sections  (1) and (4) apparently contemplate receipt  of amount as stated therein to be taxed in the year in which it is  received  and  such  recovery  may be  in  one  or  more subsequent years.

     Learned  counsel  further  submitted   that  for   the calculation  of the deemed profit, it is necessary to know both  the  sale consideration of each asset as well  as  its written  down value and in the year under consideration, the sale   price  of  each  individual   asset  is  not   known. Therefore,  Section  41  cannot  be applied  by  taking  the overall  compensation  and  reducing therefrom  the  overall written down value of depreciable assets as has been done by the  I.T.O.   He submitted that balancing charge has  to  be calculated  with  respect  of  each  individual  asset.   In support  of  his contention, he referred to the decision  of this  Court in C.I.T., Gujarat vs.  Artex Manufacturing Co.,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 10  

{(1997) 6 SCC 437 :  227 ITR 278}.

     In  our  view,  in  the present appeal,  we  are  only concerned  with  the limited question which was referred  to the  High  Court  -  whether  on   the  facts  and  in   the circumstances  of  the  case and on  interpretation  of  the provisions   of  the  Indian   Electricity  Act,  1910,  the provisions of section 41(2) of the Act are applicable to the receipts  of  the  amount  by   the  assessee  towards   the compensation payable to him?  Therefore, additional question raised  by  the  learned  counsel for  the  appellant  which depends  upon  facts,  is not required to be dealt  with  or decided  in this appeal.  We also make it clear that we have not  considered  the  effect  of Section 7A  of  the  Indian Electricity Act, 1910 as amended by the UP Act 14 of 1976 as the  said  question  was not there before  the  High  Court. Further, we would make it clear that it would be open to the assessee  to  raise these contentions before  the  competent authority.

     Learned  counsel  further submitted that various  High Courts  have held that balancing charge can only be  brought to  tax  in  the  year  in  which  compensation  is  finally determined.  For this purpose, he referred to Akola Electric Supply  Co.   Pvt.   Ltd.  v.  Commissioner of  Income  Tax, Bombay  City  [(1978) 113 ITR 265].  In the said  case,  the Bombay  High  Court  held  that   though  taking  over  the possession   might  have  vested   the  undertaking  in  the Electricity  Board  without  a   price  being  settled,  the transaction  became sale only when the price became  settled and  it  was only after the price had been settled  that  it became  due to the assessee;  the moneys payable became  due only  when  they were ascertained.  These observations  are made in the background of the fact that under the provisions of  Section  7  of  the Electricity Act,  the  property  was acquired  by  the  Bombay State Electricity  Board  and  the possession  was  handed  over  on December 7,  1959  and  as regards  the payment, it was pointed out that the Board  was not under obligation to make any payment till the sale value was  determined.  However as a measure of cooperation, Board agreed  to  make a provisional payment equivalent to 65  per cent  of  the  book  value on receipt of  all  assets.   The provisional  payment  was made through a cheque on  June  7, 1961.   Ultimately by letter dated March 31, 1962, the  sale value  was  fixed by mutual agreement.  In that  context,  a question  with regard to the taxability of balancing  charge under  Section  41(2)  for the assessment year  1962-63  was determined by the High Court.  In that case, assessee raised a contention that moneys payable became due when the vesting took place and the Board became owner of the Undertaking and its  assets.   Against  that revenue  contended  that  money payable  became  due after their determination.   The  Court negatived the said contention and accepted the contention of the  revenue  by referring to the decision rendered  by  the Delhi  High  Court  in P.C.  Gulati,  Voluntary  Liquidator, Panipat Electricity Supply Co.  Ltd.  v.  CIT [(1972) 86 ITR 501  (Delhi)]  and held that moneys payable became due  when they  were ascertained and not on the date of possession  of the  properties.   In  C.I.T., Delhi-II v.   Rohtak  Textile Mills  Ltd.,  [(1982) 138 ITR 195 (Delhi)], the  Delhi  High Court  followed  its  earlier   decision  and  the  decision rendered by the Bombay High Court.

     In  CIT, Karnataka v.  Sheshappa Hegde [(1984) 150 ITR 164,  Karnataka]  the  assessee   had  purchased  two  motor

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 10  

vehicles  in  1973  and  1975.  They were  acquired  by  the Government  under  the Contract Carriage (Acquisition)  Act, 1976  which  came  into force on January 30,  1976  and  the vehicles  were  taken  over  on   the  same  day.   For  the assessment year 1976-77, the assessee filed a revised return claiming  loss which included the cost of vehicle taken over by  the  Government.   The  Court  held  that  the  year  of taxability  under  S.  41(2) is the year of receipt  or  the year in which it becomes due.

     The  learned counsel for the assessee further referred to  the  decision in Okara Electric Supply Company Ltd.   v. CIT  [(1985)  154  ITR 493].  In that case also,  the  Court followed  P.C.   Gulati  and Akola  Electricity  Supply  Co. cases  (supra).   The  Court  considered the  fact  that  on January  4, 1959, Government took over all the assets of the Undertaking.   A  sum  of  Rs.  60,000/-  was  paid  to  the assessee  in  that  regard  on June 3, 1959.   There  was  a dispute  about  the  valuation of the  assets  acquired  and ultimately by Memorandum dated November 18, 1963, the assets were  revalued  at Rs.2,02,781/-, but finally its  valuation was determined in the accounting year 1966-67, i.e.  between April  1,  1965 and October 26, 1965.  In the light of  that fact   Court  arrived  at  the   conclusion  that   on   the determination  of the amount, the balancing charge would  be includible in the assessment year 1966-67.

     In  CIT  v.   The Central Indian Electric  Supply  Co. Ltd.   [(1993) 114 CTR (MP) 160], the Undertaking was  taken over  by  the  M.P.  Electricity Board.   The  assessee  was entitled  to the market value of its undertaking taken  over or purchased under the Act.  The assessee for the accounting year  in question, i.e.  1970-71 submitted a return  showing its  income  as nil, although along with the return  it  had enclosed  a  balance-sheet showing therein the written  down value  of  its  assets  acquired by the Board  as  also  the compensation  actually  received  by  it  from  the   Board. Revenue contended that the amount had become due for payment only when the decree in terms of the award was passed by the District  Judge  and  the  same having been  passed  in  the relevant  year,  it was the case of income accruing  to  the assessee  and could be brought to tax in the assessment year in  question.   The Court held that in the  two  expressions payable  and due there is difference only of degree  and time.   The  money  is payable immediately on  the  date  of acquisition  or  sale under the Act, but it becomes due  for payment at some future date, if there is a dispute about the price.    In  the  event  of   dispute  about   the   price, quantification  of the price is done only through the  award of the arbitrator.  The Court thereafter observed:  -

     the  price  due for payment to the assessee  on  the date  of  the  passing  of the decree  was  taxable  in  the relevant  succeeding assessment year to the financial  year, in  which the decree was passed even though the amount under the  decree  may not have been actually paid or received  by the assessee.  In the scheme of IT Act, the taxable event is on  accrual  of income and not on actual receipt  thereof. Pendency  of litigation in respect of an amount or price due has  no  relevancy so far as the taxability of such  accrued income  is  concerned.  The likelihood of the  income  being reduced in the subsequent assessment year as a result of the litigation  may  give  rise  to  resort  to  other  remedies available  in  the Act for rectification and refund  of  the tax, but on that ground it cannot be held that no income had

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 10  

accrued  to  the assessee for the relevant assessment  year. We  find great support for our decision from the decision of the Supreme Court in the case of Kesoram Industries & Cotton Mills  Ltd.   vs.  CWT {(1966) 59 ITR 767 SC)}.  As for  the wealth-tax  so  also the income-tax.  The liability  to  pay income-tax  arise in the relevant financial year on  accrual of  income  in that year and if the income is  ascertainable and  quantified,  it can be brought to tax in  the  relevant assessment year.

     We  agree with the observation of Madhya Pradesh  High Court that Pendency of litigation in respect of an amount or price  due has no relevancy so far as the taxability of such accrued  income is concerned.  The likelihood of the  income being  reduced in the subsequent assessment year as a result of  the litigation may give rise to resort to other remedies available  in  the Act for rectification and refund  of  the tax, but on that ground it cannot be held that no income had accrued to the assessee for the relevant assessment year.

     In  CIT  v.   National  Electric  Supply  and  Trading Corporation Ltd.  [(1996) 222 ITR 60, Delhi], the Government purchased  the  Undertaking  on February 20,  1949  and  the compensation  was paid in the year 1949-50 and 1951-52.  The Undertaking  demanded  additional compensation.  The  matter was  compromised  and  the  additional amount  was  paid  on October  29, 1968.  Applying the decisions in Okara Electric Supply  Co.  Ltd.  and P.C.  Gulati (supra), the Court  held that  the year of inclusion of the balancing charge would be when  the  moneys payable became due and the moneys  payable could  be  held  to have become due only when the  same  was ascertained.

     From  all  the aforesaid cases dealt with by the  High Courts,  it  is apparent that it was the contention  of  the assessee  that  the balancing charge is to be taxed  in  the year in which the undertaking is taken over.  As against the revenue  contended  that  when the  compensation  amount  is determined  the  balancing  charge is to be taxed.   In  the present  case, the amount of compensation is determined  and is   paid.   As  there  is   dispute  with  regard  to   the determination of the market price, the matter is referred to the  arbitrator.  Presuming that it is ad hoc payment in the sense  that  final  compensation is not  determined  by  the arbitrator  or  appellate  authority still  the  payment  is towards purchase price.  Section 41(2) nowhere provides that such  balancing  charge  would be taxable in  which  moneys payable  are determined finally by the Arbitrators or the Appellate  authority or such other authority provided  under the  Acquisition  Act.  Further, it is not the case  of  the assessee  that  pending final determination of the  purchase price  he  has  not accepted the said amount.   Pendency  of litigation  for  getting  additional amount  in  respect  of moneys  payable has no relevancy so far as the  taxability of  accrual of income -compensation received- is  concerned. Hence,  in case where compensation amount and its receipt is admitted,  which is business profit under Section 41(2),  it is to be taxed in the previous year of its receipt.

     In  the  result,  appeal  is  allowed.   The  impugned judgment  and order of High Court is quashed and set  aside. The  question referred is answered in favour of the  revenue and  against the assessee and it is held that tribunal erred in  holding  that  addition of the sum  of  Rs.1,29,35,557/-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 10  

under  Section  41(2)  of the Income-tax Act,  1961  in  the assessment year 1965-66 was not justified.

     Ordered  accordingly.   The parties shall  bear  their respective costs.