Dalip K. Kapur, J.
(1) The question which we are called upon to answer in the reference has been framed by the Tribunal in the following terms:-
'WHETHER,on the facts and in the circumstances of the case, the sale of Electrical Undertaking to the Punjab Government falls in the assessment year 1955-56 when the Undertaking was taken over by the Punjab Government by virtue of an option which was exercised in terms of the license or whether it falls in the assessment year 1963-64 when the balance of the sale price was received by the assessed ?'
(2) The Panipat Electric Supply Co. Ltd., which is the assessed in this case, obtained a license to generate and distribute electricity in Panipat on 20th July, 1934. The license was for fifteen years but was renewed for a period of five years. In terms of clause 9 of the license the Government of Punjab had an option to purchase the Electrical Undertaking belonging to the assessed at the expiry of the period of the license under the provisions of Section 7(1) of the Indian Electricity Act, 1910 on giving the requisite notice. Such a notice was given on 4th July, 1952, and the Government took possession of the Undertaking on the midnight of 16th July, 1954. The assessed-company being aggrieved filed a suit for the recovery of Rs. 13,88,371.25. This suit was eventually compromised and the assessed agreed to accept a sum of Rs. 2,50,000.00 in full and final settlement of its claim against the Government. One of the terms of the compromise was that the Punjab State Electricity Board would pay a sum of Rs. 1,35,033.00 to the Punjab State Government in addition to the amount of Rs. 2,50,000.00, on behalf of the assessed-company on account of the balance of the loan advanced by the Government to the assesee, which was outstanding on the date of the take-over. This compromise was effected on 7th April, 1962. At the time of making the assessment for the assessment year 1963-64, the Income Tax Officer added a sum of Rs. 1,81,772.00 as profit under Section 41(2) of the Income-Tax Act, 1961, as representing the difference between the sale price of the assets of the assessed and the depreciated value of the said assets.
(3) The assessed appealed to the Appellate Assistant Commissioner, who rejected the appeal. A further appeal was taken to the Income-Tax Appellate Tribunal which partly succeeded. The Tribunal came to the conclusion that the assets which were taken over by the Government included stores of the value of Rs. 24,000.00 which had not been subjected to depreciation and the assessed was also entitled to get a deduction for the legal expenses incurred to get a better price for its assets. These expenses were calculated to be Rs. 31,875.00 and the Tribunal allowed this deduction on the basis of the Supreme Court's decision in Shree Meenakshi Mills Ltd. v. Commissioner of Income-tax, Madras, : 63ITR207(SC) . After allowing these two deductions the Tribunal estimated the profit chargeable to tax under Section 41(2) of the Act as being Rs. 1,25,892.00. The assessed-company then sought a reference to this Court which has been made by the Tribunal under Section 256(1) of the Income-tax Act, 1961.
(4) In deciding the appeal, the Tribunal found that although the assessed-company's assets were acquired by the Punjab Government in 1954, the sale could not be said to have been completed till the sale price was finally fixed. The assessed's contention was that the sale took place on 16th July, 1954 when the Government acquired the company's assets and hence the amount in question could only have been taxed in the asessment year 1955-56. This was refuted by the Departmental representative who claimed that litigation was going on and it was only after the compromise in 1964 that the amount was ascertained and paid to the company and, hence the amount in question was properly subjected to tax in this assessment year. This latter argument was accepted by the Tribunal.
(5) On an examination of the question before us, it appears that the matter has not to be decided on the basis of the date of the sale as that is not the real question involved in this case, but on a determination of the previous year in which the amount in question has to be included for the purpose of taxation. Even if the sale took place in 1954 and the amount in question was received in 1963 the question still would be whether the receipt in question was to be subjected to tax in the previous year relating to the date of sale or the date of receipt. When this position was put to counsel for the parties, they agreed that the real controversy in this case was, as to whether the amount in question could be charged to tax in the previous year relating to the assessment year 1963-64 and not as to whether the sale took place in 1954. The difference between the two propositions becomes more obvious by reference to Section 41(2) of the Income-tax Act, 1961. The said sub-sec- corporation reads as here under:-
'WHEREany building, machinery, plant or furniture which is owned by the assessed 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. Provided that where the building sold, discarded, demolished or destroyed is a building to which Explanationn 5 to Section 43 applies, and the moneys payable in respect of such building, together with the amount of scrap value, if any, exceed the actual cost as determined under that Explanationn, so much of the excess as does not exceed the difference between the actual cost so determined and the written down value shall be chargeable to income-tax as income of the business or profession of such previous year. Explanationn.-Where the moneys payable in respect of the building, machinery plant or furniture referred to in this sub-section become due in the previous year in which the business or profession for the purpose of which the building, machinery, plant or furniture was being used is no longer inexistence, the provisions of this subsection shall apply as if the business or profession is in existence in that previous year.'
(6) It will be seen from this provision that the amount in question is not to be charged to tax according to the date of the sale of the assets nor in accordance with the date of the receipt of the consideration, but on the basis of the date when the consideration became due. This terminology has led to some interesting arguments before us. Before I proceed to deal with the contentions advanced on behalf of the parties, I may say that the parties have agreed that the question referred should be reframed in the following terms:-
'WHETHERon the facts and in the circumstances of the case the Tribunal was right in law in treating the sum of Rs. l,25,892.00 as income chargeable to tax under Section 41(2) of the Income Tax Act, 1961 for the assessment year 1963-64?'
Under Section 10(2)(vii) which was the corresponding provision under the Act of 1922, it was provided as follows:
'In respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value: Provided that such amount is actually written off in the books of the assessed: Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place : Provided further that where any insurance, salvage or' compensation moneys are received in respect of any such building, machinery or plant which has been discarded or demolished or destroyed, and the amount of such moneys does not exceed the written down value, the amount allowable under this clause shall be the amount, if any, by which the difference between the written down value and the scrap value exceeds the amount of such moneys: Provided further that where any insurance, salvage or compensation moneys are received in respect of any building, machinery or plant as aforesaid, and the amount of such moneys exceeds the difference between the written down value and the scrap value no amount shall be allowable under this clause and so much of the excess as does not exceed the difference between the original cost and the written down value less the scrap value shall be deemed to be profits of the previous year in which such moneys were received: Provided further that for the purposes of this clause, the original cost of a budding, the written down value of which is determined in accordance with the first proviso to sub-section (5), shall be deemed to be the written down value so determined as at the date of being brought into use for the purposes of the business, profession or vocation,'
(7) The second proviso reproduced above shows that if building, machinery or plant was sold and the price exceeded the written down value the difference (or part of it) was to be taxed in the previous year in which the sale took place. An application of this proviso if it was applicable, would mean that under the Act of 1922, the amount in question would have been taxed in the assessment year 1955-56 if the sale took place on 16th July, 1954. However, order the fourth proviso it is stated that if compensation is received in respect of such assets which exceeds the written down value the amount shall be taxed in the year in which the moneys are received. Assuming that this proviso 'was applicable to the present case and was still in force, this would make the amount in question taxable on the date of the receipt of the amount It is note-worthy that in the Act of 1961 the words which occurred in the second proviso just referred to above relating to the point of time at which, the amount in question has to be taxed is not the previous year in which the 'sale' took place, nor the previous year in which the money was 'received', but the previous year in which the money 'became due'. It is this difference of terminology as regards the point of time at which the amount in question has to be taxed which has led to the major controvery in this case.
(8) Mr. K. K. Jain, learned counsel for the assessed-company contends that the right to obtain compensation accrued on the date of the sale. He has referred to the provisions of the Indian Electricity Act, 1910 as it stood on the date when possession of the Undertaking was taken by the Government of Punjab. He has pointed out that there can be a dispute about the amount of the purchase price payable for acquiring the Undertaking, which may be the subject-matter of arbitration. According to him, this does not mean that the sale of the Undertaking took place on the date on which the arbitration between the parties might settle the price. Thus, it is submitted that in the present case the sale of the Undertaking belonging to the assessed took place in July, 1954, and the later settlement of the price which was the subject matter of litigation, did not alter the date of the sale. He has also cited Fazilka Electric Supply Co. Ltd. V. Commissioner of Income-Tax : 46ITR127(SC) 0, which is a decision of the Supreme court concerned with the acquisition of a similar Undertaking on-23rd July, 1949. In that case an amount of Rs. 77,000.00 was estimated by the Income-tax Officer as being the amount subject to tax under Section 10(2) (vii) of the Act of 1922. It was held by the Supreme Court that there was a sale within the meaning of the second proviso to Section 10 (2) (vii). On analysis of the facts of the case, it appears that in that case the High Court found that the price had been fixed in accordance with the license and thus the compulsory acquisition under Section 7(1) of the Indian Electricity Act, 1910 was a sale within the meaning of Section 10 (2) (vii). It was held by the Supreme Court as follows:--
'ONbehalf of the appellant it has been contended, somewhat faintly, that all the elements necessary to constitute a contract are not present here. We are unable to agree. There was an undertaking on the part of the applicant for the license to sell the undertaking to the local authority or Government upon certain terms set out in the license, and the time at which the option was to be exercised and the price which was to be paid for the property were specified. There was consideration for the contract as the license was granted on those terms. thereforee, all the elements necessary for a contract were present, and the sale in pursuance thereof was not a compulsory purchase or acquisition (See Sakalaguna Nayudu V. Chinna Manaswami Nayakar A. I. R. (1928) P. C. 174.
(9) We are, thereforee, of the opinion that the High Court correctly answered the question refered to it. There was a sale in the present case of the building, machinery and plant within the meaning of clause (Vii) of section 10(2) of the Income-Tax Act. In view of this conclusion, it is unnecessary to deal with a somewhat larger question which was canvassed before us on behalf of the respondent that Section 10 (2) (vii) of the Income-tax Act is attracted even to a compulsory sale. Nor do we consider it necessary to examine the decisions bearing upon the question whether compulsory transfer to and vesting of property in Government, constitute a sale within the meaning of the relevant provisions of the Indian or English statute. It is sufficient to point out that Calcutta Electric Supply Corporation Ltd. V. Commissioner of Income-tax, : 19ITR406(Cal) related to a transaction by which Government acquired the plant etc. and it was held that such acquisition could not be regarded as a sale within the meaning of section 10 (2) (vii) of the Income-Tax Act'.
(10) It is note-worthy that the said case was decided on the basis that on the particular facts of that case the acquisition of the Undertaking was a sale. The Supreme Court particularly left open the larger question whether Section 10 (2) (vii) was attracted to a compulsory sale. At the end of the judgment, there is a reference to the decision in the Calcutta Electric Supply Corporation Ltd. V. Commissioner of Income-tax : 19ITR406(Cal) , wherein it was held that an acquisition like the one in question was not a sale within the meaning of Section 10 (2) (vii) of the Income-tax Act. It is difficult to come to the conclusion that the said judgment of the Supreme Court is applicable to the present case. Thus, it cannot be held that the second proviso to Section 10 (2) (vii) of the Income-tax Act, 1922 made the acquisition in the present case taxable in the assessment year 1955-56.
(11) The next question that needs consideration is, as to whether the amount in question is taxable in the assessment year 1963-64 as held by the Tribunal. This depends on the meaning to be given to the words 'became due' occurring at the end of Section 41(2) of the Income-tax Act, 1961. The rival contentions of the parties on this point are that the counsel for the assessed contends that the amount became due in July, 1954 though the exact liability was unascertained, on the date of the acquisition by the Government of Punjab. On the other hand, counsel for the Revenue contends that the amount cannot be said to have become due till the amount was ascertained. He contends that it was only after the compromise in the suit that the amount could be said to be due.
(12) In support of the contention that the amount became payable on the date of the sale within the meaning of Secion 41(2) of the Act, Mr. K. K. Jain has referred to. the decision of the Supreme Court in E. D. Sassoon & Company Ltd. and others, V. Commissioner of Income-tax Bombay : 26ITR27(SC) , and relied on certain passages therein. He contends that the policy of the Act is to make income taxable when it is received, accrues or arises. These three are distinctive terms. Lord Justice Fry's judgment in Colquhoun V..Brooks(1988).21, Q. B. D. 52, cited in the Supreme Court's judgment has been referred to by him, which runs as under:-
'INthe first place, I would observe that the tax is in respect of profits or gains arising or accruing. I cannot read those words as meaning received by. If the enactment were limited to profits and gains received by the person to be charged, that limitation would apply as much to all Her Majesty's subjects as to foreigners residing in this country. The result would be that no income-tax would be payable upon profits which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom. I think, thereforee, that the words 'arising or accruing' are general words descriptive of a right to receive profits'.
(13) Later on, the following passage occurs in the Supreme Court's judgment:-
'IT is clear thereforee that income may accrue to an assessed without the actual receipt of the same. If the assessed acquires right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody.'
(14) Relying on these passages, Mr. Jain contends that as soon as the Undertaking was acquired by the Government of Punjab, the assessed got a right to get compensation for the same. This compensation did not necessarily have to be ascertained on the date of the sale. Something was owed to the assessed as soon as the property was taken over. Hence, the amount in question had accrued in the sense mentioned above to the assessed on the date of the sale and hence could be said to be payable and due on that date.
(15) Mr. Jain has also referred to the judgment of the Supreme Court in Commissioner of Income-Tax, Gujarat V. Ashokbhai Chimanbhai : 56ITR42(SC) . In that case it was held -
'INour judgment, income becomes taxable on the footing of accrual only after the right of the taxpayer to the income accrues or arises,and in the case of an agreement which makes profits receiveable at or on the happening of the contingency, the fact that the profits are the result of transactions spread over a period which covers a period preceding the happening of that contingency would not make the receipt liable to be paid to persons other than those who are entitled to receive it on the date on which it is actually received or became receivable.'
(16) The judgment in E. D. Sassoon & Company Ltd.' s case already referred was also referred to in this judgment, and it was pointed out that the test for ascertaining whether profits had accrued or arisen was whether the person who was entitled thereto had a right to claim such profits. Mr. Jain contends that in View of this decision of the Supreme Court, the right to get compensation for the acquisition accrued to the assessed on the date of the sale and the computation of the actual amount did not delay their liability of the amount to the date of ascertainment. In other words, his contention is that the amount to be taxed under Section 41(2) of the Act accrued to the assessed on the date of the taking over of the Undertaking on 16th July, 1954 and was always a liability of the Punjab Government, inspire of the fact that the actual amount was not ascertained till the compromise in April, 1962.
(17) Mr. Jain has also referred to the judgment in The Commissioners of Inland Revenue V. Newcastle Breweries, Ltd. 12, Tax Cas 927 . In that case a large stock of rum belonging to the assessed was taken possession by the Admiralty acting under the defense of the Realm Regulations and an amount of 10,315 was offered by the Admiralty to the Company. The company lodged a claim for 18256 before the War Compensation Court which held that it was entitled to an additional sum of 5,309, which was paid to the assessed by the Admiralty in January, 1922. It was held that the amount in question had to be subjected to excess profit tax by an additional assessment for the accounting year ending on 30th October, 1918. The decision, thereforee, was that though the amount in question was received in 1922 and credited into the accounts of the company in that year, it was asseassable in the year 1918, in the year corresponding to the date when the sum was taken over. The judgment of Rowlatt J. which was eventually upheld up to the House of Lords proceeded thus:-
'THEsums were not received in respect of goods which were to be delivered-and so a price only became payable-after the year, but work was done in the year and the remuneration for it was left open; something was paid on account, but it was left open; perhaps it was going to be more, perhaps less, or perhaps it was going to be the same, but it was left open. thereforee, those accounts could not properly be closed in that year; there was not the material to close them. There was only to be a payment on account, and some money might have to be paid back, or something more might have to come. Under those circumstances I said you have 'to treat the account as kept open until that amount is fixed, and then the amount has to be brought in.'
(18) The judgment proceeded on the basis that the amount which was eventually received by the assessed in that case was an additional profit or an addition to the price which had already been received. There was no doubt that the income in question was the price of goods which had been compulsorily acquired. The goods which were acquired were clearly the goods ordinarily offered for sale by the Brewery i.e., rum. Hence, the price accruing from such a transaction must necessarily be profits which accrued to the assessed on the date when the goods were sold. At first sight there would be little to distinguish this decision from the present case. However, there are two material differences. One is that the goods which were acquired were not capital assets and, secondly some amount was received at the time of sale, which was certainly not the final amount receivable by the assessed. In this sense, the actual profit remained unascertained till the final decision of the War Compensation Court in November, 1921, which led to the payment of the balance of the price to the assessed in January, 1922.
(19) Mr. G. C. Sharma, learned counsel for the Revenue has submitted that concepts relating to the ordinary income should not be applied in construing Section 41(2) of the Act. He pointed out that this is a special provision which has as its object the inclusion of certain sums which are not ordinarily income in the taxable income of an assessed. When the capital assets of an assessed have been subjected to depreciation over a number of years, an assessed enjoys the benefit of deductions under the relevant provisions of the Income Tax Act, viz.. Section 10 (2) (vi) of the Act of 1922 and Section 32 of the Act of 1961. Having enjoyed this benefit he is subjected to tax under Section 10 (2) (vii) or Section 41 of the two Acts, if he eventually obtains more than the depreciated value of the assets at a later date. On the other hand, he gets an additional benefit if the property is disposed of at a price below the depreciated or written down value. The object of Section 41(2) is to bring to charge as 'deemed income', the additional value received by the assessed when he disposes of the depreciated assets or the same are demolished, discarded or destroyed. In construing such a provision, Mr. Sharma contends that the terminology of the Section should properly be construed in the light of the provisions allowing the deduction. He has for this purpose referred to Section 32 of the Income Tax Act, 1961. He first referred to Section 32(1)(iii) which states that the depreciation to be allowed in the case of a building, machinery, plant or furniture which is sold, discarded, demolished or destroyed, is as follows :-
'INthe case of any building, machinery, plant or furniture which is sold, discarded, demolished or destroyed in the previous year (other than the previous year in which it is first brought into use), the amount by which the moneys payable in respect of such building, machinery, plant of furniture, together with the amount of scrap value, if any fall short of the written down value thereof:- Provided that such deficiency is actually written off in the books of the assessed. Explanationn.-For the purposes of this clause,- 8-2 H. G. Delhi/72 (1) 'moneys payable' in respect of any building, machinery, plant or furniture includes- (a) any insurance, salvage or compensation moneys payable in respect thereof; (b) where the building, machinery, planter furniture is sold, the price for which it is sold, (2) 'sold' included a transfer by way of exchange or a compulsory acquisition under any law for the time being in force:'
(20) In the Explanationn to this proviso, it is provided that 'moneys payable' means in the case of a building, machinery, etc., the price for which it is sold and 'sold' includes a transfer by compulsory acquisition. His contention is that if the assets now in controversy had been sold for a value less than the written down value then the assessed would have been entitled to a further deduction under Section 32(1)(iii) but the same could not be determined till the amount in question was actually ascertained. It, thereforee, follows that if the amount received exceeds the written down value, the excess in question cannot be said to be money payable to the assessed before it is ascertained.
(21) It seems that Mr. Sharma's contention is well-founded. When the Section now in question, i.e.. Section 41(2) is analysed it merely states that when a building, machinery, plant is sold and the price received for the same is more than its written down value, the excess becomes chargeable to income-tax. In case this excess exceeds the difference between the actual cost and the written down value that part of the excess has to be disregarded, but the remaining excess has to be charged as income pertaining to the previous year in which the 'money payable' i.e., price, became due. The words that need to be construed here are: became due'. The question to be asked is: When did the price become due? On applying Mr. Jain's contention based on the parallel of accrued income, the price became due when the property was taken over by the Government. According to Mr. Sharma, the price cannot become due till it becomes ascertained.
(22) In applying a provision like the present, we have to make a reasonable construction based on the practical method by which the assessed can claim a deduction. If the property is compulsorily acquired for less than its written down value, the asgessee has to get a deduction under Section 32(1)(iii) of the Act. If the price exceeds the written down value the assessed has to be taxed on the excess, or, at least that part of the excess which does not exceed the difference between the actual cost and the written down value. There must be some point of time at which the assessed can say that the amount is now payable. He cannot say that the amount is payable on the date of the sale in the present case, because he does not know what the amount is. He cannot say that there is an excess or a deficit. He cannot, thereforee, make an entry in his books of account showing the amount. Similarly, if he wishes to make a deduction under Section 31(1)(iii) he cannot claim any deduction merely on the ground that the price may be less than the written down value. He does not know whether to ask for a deduction or whether he is liable to tax till the amount is actually ascertained. An amount can be said to be payable when a definite amount is ascertainable as being due. In the instant case, the suit filed by the company claimed an amount of over 13 lakhs but the final payment received after the compromise was much less. No amount could be said to be due till it had become ascertained. This seems to be the only reasonable construction that can be made on the words 'becam due' occurring in the provision we are called upon to construe.
(23) Thus, the amount that was due to the assessed remained incohate and un-known, till it was actually ascertained as a result of the compromise between the parties. As soon as it was deter mined it became payable and, thereforee, due. When the amount was ascertained the assessed was able to say that the amount to be paid exceeded the written down value. If the amount had been less than the written down value the assessed could then have said that he was entitled to a deduction under Section 32(1)(iii) of the Act.
(24) If we view the acquisition of the Undertaking by the Government of Punjab as a sale the rights and obligations of the buyer and the seller have to be ascertained by reference to Sections 54 and 55 of the Transfer of Property Act, 1882. A sale is defined in Section 54 as 'a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised'. A sale, thereforee, requires a price which may be paid or promised or part-paid or part-promised. The parties in the present case were never ad idem about the price till the compromise between the parties. The provision of law by which the Government of Punjab acquired the Undertaking was somewhat different from the ordinary law contained in the Transfer of Property Act, and hence it came about that the Government took possession of the Undertaking even before any price was settled. It may be that his taking over of possession vested the Undertaking in the Government without a price being settled, but it is impossible to say that the sale as contemplated by the Transfer of Property Act took place without the price being settled. The transaction only becomes such a sale when the price has been settled. It was only after this price had been settled that the same became due to the assessed. Hence, it can properly be said on this reasoning that the price became due to the assessed after the compromise and hence the amount in question was to be assesed to tax in the assessment year 1963-64.
(25) In view of the aforementioned conclusions the answer to the question under consideration as aforementioned is, that the amount became due in the previous year corresponding to the assessment year 1963-64 and hence the answer to this question would be in the affirmative and in favor of the Revenue. Respondents will have their costs. Counsel's fee Rs. 250.00.