Law:

Section:

Section 48 of the Income-tax Act, 1961-Capital gains-Mode of computation-On 23-4-1965, Punjab state electricity board took over assessee's industrial undertaking for a sum of Rs. 21,74,333-Assesses referred matter to arbitrator for higher compensa-tion-During financial years 1966-67 to 1968-69, assessee incurred Rs. 75,317 on maintenance of staff, etc., to see transfer through and finalise compensation-Whether said expenditure allowable under section 48(i)-Held, on facts, yes Facts The assessee was carrying on the business of electric supply under a licence issued under the Indian Electricity Act, 1910. Under section 6(i)( a) of that Act, the Punjab State Electricity Board (subsequently succeeded by the Haryana State Electricity Board) exercised the option to purchase the said undertaking which, as a consequence, was transferred from the assessee to the Electricity Board on the midnight of 23-4-1965. The assets of the assessee were tentatively valued at Rs. 21,74,333. The assessee, not being satisfied with the compensation, referred the matter to the arbitrator. During the financial years 1966-67 to 1968-69, the assessee incurred an expenditure of Rs. 75,317 on the maintenance of the staff, etc., which it had to retain to see the transfer through and finalise the compensation and claimed the same as a deduction. The ITO, however, disallowed the claim, holding that this expenditure was not incurred during the relevant financial year 1965-66. On appeal, both the AAC and the Tribunal allowed the claim, holding that the said expenditure was covered by section 48(i) On reference : Held Although the management of the undertaking had passed hands on the midnight of 23-4-1965, yet that was not a final thing for the assessee as the matter of compensation could not be settled amicably and had to be referred to arbitration. Thus, in order to have the maximum price on account of the transfer of the undertaking, the assessee had to maintain the necessary staff. Compensation as an incident of the transfer was to be received by the assessee and the expenditure so incurred on the staff was in connection with it for pursuing the matter with the concerned authorities.…

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