Law:

Section:

Section 41(2) of the Income-tax Act, 1961 - Balancing charge - Assessee owned electric supply undertaking part of equipment of which was financed by consumers - Assessee's undertaking taken over by government yielding profit to assessee - Whether while determining written down value of assets for purposes of section 41(2), written down value of assets financed by consumers' contribution had to be deducted - Held, on facts, yes FACTS As a consequence of the takeover of the assessee's electric supply undertaking by the Government, a certain amount of compensation was paid to it for the buildings, machinery, and other equipment after deducting the value of the equipment financed by the consumers. The ITO computed the profits for the purpose of section 41(2), after reducing the written down value by a figure representing the written down value of equipment financed by consumers' contribution. The AAC and the Tribunal rejected the assessee's appeals. On reference: HELD It is apparent that the ITO worked out the cost without giving allowance to the consumers' contributions and thereafter, from the amount arrived at, deducted the consumers' contribution to work out the actual cost. Similarly, the written down value was also determined without giving allowance to the consumers' contributions, and from the figure so arrived at, reduction was made of an amount representing the written down value of the items, the charges for which had been contributed by the consumers. The Tribunal was thus right in rejecting the assessee's appeal. EDITOR'S NOTE The High Court observed that the question whether the amount received by the assessee by virtue of proviso to section 7A(4) of the Indian Electricity Act, 1910, formed part of the price within the meaning of clause (b)of Explanation 1 to section 32(1)(iii), defining the term 'money payable', stood concluded against the assessee in view of the Supreme Court decision in Fazilka Electric Supply Co. Ltd. v. CIT [1962] 46 ITR 127 and the decision of this High Court in Sonepat Light, Power & General Mills Ltd. v. CIT [1966] 59 ITR 392. CASE REVIEW Fazilka Electric Supply Co. Ltd. v. CIT [1962] 46 ITR 127 (SC) and Sonepat Light,…

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