Law:

Section:

Section 41(2) of the Income-tax Act, 1961 [Corresponding to section 10(2)(vii) of the Indian Income-tax Act, 1922] - Balancing charge - Assessment year 1956-57 - Assessee company carried on business of generation and supply of electric energy - Assessee was maintaining separate account books for generation and distribution of electricity - Assessee sold licences of distribution of energy to a company along with assets and liabilities of distribution business before commencement of relevant accounting year - This transfer resulted in certain surplus as selling price of plant and machinery used for this business exceeded written down value thereof - Whether since machinery and plant pertaining to distribution activity of assessee were not used in assessee's business during any part of accounting year amount of surplus was not chargeable to tax under section 10(2)(vii) of 1922 Act - Held, yes FACTS The assessee company carried on the business of generation and supply of electricity. The account books relating to the two activities, i.e., generation and distribution of electricity, were kept separately. Sometime in 1954, certain shareholders of the assessee floated a private limited company 'S' with the object of transferring to it that side of the business which concerned the distribution of electric energy. As on 31-12-1954, the assessee ceased to distribute electricity to the consumers in the areas for which it had held the licences for distribution. The assets so far as they pertained to the distribution of the electricity to the consumers were sold on 1-1-1955, to 'S'. This transfer resulted in a profit to the assessee in terms of clause (vii) of sub-section (2) of section 10 as the amount for which the plant and machinery which was used for distribution side of the assessee's business was sold exceeded the written down value thereof. For the assessment year 1956-57, the department treated it as assessable income under section 10(2)(vii). On appeal, the Tribunal confirmed the treatment accorded to the said receipt and dismissed the assessee's appeal. On reference : HELD On 30-12-1945 while the assessee company transferred to the newly formed company the…

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