Law: Income Tax Act, 1961

Section: 41

Income-tax----Business---Income---Balancing charge---Year in which amount is assessable ---Assessees undertaking purchased by Government and compensation paid in financial years 1949-50 and 1951-52---Demand for additional compensation---Compromise and payment of additional amount in October, 1968---Profit under S.41(2) assessable in assessment year 1969-70---Indian Income Tax Act, 1961, S.41. Section 41(2) of the Income Tax Act, 1961, merely states that when a building, machinery, plant or furniture 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 "Moneys payable", i.e. the price became due. The price cannot become due till it becomes ascertained. The assessee-company was granted a licence by the Government of Punjab in 1934 to engage in the business of generation and distribution of electricity for a period of 15 years with an option to purchase the undertaking after the expiry of the said licence. The Government exercised its option on the date of the expiry of licence, i.e., on February 20. 1949, and purchased the undertaking. The Government fixed the compensation for the undertaking at Rs.1,88,640 and paid it in the financial years 1949-50 and 1951-52. The company demanded additional compensation and the matter was referred to arbitrators. The arbitrator determined the purchase price of the undertaking at Rs.4,80,000 and also determined the interest on the unpaid amount of compensation at Rs.2,29,000 for the period August, 1949, to September, 1967. The Government did not accept the award. Finally, there was a compromise. The assessee agreed to forgo a sum of Rs.5,000 out of the interest awarded by the arbitrator and the balance amount of Rs.2,24,000 on account of interest and the amount according to the award of the arbitrator was paid by the Punjab State Electricity Board by cheque, dated October 29, 1968. The Income-tax Officer, while completing…

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