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 1943-44 - Whether section 10 (2) (vii) imposes an obligation on assessee to pay tax on profits arising from transaction - Where plant or machinery is sold or discarded by assessee and no obligation arises when plant or machinery is acquired compulsorily by Government and owner is left to accept what Government is pleased to offer him - Held, yes - Electricity generating plant of assessee company was requisitioned by Government under rule 83(1) of Defence of India Rules despite its reluctance to part with it - ITO treated excess amount received from Government as price or compensation over written down value of plant as profits taxable under section 10(2)(vii) -Whether acquisition of plant by Government in instant case could not be regarded as sale within meaning of section 10(2)(vii), which was nothing more than acquisition against will of owner and therefore, excess in question was not taxable as profits under section 10(2)(vii) - Held, yes FACTS The assessee an Electric Supply Company had a stand-by electricity generating plant which was not in use, but it was kept as a stand-by or reserve in the event of the main generating plant breaking down. The Government during the war desired to acquire said plant, but the assessee did not want to sell. Eventually the Government on 10-4-1942, served a requisition order upon the assessees under the provisions of Rule 83 of the Defence of India Rules fixing the price for said requisition at Rs.5,00,000. The amount which the assessee eventually received as price or compensation for this plant exceeded the written down value of the plant by Rs. 3,27,840 and the taxing authorities claimed that this amount must be regarded as profits for the assessment year 1943-44. On the other hand, the assessees claimed that this amount could not be regarded as profits under section 10(2)(vii) of the 1922 Act, but the taxing authorities assessed the amount to tax and that view was upheld by the Tribunal. On reference: HELD As per section 10(2)(vii), if an assessee sells or discards any…

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