Law:

Section:

Section 45 of the Income-tax Act, 1961 [Corresponding to section 12B of the Indian Income-tax Act, 1922] - Capital gain - Chargeability as - Assessment year 1961-62 - Assessee, electricity company was called upon to sell its undertaking to State Government in terms of section 5(d) and (g) of Indian Electricity Act and possession of same was handed over on 3-5-1944 - Since compensation offered by State Government was subjected to controversy, Arbitrator by its award dated 15-7-1960 increased amount of compensation - ITO made addition of capital gain from said transactions in relevant assessment year - Whether since price which State Government offered to pay to assessee as sale price was value of undertaking on 30-5-1944, incurred sum which was directed by arbitrator would undisputedly be price of undertaking as on 30-5-1944 - Held, yes - Whether therefore, no capital gain was liable to tax under section 12B of Act of 1922 in relevant assessment year - Held, yes FACTS The assessee, electricity company was engaged in supplying electricity under a licence granted under Indian Electricity Act. However the State Government revoked the licence of assessee and in exercise of option under section 5(d) and 5(g) of said act called upon the assessee to sell its undertaking. Since the assessee neglected to hand over possession, the State Government under Defence of India Rule directed the assessee to hand over the possession of undertaking. The State Government took delivery of possession of undertaking on 3-5-1944. There was a controversy with respect to the compensation payable to the assessee. The compensation which the State Government offered to pay was increased under the award made on 15-7-1960 by an arbitrator appointed by the parties. In respect of the assessment year 1961-62, the ITO proposed to add to the income of the assessee increased amount of compensation as capital gains under section 12B. The contention of the assessee was that the sale of the undertaking was completed on 3-5-1944, when possession of the undertaking was taken over by the State Government and not on 15-7-1960, when the arbitrator made his award. If the sale was completed in the year 1944…

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