Commissioner Of Income-Tax vs National Electric Supply And ...
2000 Latest Caselaw 1119 Del

JUDGMENT

Arijit Pasayat, C.J.

1. On being moved by the Revenue under Section 256(1) of the Income-tax Act, 1961 (in short "the Act"), the following question has been referred by the Income-tax Appellate Tribunal, Delhi Bench-B (in short "the Tribunal"), for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the capital gains arising from the transfer of capital assets by the assessed is not taxable in this year ?"

2. The factual position as stated in the statement .of case essentially is as follows :

The assessment year involved is 1969-70. The assessed, a private limited company, amongst others was engaged in the generation and distribution of electricity in the Municipal town of Moga in Punjab. It had obtained a license for that purpose on February 21, 1939, from the Government of Punjab by notification of that Government under the provisions of the Indian Electricity Act, 1910 (in short "the Electricity Act"). license was issued initially for a period of 15 years and was subject to renewal for certain period. The provisions of the Electricity Act were modified so far as their application to Punjab is concerned by the Punjab Electricity Act, 1939 (in short "the Punjab Act"), in certain respects. Clause 9 of the license provided for compulsory purchase of the undertaking by the Government of Punjab at the expiry of the license in the manner prescribed therein. The Government of Punjab served a notice on the assessed dated February 8, 1949, claiming to exercise its option to purchase the undertaking and took over possession of the undertaking on February 20, 1949. Rs. 1,88,640 was offered a price. The assessed did not accept the same and claimed Rs. 11,86,943. As disputes arose between the parties as regards valuation, the matter was referred to the sole arbitration of R.B.D.D. Dhawan by the Government of Punjab on March 25, 1954. Dhawan made an award on August 20, 1956. The assessed objected to the award. The trial court accepted the award and the High Court affirmed the order. However, the Supreme Court set aside the award and appointed Justice B.P. Sinha, retired Chief Justice of India as the sole arbitrator. An award was made on September 17, 1967, by Justice Sinha and the price of the undertaking was determined at Rs. 4,80,000. Interest was also awarded from February, 1949 till September 17, 1967. The Government's objections against the award were rejected by the civil court and the award was made rule of the court on June 1, 1968. The assessed received the compensation amount and interest of Rs. 2,24,000 as awarded by the arbitrator in the year under consideration. During the assessment proceedings, the assessed's plea was that no transfer took place in the year under consideration and that no capital gains arose in the year. The Income-tax Officer rejected the contention and held that the amount of compensation was determined in the assessment year in question by award of the arbitrator appointed by the Supreme Court and capital gains arose in that year. Accordingly, capital gains were computed at Rs. 2,91,581. The said amount was included in the assessment of the assessed's income. The matter was carried in appeal before the Appellate Assistant Commissioner (in short "the AAC"). It was urged before the Appellate Assistant Commissioner on behalf of the asses-see that the transfer took place in February, 1949, when the undertaking was taken over by the 'Punjab Government and no capital gains arose in the assessment year under consideration. The Appellate Assistant Commissioner relied upon a decision of this court in P.C. Gulati, Voluntary Liquidator, Panipat Electric Supply Co. Ltd. v. CIT [1972] 86 ITR 501, and held that the sale of the undertaking took place during the year under consideration when the decree of the civil court was passed and that capital gains arose in the said year. The matter was carried in appeal by the asses-see before the Tribunal. It was contended that the transfer of capital assets took place in February, 1949, when the undertaking was taken over by the Punjab Government in exercise of its option to purchase the same under Clause 9 of the license. The undertaking vested in the Government of Punjab under the provision's of Clause (a) of Sub-section (3) of Section 7 of the Electricity Act. Reference was also made to Section 2(47) of the Act which, inter alia, provides that the transfer includes extinguishment of rights in the assets. The assessed's right of ownership in the capital asset stood extinguished in February, 1949, when the undertaking vested in the Punjab Government and the only right the assessed had thereafter was to receive the purchase money. As no transfer took place in the year under consideration and under Section 45, no capital gains arose on receipt of compensation. In the alternative it was pleaded that the purchase was completed within six months of the expiry of the period of license even if no purchase money was paid in view of Section 4 of the Punjab Act. On this ground also, it was submitted that the transfer of undertaking took place in 1949 and not in the year under consideration. The Revenue's stand was that the sale of undertaking took place when the decree was passed by the civil court and further P.C. Gulati's case , had application to the facts of the case. On a consideration of the rival submissions, the Tribunal held that the amount received by the assessed does not relate to the year under consideration and was not assessable in the year in question. On being moved, a reference as afore-stated has been made.

3. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of service of notice.

4. According to learned counsel for the Revenue, the Tribunal was not correct in its view that no capital gains arose during the year under consideration. According to him, a decree of the trial court was passed during the assessment year under consideration on the basis of the award which was made by the arbitrator appointed by the Supreme Court. The right, if any, of the assessed was an inchoate one and not a crystallised one. The right got crystallised in the assessment year under consideration and, therefore, the Tribunal ought to have held that the capital gains arose during the year under consideration. Reliance has been placed on several decisions more particularly in CIT v. Sardar Arjun Singh Ahluwalia (Dead.) and K.C.P. Limited v. CIT [2000] 245 ITR 421 (SC).

5. In order to appreciate the stand taken by the Revenue certain settled principles have to be taken note of. In CIT v. Hindustan Housing and Land Development Trust Limited [1986] 161 ITR 524 (SC), it was observed by the apex court that there is a clear distinction between cases where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. The words "arising" or "accruing" have received interpretation by a long chain of decisions. An important decision on the point is E.D. Sassoon and Co. Ltd. v. CIT , in which it was explained that the expression "accrue" describes the right to receive profit and that there must be a debt owed to the assessed by somebody. Unless and until there is created in favor of the assessed a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.

6. It was, inter alia, observed as follows (page 51) :

"The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed 'debitum in praesenti, solvendum in future' . . . Unless and until there is created in favor of the assessed a debt due by somebody, it cannot be said that he has acquired a right to receive the income or that income has accrued to him."

7. A debt is a sum of money which is now payable or will become payable in future by reason of a present obligation. In People v. Arguello [1869] 37 Calif. 524, the Supreme Court of California observed as follows :

"Standing alone, the word 'debt' is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a debt owing, and of the latter that it is a debt due. In other words, debts are of two kinds, 'solvendum in praesenti' and 'solvendum in future'... A sum of money which is a certainty and in all events payable is a debt without regard to the fact whether it be payable now or at a future time. A sum payable upon a contingency, however, is not a debt or does not become a debt, until the contingency has happened."

8. The principles were reiterated by the apex court in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. Section 5 of the Act, deals with the scope of total income. The expressions "income", "is received", "accrues" and "arises", as appearing in Section 5 of the Act, have not been defined. According to the Oxford English Dictionary, the meaning of the expression "accrue" is "to fall as a natural growth or increment ; to come as an accession or advantage". The word "arise" is defined as "to spring up, to come into existence". The two words, i.e., "accrue and arise" do not mean actual receipt of profits or gains. Both these words are used in contradistinction to the word "receive". Thus, it is manifest that if an assessed acquires a right to receive the income, the income can be said to accrue to him though it may be received later on (see CIT v. Govind Prasad Parbhu Nath ). It can be said without hesitation that the words "accrue" or "arise" though not defined are certainly synonymous and are used in the sense of bringing in as a natural result. Though strictly speaking and as per dictionary meaning, there is some distinction, yet in the Act they are used to denote idea or ideas very similar and the difference lies in this that one is more appropriate where applied to a particular case (see CIT v. Ahmedbhai Umarbhai and Co. [1950] 18 ITR 472 (SC)).

9. As noticed above, by operation of the statutory provisions and terms of the license, the undertaking vested with the Government of Punjab. The disputes related to quantum to be paid for as price of the undertaking. As indicated in the statement of case, the dispute arose between the parties as to the valuation. In other words there was no dispute on the right to receive payment. It was only the quantification which was in dispute. The decisions cited by learned counsel for the Revenue reiterated the above position and in fact in all these cases the principles laid down in Hindustan Housing's case [1986] 161 ITR 524 (SC), have been adopted. That being the position factually the Tribunal's conclusions are irreversible. Accordingly, we answer the question in the affirmative, i.e., in favor of the assessed and against the Revenue.

10. The reference stands disposed of.