Commissioner Of Income-Tax, Madurai v. M/S. Southern Roadways Ltd., Lakshmi Building, Kochadai, Madurai 625 016

In the High Court of Judicature at Madras Dated: 21/03/2003 Coram The Honourable Mr.Justice R.Jayasimha BabuandThe Honourable Mr.Justice K.Raviraja Pandian Tax Case No.53 of 1999 Commissioner of Income-tax,Madurai. ..... Applicant -Vs- M/s. Southern Roadways Ltd.,Lakshmi Building,Kochadai, Madurai 625 016. ..... Respondent Reference made under Section 256(1) of the Income-tax Act, 1961 by theIncome-tax Appellate Tribunal, B Bench, Madras, in RA.No.116/Mds/9 7 in ITAsNo.1503 and 1504/M/86 for the assessment year 1972-73. !For Applicant : Mrs.Pushya Sitaraman,Sr. Standing Counsel for IT Dept. For Respondent : Mr.S.A. Balasubramanian :JUDGMENT (Judgment of the Court was delivered byR.Jayasimha Babu, J.) The assessment year is 1972-73. The questions referred are :"1. Whether on the facts and in the circumstances of the case, theAppellate Tribunal was correct in law in admitting an additional ground raisedby the assessee questioning the CIT (A)'s finding that profits as per Section41(2) on sale of buses and other assets are properly assessable in theassessment year 1973-74?2. Whether on the facts and in the circumstances of the case, theAppellate Tribunal was correct in law in holding that the CIT(A)'s findingsthat the profits under Section 41(2) are assessable in the assessment year1973-74 and not in assessment year 1972-73 are only incidental findings andare not legally binding on the Assessing Officer?3. Whether on the facts and in the circumstances of the case, theAppellate Tribunal was correct in law in deleting Rs.55,21,856/- being profitu/s.41(2) from the total income for the assessment year 1972-7 3?" 2. The assessee was running a passenger bus service and owned 346 busses, 16 other vehicles, lands, buildings premises, spare parts, machinery,etc., all of which were acquired by the State under Section 3 of the TamilNadu Fleet Operators Stage Carriages (Acquisition) Act, 1971 (Tamil NaduAct.XXXVII of 1971). That Act came into force on 0 7.12.1971. The assets ofthe assessee relating to it's bus transport system were taken over on17.01.1972. 3. On the 21st of March 1972 the Government issued an order in whichit was, inter alia, stated thus: The bus transport system of Southern Roadways Private Limited, Madurai, hasbeen taken over by the Government on the 17th January, 1972 and transferred tothe Pandyan Roadways Corporation Limited, Madurai on the same date. TheGovernment have decided to pay to the Southern Roadways Private Limited, partcompensation of Rs.51.50 lakhs (Rupees fifty one lakhs and fifty thousands) incash in two equal instalments in March and April 1972, for their propertieswhich have been taken over. Accordingly, the Government direct that a sum ofRs.25.75 lakhs (Rupees twenty five lakhs and seventy five thousands) be paidimmediately in March 1972 to Southern Roadways Private Limited, Madurai,towards a portion of the part compensation and that the balance of the partcompensation amounting to Rs.25.75 lakhs (Rupees twenty five lakhs and seventyfive thousands) be paid to the firm in April 1972." 4. Some months later, the total amount of compensation payable to the assessee was determined at Rs.1,25,42,741.66 as the result of negotiation withthe assessee. From that amount gratuity liability of Rs.30,00,000/- and leaveliability of Rs.3,87,684.41 were deducted. In that notification of 07.09.1972after referring to those figures it was stated "A part payment of compensationof Rs.51,50,000/- has been made to the operator in G.O. Ms. No.249Transport, dated 21.03.1972. The Secretaries' Committee has recommended thatthe operator is entitled to be paid the balance of Rs.40,05,057.25 in full andfinal settlement of all his claims for all properties taken over underTransport Department's Notification.................." 5. For the assessment year 1972-73 the sum of Rs.51.50 lakhs was 4. Some months later, the total amount of compensation payable to the assessee was determined at Rs.1,25,42,741.66 as the result of negotiation withthe assessee. From that amount gratuity liability of Rs.30,00,000/- and leaveliability of Rs.3,87,684.41 were deducted. In that notification of 07.09.1972after referring to those figures it was stated "A part payment of compensationof Rs.51,50,000/- has been made to the operator in G.O. Ms. No.249Transport, dated 21.03.1972. The Secretaries' Committee has recommended thatthe operator is entitled to be paid the balance of Rs.40,05,057.25 in full andfinal settlement of all his claims for all properties taken over underTransport Department's Notification.................." 5. For the assessment year 1972-73 the sum of Rs.51.50 lakhs was treated as the income of the assessee in that year by the assessing officerwho regarded this sum as a balancing charge and liable to be brought to taxunder Section 41(2) of the Income-tax Act, as this sum was received for thebuilding, machinery and plant which had been owned by the assessee and onwhich it had received depreciation and the amount received was in excess ofwritten down value. 6. The assessee contended before the assessing officer that the amount received by it as compensation for the compulsory acquisition of it'sassets could not be regarded as part of it's income. That contention wasrightly rejected by the assessing officer who referred to the definition ofthe word "sold" in the Explanation (2) to Section 4 1(4) and which definitionmade it abundantly clear that the transfer by way of exchange or a compulsoryacquisition under any law was, for the purpose of this section, to be treatedas a sale. 7. It was also contended by the assessee that this amount can only be included for assessment in the next assessment year, as the total amount of compensation payable was determined only under the notification of 07.09.1972.The assessing officer held that as the money had been paid by the Governmentas compensation, that amount was includible in the assessment year as part ofcompensation for the assets acquired from the assessee, and that as to theamount had become due to the assessee in terms of the Government Order of21.03.1972, the same was required to be included in the assessment for theassessment year 1972-73. 8. On appeal by the assessee, the Commissioner held that this amountis not includible in the assessment for the assessment year 1972-73 year asthe total amount due had not been finally determined under the Notification of21.03.1972, but was only determined under the Notification of 07.09.1972. Healso in the course of his order held that this amount is to be included in theassessment for the assessment year 1973-74. 9. Appeals were filed by the assessee as also by the revenue againstthe order of the Commissioner. The assessee's contention was that no taxcould be levied as Section 41(2) had no application to the facts of theassessee's case. An additional ground was subsequently raised during thependency of the appeal with regard to the direction given by the Commissionerin the course of his order that this amount be brought to tax in theassessment year 1973-74. The Tribunal while holding that the amount wasliable to be treated as income of the assessee under Section 41(2) held thatthe Commissioner had acted beyond his jurisdiction in directing that theamount be included for the assessment year 1973-74. The Tribunal rejectingthe revenue's appeal held that Rs.51.50 lakhs could not be brought to tax inthis year as in it's view the amount had not become due. 10. Of the three questions before us the first two concern thedirections given by the Commissioner to include this amount in the assessmentfor the assessment year 1973-74. The answer to those questions are reallyacademic, having regard to the statutory provision in Section 153(3)(ii) andExplanation (2) under the proviso thereto. The effect of those provisions isto expand the period of limitation to permit the revenue to bring to tax theamounts which are deleted or reduced from the assessment made for any year andwhich are deleted or reduced as not properly falling within the scope of theproceedings for that year, by reason of an order made in appeal or otherproceedings under Sections 250, 254, 260, 262, 263 or 264 of the Income-taxAct, 1961. The assessment of the income so excluded may be made for anotherassessment year for the purpose of Section 150 as also for the purpose ofsection 153 as the assessment is deemed to be one made in consequence of or togive effect to any finding or direction contained in the order made under theaforementioned sections. 11. Section 153(3)(ii) reads thus:Section 153:- Time limit for completion of assessments andreassessments. (1) ... (2) ... (3) The provisions of sub-sections (1) and (2) shall not apply to thefollowing classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A)] be completed at any time:- (i) ...... (ii) where the assessment, reassessment or recomputation is made onthe assessee or any person in consequence of or to give effect to any findingor direction contained in an order under section 250, 254, 2 60, 262, 263, or264 or in an order of any court in a proceeding otherwise than by way ofappeal or reference under this Act. Explanation 2 to the proviso thereunder reads thus: "Explanation 2 :- Where by an order referred to in clause (ii) ofsub-section (3), any income is excluded from the total income of the assesseefor an assessment year, then, an assessment of such income for anotherassessment year shall, for the purposes of section 150 and this section, bedeemed to be one made in consequence of or to give effect to any finding ordirection contained in the said order." 12. Thus, the legal effect of the order of the Commissioner directingthe deletion of this amount from the scope of the assessment for thisassessment year would be the same, whether or not a direction for includingthis amount in the succeeding assessment year is included in that appellateorder. 13. Moreover, it is within the jurisdiction of the Tribunal to permit the parties before it to raise additional grounds if the additional groundscan be considered and decided on the basis of the materials already on record.Whether or not to allow additional grounds to be raised is a matter of sounddiscretion of the Tribunal. The Tribunal had the jurisdiction and hadexercised it's discretion properly in permitting the assessee to raise theadditional ground. We answer the first question in favour of the assessee. 14. No answer need be recorded for the second question having regardto Section 153 of the Act. That question is returned unanswered. 15. With regard to the third question, it was submitted by the learned counsel for the assessee that in the order of assessment the assessingofficer had not regarded the sum of Rs.51.50 lakhs as part of compensation,and therefore it is not permissible for the revenue now to say that thatamount only constituted a part of the compensation and that such a part wasincludible in the assessment for this year. Counsel in this context referredto the decision of Supreme Court in the case of Ravindranathan Nair vs.Commissioner of Income-tax, (2001 ) 247 ITR 178 and of this Court in the caseof Commissioner of Income-tax vs. India Pistons Repco Ltd., (1999) 240 ITR59. Here no question of fact is in dispute. The order of the Income-taxOfficer itself shows that he was aware of the fact that the compensation 15. With regard to the third question, it was submitted by the learned counsel for the assessee that in the order of assessment the assessingofficer had not regarded the sum of Rs.51.50 lakhs as part of compensation,and therefore it is not permissible for the revenue now to say that thatamount only constituted a part of the compensation and that such a part wasincludible in the assessment for this year. Counsel in this context referredto the decision of Supreme Court in the case of Ravindranathan Nair vs.Commissioner of Income-tax, (2001 ) 247 ITR 178 and of this Court in the caseof Commissioner of Income-tax vs. India Pistons Repco Ltd., (1999) 240 ITR59. Here no question of fact is in dispute. The order of the Income-taxOfficer itself shows that he was aware of the fact that the compensation determined was at Rs.1,25,42,741.66 from which certain sums were to bededucted and that the amount which he had regarded as being includible in theassessment for this assessment year was only Rs.51.50 lakhs. 16. It was also not the case of the assessee before the assessing officer that this amount should not be included in the assessment on theground that it represents only a part and is not a whole of the amount thatwould be payable in terms of the Tamil Nadu Fleet Operators Stage Carriages(Acquisition) Act, 1971. The facts set out in the orders of the authoritiesbelow as also the Tribunal make it abundantly clear that every one of theauthorities was conscious of the fact that the amount of Rs.51.50 lakhs wasonly part of the compensation and all the balance amounts had been paid inSeptember 1972. Even the very order under which this amount is directed to bepaid refers to the sum as part compensation and the first instalment of thatcompensation has been described as part of the part compensation. 17. Learned Senior Standing Counsel for the revenue placing strongreliance upon the decision of the apex Court in the case of Commissioner ofIncome-tax vs. United Provinces Electric Supply Company, (2000 ) 244 ITR 764submitted that on the facts of this case, the amount directed to be paid tothe assessee under the Government Order of 21st day of March, 1972 is requiredto be regarded as amount which was due to the assessee that amount havingbecome payable earlier on the acquisition of it's assets, and that fact wouldsuffice to bring that amount to tax in the assessment for this year eventhough further amount was payable to the assessee and was, in fact, paid inthe subsequent assessment year. 18. The material word 'due' which require consideration is to befound in Section 41(2) of the Act: S.41 Profits chargeable to tax: (1) .............. (2) Where any building, machinery, plant or furniture,-- (a) which is owned by the assessee; (b) in respect of which depreciation is claimed under clause (i) of sub-section (1) of section 32; and (c) which was or has been used for the purposes of business, is sold, discarded, demolished or destroyed and the moneys payable in respectof such building, machinery, plant or furniture, as the case may be togetherwith the amount of scrap value, if any, exceeds the written down value, somuch of the excess as does not exceed the difference between the actual costand the written down value shall be chargeable to income-tax as income of thebusiness of the previous year in which the moneys payable for the buildingmachinery, plant or furniture became due. The word "due" has several shades of meaning. As explained in Words andPhrases Permanent Edition Volume XIIIA, that word is used to refer to the debtor obligation which has become immediately payable. It is also used to referto simple indebtedness without reference time of payment. is sold, discarded, demolished or destroyed and the moneys payable in respectof such building, machinery, plant or furniture, as the case may be togetherwith the amount of scrap value, if any, exceeds the written down value, somuch of the excess as does not exceed the difference between the actual costand the written down value shall be chargeable to income-tax as income of thebusiness of the previous year in which the moneys payable for the buildingmachinery, plant or furniture became due. The word "due" has several shades of meaning. As explained in Words andPhrases Permanent Edition Volume XIIIA, that word is used to refer to the debtor obligation which has become immediately payable. It is also used to referto simple indebtedness without reference time of payment. 19. Though the amount becomes payable when the asset is transferredin the absence of any agreement to the contrary, and the amount also becomes'due' in the sense that that amount is owed, the determination of the amountif not made at the time of the transfer, and is made subsequently, the amountcan be said to become due at that subsequent point of time when the amountpayable is determined. S.41(2) does not equate 'payable' with 'due'. 20. A three Bench of the Apex Court in the case of Central India Electric Supply Company Vs. Commissioner of Income-tax (247 I.T.R.54), upheldthe decision of the Madhya Pradesh High Court which had held that the word"due" in Section 41(2) of the Act should be understood as the time at whichthe person entitled to the monies could enforce the payment of the same whichhad by then been determined. The Apex Court held that when the Arbitrator'sAward was made the rule of the Court, the amount was to be regarded as havingbecome due in that year, as the decree so made become enforceable immediatelyafter it was made a rule of the Court. The judgment of the Madhya Pradesh High Court has been approved by another two Judge Bench of the Apex Court alsoin the case of Commissioner of Income-tax Vs. United Provinces ElectricitySupply Company (244 I.T.R.764). 21. Though the subsequent enhancement of the amount initially determined may take place in a year subsequent to the year in which the amountwas initially determined, the year which enhancement was made has not beenregarded as the year in which the amount became due. The Court has thusrecognised the possibility of the amount to be brought to tax under Section41(2) of the Act being so brought to tax in two different assessment years,the amount initially determined in one year and the amount of enhancement as aresult of further proceedings, in a later year. 22. The determination of the amount is a pre-condition for bringing the amount to tax. CIT vs. Shivarudrappa, 200 ITR 1, was a case where theamount determined as the compensation for the acquisition of buses wasstatutorily required to be disbursed in instalments. The Karnataka High Courtheld that it is only the amount of the instalment due in the relevant previousyear that was assessable, as the assessee had no right to enforce the paymentof subsequent instalments even before they became due for payment. 22. The determination of the amount is a pre-condition for bringing the amount to tax. CIT vs. Shivarudrappa, 200 ITR 1, was a case where theamount determined as the compensation for the acquisition of buses wasstatutorily required to be disbursed in instalments. The Karnataka High Courtheld that it is only the amount of the instalment due in the relevant previousyear that was assessable, as the assessee had no right to enforce the paymentof subsequent instalments even before they became due for payment. 23. In this case, the amount payable to the assessee for thecompulsory acquisition of it's buses and other assets relating to thepassenger transport buses, was required to be determined by way of agreement,and in the event of agreement not being reached by reference to arbitration.The assets were taken over in the month of January, 1 972. In March of thatyear, when the Government decided to pay a part of the compensation payablefor the acquisition of the assessee's assets, there was no determination ofthe total amount payable, as such determination could only be the result of anagreement and no such agreement had been reached at that point of time,neither party having sought arbitration. What was disbursed by theGovernment, therefore, was an amount which was to be adjusted against theamount which was required to be determined either by way of an agreement or byrecourse to arbitration. The parties did reach an agreement some months laterduring the assessment year 1973-74, and it was at that point of time there wasa determination of the amount payable for the assets which had been takenover. The amount, therefore, is to be regarded as having become due at thatpoint of time when the agreement was reached. 24. The term "due" as emphasised in the aforementioned decisions carries with it the implication that the amount which can be said to be due isan amount the recovery of which can be enforced and that amount is anascertained sum. Such ascertainment having been made in this case in thesucceeding assessment year, it is in that year that the amount is to bebrought to tax. The fact that a part of that amount had been disbursed in theearlier year would not make that amount immune from taxation in the succeedingyear, nor would that amount become liable for taxation in the year in which itwas paid. The terms used in Section 41(2) of the Act do not require that theamount should have been received. The emphasis is on the point of time atwhich the amount became due and it is that point of time alone which isrelevant for the purpose of determining the year in which such amount shouldbe brought to tax. 25. Though as pointed out in the decision of the Apex Court in thecase of United Provinces Electricity Supply Company (244 I.T.R.764) (Supra),the word "finally" is not used in Section 41(2) of the Act, nevertheless,there must be initial determi on which may subsequently be modified by reasonof other subsequent proceedings. But the initial determination is apre-requisite for regarding that amount as having become due. 26. The order made by the Government in March 1972 is an unilateral order by which it came forward to disburse a part of the compensation which itwas required to pay and the precise quantum of which had not as yet beenascertained either by agreement or by recourse to arbitration. Such voluntarydisbursement of part of the unascertained amount which the Government had topay for the assets taken over is, therefore, not capable of being regarded asan amount which had become due and payable as the result of an agreement. Thefact that the assessee received the amount so disbursed by itself would not besufficient to hold that the amount that was received was the result of anagreement between the parties, in order to bring it within the ambit ofSection 41(2) of the Act. 27. We, therefore, answer the last question in favour of theassessee, and against the Revenue. Index : YesWeb : Yes mf/btr Copies to 27. We, therefore, answer the last question in favour of theassessee, and against the Revenue. Index : YesWeb : Yes mf/btr Copies to 1. The Assistant Registrar,Income-tax Appellate Tribunal,Rajaji Bhavan, III Floor, Besant Nagar,Chennai - 600 090 (Five copies with records) 2. The Secretary,Central Board of Revenue,New Delhi (Three copies) 3. The Commissioner of Income-tax, Madurai 4. The Appellate Assistant CommissionerIncome-tax (Appeals) IV, Madras-34 5. The Income-tax Officer, Company Circle, Madurai