A transaction involving the exercise of an option to purchase an undertaking, pursuant to a license granted under the Electricity Act, 1910, and carried out in accordance with the terms of the license, constitutes a sale within the meaning of Section 10(2) (vii) of the Income-tax Act.

Bishan Narain, J.

1. The facts leading to the reference are not in dispute. The Punjab Government, on 23.07.1934 granted a licence to Dewan Harbhagwan Das Nanda and Lala Harcharan Das for generation and supply of electric energy in the town of Fazilka. A public Limited Company under the name and style of the Fazilka Electric Supply Company was incorporated in 1935. This Company acquired the said licence. Then it carried on the business in accordance with the terms of the licence. Under Clause 9 of the licence the Government was em-powered to exercise its option to purchase the undertaking on terms laid down in Section 7 (1) of the Indian Electiiciy Act, 1910 on the expiry of 15 years from the date of the licence and on the expiry of every subsequent period of 10 years. The Government exercised its option to purchase the undertaking on the expiry of fifteen years with effect from 23.07.1949 and paid Rs. 374000.00 for the same which was in excess of the written down value.

The income tax Officer computed this excess to amount to Rs. 77,700/- and held it to be taxable under Section 10 (2) (vii) of the Income-tax Act. This decision has been upheld by all the authorities under the Income-tax Act in spite of the asses-sees objections and now the Income-tax Appellate Tribunal has at the instance of the assessee Company referred the following question for the opinion of this Court under Section 66 (1) of the Income-tax Act:-

- "Whether on the facts and in the circumstances of this case, and on a true interpretation of Section 7(1) of the Indian Electricity Act and Clause 9 of the Fazilka Electric Licence, 1934, the transaction, by which the Government acquired the undertaking could be regarded as a sale within the meaning or Section 10 (2) (vii) of the Income tax Act?".

2 Before dealing with the case on merits, I may notice one submission made by the learned counsel for the assessee Company before the arguments started. He urged that the statement of the case by the Income-tax Appellate Tribunal was defective because certain matters were not included therein. He argued that in this case the Government had arbitrarily fixed the price and had acquired the undertaking in spite of Companys protest and that these facts should have been included in the statement. On these grounds he urged that the case may be sent back to the Appellate Tribunal under Sub-clause (4) of Section 66 of the Income Tax Act. We were however satisfied that the statement of the case was sufficient to enable us to determine the Question raised and therefore refused to accede to this request.

3. Now under Section 10 (2) (vii) of the Income Tax Act the amount by which the written down value of any building, machinery or plant exceeds the amount for which these properties have been actually sold" is taxable. The question arises whether the transaction described above amounts to sale within the Income-tax Act or not. The case of the assessee Company is that the transaction of transfer in question did not take place as a result of any valid contract or agreement between the parties but is the result of compulsory purchase or in other words compulsory acquisition of the property by the Government against the wishes of the assessee Company. On the other hand the case of the Commissioner of Income-tax is that the transaction is in pursuance of a valid contract between the parties and that in any case Section 10(2) (vii) applies also to compulsory sales or acquisitions. It is therefore necessary to determine (1) the exact nature of the present transaction and then (2) if Section 10(2) (vii) of the Income-tax Act applies to it.

4. Now the supply of electric energy to a town involves public interest. The Electricity Act, 1910 and the rules framed thereunder lay down the conditions in the general terms on which a license should be granted and also the procedure which must be followed for the purpose. A license gives exact terms on which a particular license has been gran