Case: The Fazilka Electric Supply Co. Ltd Vs. The Commissioner Of Income-Tax, Delhi

and such advertisement shall include inter alia the draft license. Where any person desires to have any amendment made in the draft license, he shall deliver a statement of the same. The rules further provide for a local enquiry if any person locally interested objects to the grant; if and when Government has approved of a drain license, either in its original form or in a modified form, a duty is cast on Government to inform the applicant of a such approval and of the form in which it is proposed to grant the license and if the applicant is willing to accept the license in the form proposed then Government shall on receipt of an intimation in writing of such acceptance publish the license and notify that it has been granted.7. If, therefore, the provisions of the Electricity Act are read along with the rules made thereunder, it becomes manifest that the condition as to the option of purchase either by the local authority or Government, is the result of an agreement between the applicant who has applied for the license and Government who grants the license. Section 7 of the Electricity Act is merely an enabling provision which allows the parties to specify in the license the periods on the expiration of which the right of option shall be exercised, subject to the maximum periods mentioned therein. The true scope and effect of S. 7 is not what the appellant suggests. It merely provides for an option of purchase to be exercised on the expiration of certain periods agreed to between the parties and S. 10 further provides that in an appropriate case Government may even forego the option. This section does not provide for a compulsory purchase or compulsory acquisition without reference to and independent of any agreement by the licensee. Our attention has been drawn to the use of the expression "compulsory purchase" in the second proviso to sub-sec. (1) of S. 7 and it has been argued that the use of that expression indicates the intention of the Legislature. The second proviso is another enabling provision which enables the parties to specify in the license such percentage, if any, not exceeding twenty per centum, as should be added to the value of the building, plant, machinery etc. when the option of purchase is exercised. No doubt, the expression used in the proviso is "compulsory purchase"; but in substance what it provides for is that the parties may agree to increase the market value of the building, plant etc. by a certain percentage when the option of purchase is exercised and the price has to be paid. The use of the expression "if any" after the word "percentage" shows that the parties may agree not to increase the market value at all. If the whole scheme of the Electricity Act and the rules made thereunder, is kept in mind, it becomes obvious that notwithstanding the Use of the expression "compulsory purchase" in the second proviso to sub-section (1) of S. 7, there is no compulsory purchase or compulsory acquisitions in the sense in which that expression is ordinarily understood. The High Court has rightly pointed out that the scheme of the Electricity Act as indicated by the relevant provisions thereof and the rules made thereunder, shows beyond any doubt that the option of purchase is the result of a mutual agreement between the parties, the applicant for the licence on one hand and Government on the other. The High Court rightly observed :"The rules show that a draft license has to be sent by an applicant for licence containing definite and specific terms on which the license is sought. This amounts to an offer. The Government accepts it or rejects it. If it modifies it in any way, then the applicant or offerer must accept the modification. If the government accepts the offer with or without modification, then it grants a license. In my view a licence granted by the Government in such circumstances amounts to a contract between the parties."8. On behalf of the appellant it has been contended, some what faintly, that all the elements necessary to constitute a contract are not present here. We are unable to agree. There was an undertaking on the part of the applicant for the license to sell the undertaking to the local authority or Government upon certain terms set out in the license, and the time at which the option was to be exercised and the price which was to be paid for the property were specified. There was consideration for the contract as the license was granted on those terms. Therefore, all the elements necessary for a contract were present, and the sale in pursuance thereof was not a compulsory purchase or acquisition. (see Sakalaguna Nayudu v. Chinna Munuswamy Nayakar, 55 Ind App 243: (AIR 1928 PC 174 ).9. We are, therefore, of the opinion that the High Court correctly answered the question referred to it. There was a sale in the present case of the building, machinery and plant within the meaning of cl. (vii) of S. 10(2) of the Income-tax Act. In view of this conclusion it is unnecessary to deal with a somewhat larger question which was canvassed before us on behalf of the respondent that S. 10(2) (vii) of the Income-tax Act is attracted even to a compulsory sale. Nor do we consider it necessary to examine the decisions bearing upon the question whether a compulsory transfer to and vesting of property in Government, constitute a sale within the meaning of the relevant provisions of the Indian or English Statute. It is sufficient to point out that Calcutta Electric Supply Corporation v. Commissioner of Income-tax, West Bengal, (1951) 19 ITR 406 : (AIR 1951 Cal; 151) related to a transaction by which government acquired the plant etc. and it was held that such acquisition could not be regarded as a sale within the meaning of S. 10(2) (vii) of the Income-tax Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]This section does not provide for a compulsory purchase or compulsory acquisition without reference to and independent of any agreement by thethe whole scheme of the Electricity Act and the rules made thereunder, is kept in mind, it becomes obvious that notwithstanding the Use of the expression "compulsory purchase" in the second proviso to sub-section (1) of S. 7, there is no compulsory purchase or compulsory acquisitions in the sense in which that expression is ordinarily understood. The High Court has rightly pointed out that the scheme of the Electricity Act as indicated by the relevant provisions thereof and the rules made thereunder, shows beyond any doubt that the option of purchase is the result of a mutual agreement between the parties, the applicant for the licence on one hand and Government on theare unable to agree. There was an undertaking on the part of the applicant for the license to sell the undertaking to the local authority or Government upon certain terms set out in the license, and the time at which the option was to be exercised and the price which was to be paid for the property were specified. There was consideration for the contract as the license was granted on those terms. Therefore, all the elements necessary for a contract were present, and the sale in pursuance thereof was not a compulsory purchase or acquisition. (see Sakalaguna Nayudu v. Chinna Munuswamy Nayakar, 55 Ind App 243: (AIR 1928 PC 174  ).9. We are, therefore, of the opinion that the High Court correctly answered the question referred to it. There was a sale in the present case of the building, machinery and plant within the meaning of cl. (vii) of S. 10(2) of the Income-tax Act. In view of this conclusion it is unnecessary to deal with a somewhat larger question which was canvassed before us on behalf of the respondent that S. 10(2) (vii) of the Income-tax Act is attracted even to a compulsory sale. Nor do we consider it necessary to examine the decisions bearing upon the question whether a compulsory transfer to and vesting of property in Government, constitute a sale within the meaning of the relevant provisions of the Indian or English Statute. It is sufficient to point out that Calcutta Electric Supply Corporation v. Commissioner of Income-tax, West Bengal, (1951) 19 ITR 406  : (AIR 1951 Cal; 151) related to a transaction by which government acquired the plant etc. and it was held that such acquisition could not be regarded as a sale within the meaning of S. 10(2) (vii) of the Income-tax Act.