J A TRIVEDI Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appel-late Tribunal for answering the following question :-

(2.) THE facts as stated in the reference are that the assessee's three coal mines at Barkuhi East, Barkuhi West and Ghorawari and Hirdagarh were taken over by the Government under the Coal Mines Nationalisation act, 1973. A compensation of Rs. 5,67,000 was determined payable by the commissioner of Claims appointed under section 17 of the said Act. It appeared that in addition to some assets of the assessee, the assets of the contractor employed by the assessee for exploitation of the mines, were lying on the mines. Under section 26, sub-section (5) of the Coal Mines nationalisation Act, where any machinery or equipment or other property in the coal mine had vested in the Central Government or a Government company under the Act, but such machinery, equipment or other property did not belong to the owner of such coal mine, the amount of compensation would, on a reference made to it by the Commissioner of Claims, be apportioned by the District Court between the owner of such coal mine and the owner of such machinery, equipment or other property, having due regard to the value of such machinery, equipment or other property on the date of take over.

(3.) THE Income-tax Officer, however, proceeded to determine the profits under section 41 (2) of the Income-tax Act at Rs. 36,228 as if the entire amount of Rs. 5,67,000 was receivable by the assessee who was the owner of the mines. The Commissioner of Income-tax (Appeals) held that the income-tax Officer had committed a basic error in assuming that the entire compensation would be receivable by the assessee itself. Relying on the supreme Court's decision in the case of Calcutta Co. Ltd. v. Commissioner of Income-tax (37itr1)_, the Commissioner of Income-tax (Appeals) held that since the liability to the contractor whose machinery was lying on the coal mines was a definite liability and since the assessee had indicated the quantum of such liability on a rational and scientific basis, and if that position was accepted, the assessee had suffered a loss under section 32 (i) (iii) of the income-tax Act and not earned any profit under section 41 (2) as deter mined by the Income-tax Officer. He, therefore, vacated the addition of of Rs. 36,228 made by the Income-tax Officer under section 41 (2) and allowed the loss @f Rs. 2,65,772 under section 32 (i) (iii ). On appeal against this order of the Commissioner of Income-tax (Appeals), the tribunal held that the Commissioner of Claims has to make a reference to the district Court under section 26 (5) of the Coal Mines Nationalisation Act 1973, and as the Court has not yet made an award of apportionment of compensation between the assessee and the contractor, the fact whether the assessee would be entitled to terminal loss under section 32 (i) (iii) or assessable to profit under section 41 (2) would become clear only after the district Court passes the award apportioning the compensation between the assessee and the contractor. The Tribunal therefore set aside the order of the Appellate Commissioner and also of the Income-tax Officer and sent the case back to the Income-tax Officer to pass order after the award of the district Court is obtained on the question of apportionment of compensation. At the request of the assessee the Tribunal has made this reference for answering the question quoted above.