Rajashekhara Murthy, J.:— The question referred for the opinion of this court under s. 256(1) of the I.T Act, 1961, at the instance of the Revenue, is as follows;
“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in holding that the ‘money payable’ on acquisition of motor vehicles under the Karnataka Contract Carriages (Acquisition) Ordinance became due only subsequent to the period relating to the assessment year 1976–77, and that profit under s. 41(2) of the I.T Act, 1961, cannot be computed for the assessment year 1976–77?”
2. The facts in brief are as follows:
Two contract carriages bearing Nos. MYZ 5687 and MYZ 6887 owned by the assessee, Sheshappa Hegde, were acquired by the State of Karnataka under the Karnataka Contract Carriages (Acquisition) Ordinance, 1976 (Karnataka Ordinance No. 7 of 1976), which was later replaced by the Karnataka Contract Carriages (Acquisition) Act, 1976 (Karnataka Act 21 of 1976) (hereinafter referred to as “the Acquisition Act”). The said Ordinance came into force on January 30, 1976, and the vehicles were taken over on the same day.
3. The assessee had purchased the two motor vehicles on September 22, 1973 and January 29, 1975, respectively. For the assessment year 1976–77, the assessee filed a revised return admitting a loss of Rs. 1,32,443 which included cost of contract carriages taken over by the Government, during the year. The ITO disallowed the loss and the claim for depreciation on the ground that the buses were taken over by the Government during the accounting year. The AAC held that the minimum compensation payable, under s. 6 and the Schedule thereto, was the amount which should be considered for assessment of his profits under s. 41(2) of the I.T Act. He accordingly added back the excess depreciation computing the profits as per the Schedule to s. 6 of the Acquisition Act and brought the excess to tax under s. 41(2) of the I.T Act.
4. In further appeal to the Tribunal by the assessee, the Tribunal held that the order of the AAC enhancing the assessment by Rs. 22,750 under s. 41(2) was not sustainable in law and it cancelled the direction to modify the assessment. According to the Tribunal, the amount of compensation had not been determined under the Acquisition Act during the accounting year and it was, therefore, not open to the ITO to make any assessment under s. 41(2). The Tribunal, however, held that the assessee was entitled to depreciation on the vehicles as they were owned and used for his business for a part of the year.
5. In this reference, the question to be determined is, whether the assessment of the deemed profits under the provisions of s. 41(2) is sustainable in law on the facts stated by the Tribunal. For this purpose, it would be necessary to examine the provisions of s. 41(2) of the I.T Act vis-a-vis s. 6 of the Acquisition Act. We shall first examine the scope of s. 6 of the Acquisition Act and it provides:
6. Determination of the amount.— (1) For the vesting of the acquired property under section 4, every person interested shall be entitled to receive such amount as may be determined in the manner hereinafter set out and as specified in the Schedule, that is to say,—
(a) where the amount can be fixed by agreement, it shall be determined in accordance with such agreement;
(b) where no such agreement can be reached, the State Government shall appoint as arbitrator a person who is an officer not below the rank of a Divisional Commissioner or a District Judge;
(c) the State Government may, in any particular case, nominate a person having expert knowledge as to the nature of the acquired property to assist the arbitrator and where such nomination is made, the person interested may also nominate an assessor for the same purpose;
(d) at the commencement of the proceedings before the arbitrator, the State Government and the person interested shall state what in their respective opinion is the amount payable;
(e) the arbitrator shall, after hearing the dispute, make an award determining the amount which appears to him just and reasonable and also specifying the person or persons to whom the amount shall be paid; and in making the award he shall have regard to the circumstances of each case and the provisions of the Schedule so far as they are applicable;…”
6. The basis for determination of the amount has been provided in the Schedule to s. 6 of the Acquisition Act. Such compensation which is required to be paid is the sum arrived at on a certain percentage of the cost of such contract carriages as per the table ‘annexed to the Schedule. This amount, unless otherwise fixed by agreement, is to be determined by the arbitrator appointed for the purpose.’ Under s. 12 of the Acquisition Act, an appeal is provided to the High Court by any person aggrieved by the said award.
7. The amount referred to in s. 6 of the Acquisition Act is thus required to be determined and quantified under an award by the arbitrator and it becomes due only after such determination.
8. Section 41(2), so far as it is material, provides:
“(2) Where any building, machinery, plant or furniture which is owned by the assessee and which was or has been used for the purposes of business or profession is sold, discarded, demolished or destroyed and the moneys payable in respect of such building, machinery, plant or furniture, as the case may be, together with the amount of scrap value, if any exceed the written down value, so much of the excess as does not exceed the difference between the actual cost and the written down value shall be chargeable to income-tax as income of the business or profession of the previous year in which the moneys payable for the building, machinery, plant or furniture became due:……………….”
9. The charge under the above sub-section arises in the year in which the sale price of the insurance, salvage or compensation moneys becomes due. The AAC proceeded to compute the profits solely relying on the provisions of s. 6 which enable the assessee to claim the compensation and provide a machinery for the State to determine the same. He has, in our opinion, missed the real point and went wrong in assuming that the “amount payable” to the assessee became due during the accounting year and, therefore, was liable to be considered for assessment under s. 41(2) for the assessment year 1976–77. It may be relevant to note that s. 41 deals with deemed income or a fictional income. The year of taxability under s. 41(2) is the year of receipt or the year in which it becomes due.
10. There are two significant expressions in s. 41(2). They are “moneys payable” and “moneys payable becoming due”. More often, these two terms are used without much distinction. Money payable sometimes means only the money due. Money would not become due unless it is payable. But, in the context in which the said two terms are used in s. 41(2), they, do not carry the same meaning.
11. The meaning of these two terms can be gathered from the following:—
(i) Words and Phrases: Permanent Edition:
Vol. 31A, page 188: “payable”:
Adjective “payable” refers to that which is to be paid, justly due, or legally enforceable, and a sum of money is said to be “payable” when a person is under obligation to pay it.
Vol. 13A, page 80: “due”:
The word “due” may mean that the debt or obligation to which it is applied has become immediately payable or that the debt has become ascertained and fixed although payable in the future”.
(ii) Black's Law Dictionary.
“Payable”:
Capable of being paid, suitable to be paid, admitting or demanding payment, justly due, legally enforceable. Payable signifies an obligation to pay at a future time, but when used without qualification, the term normally means that the debt is payable at once.
“Due”:
Owing, payable, justly owned, that which one contracts to pay or perform to another, that which law or justice requires to be paid or done.”
12. In New Delhi Municipal Committee v. Kalu Ram, (1976) 3 SCC 407 : AIR 1976 SC 1637, the Supreme Court observed that the word “payable” is somewhat indefinite in import and its meaning must be gathered from the context in which it occurs. It was also observed that “payable” generally means that which should be paid.
13. In Kesoram Industries & Cotton Mills Ltd. v. CWT, [1966] 59 ITR 767 (SC), the Supreme Court, while interpreting the meaning of the expression “debt owed” used in s. 2(m) of the W.T Act, observed (at p. 780):
“a debt is a sum of money which is now payable or will become payable in future by reason of a present obligation; debitum in praesenti, solvendum in futuro.”
14. It was further observed at page 784:
“To summarise: A debt is a present obligation to pay an ascertainable sum of money, whether the amount is payable in praesenti or in futuro: debitum in praesenti, solvendum in futuro. But a sum payable upon a contingency does not become a debt until the said contingency has happened. A liability to pay income-tax is a present liability though it becomes payable after it is quantified in accordance with ascertainable data. There is a perfected debt at any rate on the last day of the accounting year and not a contingent liability. The rate is always easily ascertainable. If the Finance Act is passed, it is the rate fixed by that Act. If the Finance Act has not yet been passed, it is the rate proposed in the Finance Bill pending before Parliament or the rate in force in the preceding year, whichever is more favourable to the assessee. All the ingredients of a ‘debt’ are present. It is a present liability of an ascertainable amount.”
15. In the light of these principles, the words “payable” and “due” used in s. 41(2) could only mean that such amount payable would, be subjected to charge in an assessment under the I.T Act during the year in which it becomes due. Money payable occurring in s. 6 of the Acquisition Act thus becomes due only on its determination by the arbitrator appointed for that purpose and as per law. The profits that are exigible to tax under s. 41(2) are those that become due during the previous year and from the facts stated in the statement of case by the Tribunal there could be no doubt that no such amount became due in respect of the contract carriages acquired by the Government during the relevant previous year. The assessment as modified by the AAC was, therefore, erroneous and the order of the Tribunal reversing that order is correct.
16. We, therefore, answer the question in the affirmative and against the Revenue. No costs.