M/S. E. D. SASOON & CO. LTD. BOMBAY vs. THE C.I.T. BOMBAY CITY

CIVIL APPEAL No. 26/1969Supreme Court[1973] 1 S.C.R. 108429 August 1972Bench: 3 JudgesAuthor: K.S. HEGDE, P. JAGANMOHAN REDDY, HANS RAJ KHANNA13 pages
AI SummaryDismissed

What were the facts?

The assessee, E. D. Sassoon & Co. Ltd., took over a business from a partnership firm which had paid tax under the Income-tax Act of 1918. The firm's business included banking, commission agency, dealing in shares and securities, and foreign exchange. The appellant company purchased shares and securities worth Rs. 1,93,79,521.31 at market value as of December 31, 1920, and further shares worth Rs. 4,28,05,627 between January 1, 1921, and January 31, 1921. In the assessment year 1949-50, the company discontinued its business and claimed exemption under Section 25(3) of the Income-tax Act, 1922, for Rs. 33,40,057. The Income-tax Officer rejected this claim. The Tribunal found that the business was assessed under the 1918 Act but held that the shares and securities were taken as an investment, not for dealing. The High Court held the company was a dealer in shares and securities immediately after taking over from the firm. Both parties appealed to the Supreme Court. The assessee did not press its appeal.

What did the Supreme Court hold?

The Supreme Court dismissed the Revenue's appeal. The Court held that for relief under Section 25(3), three conditions must be met: the business must have been taxed under the 1918 Act, there must not have been a succession after April 1, 1939, attracting sub-section (4), and the business must be discontinued, meaning a complete cessation, not just a change of ownership. The Court found that the High Court's assessment orders for 1921-22 and 1922-23 provided sufficient material to conclude that the company was trading in shares and securities. Even if the shares and securities were initially considered an investment, the subsequent purchase of shares worth Rs. 4,28,05,627 in the ordinary course of business logically inferred that the company was carrying on the same business as the firm, including dealing in shares and stocks. The Court noted that the Income-tax Officer had omitted to include appreciation of shares and stocks for the accounting year 1921, but this did not mean the company did not deal in shares and stocks. Furthermore, even if one or two business activities were discontinued, it would not justify holding that the business of the firm taken over had been discontinued, as Section 25(3) does not restrict exemption only to income taxed under a particular head. The Court confirmed the High Court's judgment, stating the assessee company was entitled to relief under Section 25(3).

What were the issues?

1. Whether the assessee company was carrying on the same business as the firm, specifically dealing in shares and securities, to be eligible for the benefit under Section 25(3) of the Income-tax Act, 1922, when the Income-tax Officer rejected the claim on the grounds that the company had claimed deduction for appreciation in shares and securities in 1921 and had discontinued one of the firm's businesses (dealing in shares and securities). Assessee's Contention: The assessee implicitly argued that it was entitled to the benefit under Section 25(3) as it had taken over the business as a going concern and continued to deal in shares and securities, and even if some activities were discontinued, the overall business taken over was not. The judgment references the High Court's finding that the company was a dealer in shares and securities immediately after taking over. Revenue's Contention: The revenue contended that the Tribunal found the shares and securities business was not taken over by the company, thus the company was not carrying on the same business as the firm and could not claim the benefit under Section 25(3). The revenue also argued that the High Court gave its answer against the assessee on a different question.

Which sections of the Income-tax Act were involved?

Section 25(3),Section 66(1),Section 10

AI-generated summary — verify with the full judgment below

1084 MIS. E. D. SASOON & CO. LTD. BOMBAY v. THE C.I.T. BOMBAY CITY AND VICE VERSA August 29, 1972 (K. S. HEGDE, P. JAGANMOH~N REDDY AND H. R. KHANNA, JJ.] Jncome·t~ Act 1922, S. 25(3)-Company taking over several busi- nesses carried on by a firm which had paid tax under the Act of 1918- Whet)'ler shares & securities business taken over-If one o} several 'busi- nesses not taken over whether company can claim benefit under section 25(3) ..

The appellant company purchased the business of a partnership firm towards the end of 1920. 1b.e firm had carried on b\$iness as Dankers, commission agents, agents of join~ stock companies and dealers in sharel and secwities, foreign exdlange etc., in and ounrlde India.

Pursuant to . the agreement of purchase the appellant company took over the business of the finn and also purchased shares and securities 'WOrth IU .. 1,93,79.521-3-1 at market value as on 31st December 1920, It further purchased between 1st 1anuary 1921 to 31st January 1921 from the market further shares and securities worth Rs. 4,28,05,627 in the ordinary courae of his business. In the year of assessment 1949-SO the appellant company disrontinued its busin

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