COMMISSIONER OF INCOME-TAX, KERALA vs. K. B. KALIKUTTY AND ANR.

CIVIL APPEAL No. 714/1966Supreme Court[1969] 1 S.C.R. 53102 August 1968Bench: 3 JudgesAuthor: J.C. SHAH, V. RAMASWAMI, A.N. GROVER6 pages
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What were the facts?

The assessee, engaged in the business of plying buses, sold its buses during the previous year ending August 16, 1959, after they had been used for part of the year. The Income Tax Officer assessed the difference between the sale price and the written-down value as profit under the second proviso to Section 10(2)(vii) of the Income Tax Act, 1922. The Appellate Assistant Commissioner and the Income Tax Appellate Tribunal upheld this assessment. The High Court, however, on a reference, held the amount not taxable as profit under Section 10(2)(vii), assuming the entire bus service business had been wound up. The Revenue appealed this decision to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the appeal should be allowed. The Court found that even if the sale of buses was considered a closing down or realization sale, it was nonetheless taxable because the sale occurred after the amendment of the second proviso to Section 10(2)(vii) by Act 67 of 1949. The Court emphasized that the inserted words, "whether during the continuance of the business or after the cessation thereof", were critical and meant that the proviso applied to sales made during the business's operation as well as after its cessation. The Court clarified that the amendment eliminated the condition, previously laid down in cases like Commissioner of Income Tax, Madras v. Express Newspapers Ltd., that the sale must occur while the business was being carried on and not for the purpose of closing it down. Since the tribunal found that the business had been carried on for part of the year and the buses had been used in the business, both conditions for the amended proviso were met. Therefore, the profit arising from the sale of the buses was chargeable to tax. The High Court's answer was discharged, and the appeal was allowed.

What were the issues?

1. Whether the sum of Rs. 49,288, representing the profit on the sale of buses, was assessable as profit under the second proviso to Section 10(2)(vii) of the Income Tax Act, 1922, when the sale was effected for the purpose of closing down the business. (Mixed law and fact, turns on Section 10(2)(vii)). Assessee's contentions: The assessee initially contended that the business had been transferred as a whole, implying no profit was taxable. Later, before the High Court, the assessee argued, and the High Court accepted, that the sale of buses was a closing down or realization sale, a mere incident of winding up, and therefore not taxable under the proviso as interpreted in previous judgments. Revenue's contentions: The Revenue contended that the sale of buses was taxable under the second proviso to Section 10(2)(vii), particularly after its amendment by Act 67 of 1949, which included sales made "whether during the continuance of the business or after the cessation thereof". The Revenue argued that the amendment removed the condition that the sale must occur while the business was still operating.

Which sections of the Income-tax Act were involved?

Section 10(2)(vii)

AI-generated summary — verify with the full judgment below

• • 531 A COMMISSIONER OF INCOME-TAX, KERALA v. K. B. KALIKUTTY AND ANR.

August 2, 1968 B (J. ·c. SHAH, V. RAMASWAM! AND A. N. GROVER, JJ.] c D Income Tax Act, 1922, s. 10(2)(vii), second proviso-as amended by Act 67 of 1949-Scope of.

The assessee was running a business of plying buses and during its previous year ending on August 16, 1959, the buses h:lli been plied for part of the year but were sold the~eafter. The Income-tax. Offic~r assessed the difference between the sale pnce Of the buses and their written down value to tax as profit under the second proviso to s. 10(2)(vii). In appeal, the Appellate Assistant Commissioner rejected the assessee's con- tention that the business had been transferred as a whole and therefore the profit in question could not be taxed. The Tribunal also dismissed an appeal taking the view that the buses had been plied by the assessee for part df the previous year and the profit on the sale of these buses was taxable under the said provision.

However, the High Cou'ft, upon a reference, held that the amount ·in question was not assessable as pro.fit under s. 10(2) (vii) on the assumption that the whole of the bus servic

The order continues below.

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