M/S. KILLICK NIXON & COMPANY vs. COMMISSIONER OF INCOME-TAX, BOMBAY

CIVIL APPEAL No. 1919/1966Supreme Court[1967] 3 S.C.R. 97105 May 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI10 pages
AI SummaryDismissed

What did the Supreme Court hold?

The Supreme Court held that income earned by carrying on business is entitled to exemption under Section 25(3). Capital gains, though defined as income under Section 2(6C) and taxable under Section 12B read with Section 6, are not income arising from a trading activity. Therefore, they are not entitled to exemption under Section 25(3) upon discontinuance of business. The Court referred to Commissioner of Income-tax, Madras v. Express Newspapers Ltd. to explain that the deeming clause for capital gains does not elevate them to profits or gains of business. Regarding the valuation issue, the Court affirmed that the Appellate Tribunal, as the final authority on facts, is bound to consider all evidence produced before the Income-tax Authorities when disposing of an appeal under Section 33(4). The Tribunal's failure to consider the evidence on the January 1, 1939 valuation constituted a misdirection. Consequently, both appeals failed and were dismissed.

What were the facts?

The assessee, M/s. Killick Nixon & Company, sold its assets to two companies and discontinued its business effective February 1, 1948. For the assessment year 1949-50, the Income-tax Department sought to assess capital gains under Section 12B of the Indian Income-tax Act, 1922. The department accepted the market value of assets on February 1, 1948, estimated the value on January 1, 1939, and taxed the difference, rejecting the assessee's claim for exemption under Section 25(3) due to business discontinuance. The Appellate Tribunal confirmed this order, stating it was unnecessary to detail evidence on the January 1, 1939 valuation, as the assessee's stand was inconsistent. The High Court, on reference, held the assessee was not entitled to Section 25(3) benefits but that the Tribunal had misdirected itself by not considering evidence on the January 1, 1939 valuation. Both the assessee and the Commissioner appealed to the Supreme Court.

What were the issues?

1. Whether the assessee firm is entitled to the benefit under Section 25(3) of the Indian Income-tax Act, 1922, in respect of capital gains assessed to tax under Section 12B. - Assessee's contention: Capital gains, being income under Section 2(6C) and exigible to tax as business income, should be exempted under Section 25(3) upon business discontinuance, even if not taxed under the 1918 Act. - Revenue's contention: Exemption under Section 25(3) applies only to income earned by carrying on business, not receipts fictionally deemed income or not arising from trading activity, thus capital gains are not eligible. 2. Whether the Tribunal misdirected itself in law or acted without evidence or in disregard of material evidence in making the valuation of the assessee's assets on January 1, 1939. - Assessee's contention: The evidence on record showed the market value of certain assets on January 1, 1939, exceeded the department's estimate, leading to lower capital gains. The Tribunal failed to consider this evidence. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 12B,Section 25(3),Section 6,Section 2(6C),Section 33(4)

AI-generated summary — verify with the full judgment below

A 8 " E F G H M/S. KILLICK NIXON & COMPANY v. COMMISSIONER OF INCOME· TAX, BOMBAY May 5, 1967 [J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.] Indian Income-tax Act (11 of 1922), ss. 12B (2), 3rd provilo, and L5(3) and 32(4)-Tribunal disposing of apper.1-Duty to consider evl· dence-Scope of s. 12B (2) 3rd proviso a·nd s. 25(3).

The assessee-firm sold its assets to two companies and discontinued its business with effect from !st February 1948. For t'he assessment year 1949-50 the income-tax department sought to assess, under s. 12B of the Indian Income-tax Act, 1922, the capital gains made by the ' lSessee.

Capital gains under the section are computed, in a case (a) where there is no dispute about the market value of the asset on the date of transfer and (b) where the assessee has exercised the option under tbe third proviso to the section to adopt the value of the asset on !st January 1939 as its actual cost, by deducting from the market value of the asset on the date of transfer the value of the asset on January !, !!139. In the present case the department ac:epted the market value of the assets on February I, 1948, the date of transfer, and estimated tbe

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 6

All 340 judgments and leading authorities on Section 6 →

Recent GST High Court judgments

Search GST case law →