COMMISSIONER OF INCOME-TAX, MYSORE, BANGALORE vs. THE BANGALORE TRANSPORT COMPANY LTD., BANGALORE

CIVIL APPEAL No. 435/1966Supreme Court[1967] 3 S.C.R. 39303 April 1967Bench: 3 JudgesAuthor: J.C. SHAH, S.M. SIKRI, V. RAMASWAMI B6 pages
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What were the facts?

The assessee, The Bangalore Transport Company Ltd., operated a public motor transport service. Its undertaking was acquired by the Government of Mysore on October 1, 1956, for which the company received Rs. 15,50,000 as compensation. For the previous year ending March 31, 1957, the company claimed no taxable income as its business was taken over. The Income-tax Officer taxed Rs. 4,01,954, disclosed in the company's audited accounts as business income for the period before the takeover. This was upheld by the Assistant Commissioner. The Income-tax Appellate Tribunal, after allowing development rebate, assessed Rs. 3,16,439 as taxable income. The High Court, on reference, answered the question of taxability in the negative, holding that the Revenue had not proven that any part of the compensation represented profits earned during the period April 1, 1956, to September 30, 1956. The Revenue appealed to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that the assessee was liable to be taxed. The Court found that Section 10(1) of the Income-tax Act, 1922, imposes tax on profits and gains of any business carried on by the assessee, and there is nothing in the Act to suggest that the business must be actively carried on for the entire previous year for profits to be taxable. The Court reasoned that income embedded in money or money's worth received in the course of business accrues to the assessee and becomes subject to an ambulatory charge. If, upon making up accounts at the end of the previous year, there is no overall income, the charge does not crystallize, but this does not mean that profits earned during the year are not taxable. The Court clarified that the Revenue was not taxing the compensation but the profits earned prior to the business closure. The principle in Turner Morrison & Company Ltd. was applied, stating that profits earned between April 1, 1956, and September 30, 1956, were taxable. The Court distinguished the case of Commissioner of Income-tax, Gujarat v. Ashokbhai Chimanbhai, explaining that it dealt with the accrual of rights to profits at the end of an accounting year, not the direct accrual of profits from business operations. The High Court's answer was discharged, and an affirmative answer was given. The issue of whether the profits represented the 'actual share' under Section 26(2) was not considered as it was not raised before the Tribunal or argued before the Supreme Court.

What were the issues?

1. Whether the sum of Rs. 3,16,439 was income and liable to tax on the assessee for the assessment year 1957-58, under Section 10(1) of the Indian Income-tax Act, 1922? Assessee's contentions: - Liability to tax arises only at the end of the previous year. If the business is closed or the undertaking is compulsorily deprived before the year-end, no profit can legally accrue or arise, even if payments were received during the part of the year the business operated. For income to be taxable, the business must be carried on until the end of the previous year. - Relied on Commissioner of Income-tax, Gujarat v. Ashokbhai Chimanbhai, contending that profits liable to tax accrue only at the end of the previous year. Revenue's contentions: - The Revenue was not seeking to tax the compensation received but the profits that accrued or arose to the company during the period April 1, 1956, to September 30, 1956. - The High Court erred in focusing on the character of the compensation rather than the profits earned during the operational period. - Followed the principle in Turner Morrison & Company Ltd. v. Commissioner of Income-tax, West Bengal, that income embedded in money or money's worth received in the course of business accrues and becomes subject to tax.

Which sections of the Income-tax Act were involved?

Section 10(1),Section 4(1)(a),Section 3,Section 26(2),Section 66(1)

AI-generated summary — verify with the full judgment below

A B c D E F G H COMMISSIONER OF INCOME·TAX, MYSORE, BANGALORE v. THE BANGALORE TRANSPORT COMPANY, LTD., BANGALORE April 3, 1967 (J. C. SHAH, S. M. S!KRI AND V. RAMASWAMI, JJ.] Indian Income-tax Act, 1922 (Act 11 of 1922)-Business carrk?d for a part of year, if profits taxah/e- Tbe undertaking and business of the assessee-company were taken over by the Government and the assessee \Vas paid compensation.

The asses- see sub mitt~. a return, claiming that it had earned no income from its business, since it was taken over by the Government.

The Income-tax Officer brought to tax a certain sum. disclosed by the assessee's audited ac- counts as its taxable business income during that part of the year before it closed the business.

This 9rder was upheld by the Assistant Commissioner and the Appellate Tribunal with certain reduction in the amount.

On re· ference the High Court answered the question against the Revenue. In appeal to this Court :- HELD : The assessee was liable to be taxed.

Under S. 10(1) of the Income-tax Act, tax is payable by an assessee under the head "Profits aud gains of business, profession or vocation" in respect of profits or gains of a

The order continues below.

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