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Issues Involved:
1. Assessability of profit under the second proviso to section 10(2)(vii) of the Income-tax Act. 2. Validity of the Tribunal's estimation of the sale value of the buildings. Issue-wise Detailed Analysis: 1. Assessability of Profit under the Second Proviso to Section 10(2)(vii) of the Income-tax Act: The Department claimed that the profits from the sale of the company's factory premises and machinery should be taxed under the second proviso to section 10(2)(vii) for the assessment year 1956-57. The assessee contended against this, but the Tribunal sustained the Department's claim. The original cost and written down value of the buildings and machinery were considered, and the sale resulted in an excess realization over the written down value. The Income-tax Officer initially rejected the valuation agreed upon by the vendor and vendee, suspecting collusion and manipulation. However, the Appellate Assistant Commissioner found the valuation genuine and fixed the taxable profits at Rs. 3,23,461. The Tribunal partially allowed the Department's appeal, estimating the profits at Rs. 4,25,050. The Supreme Court's decision in Liquidators of Pursa Ltd. v. Commissioner of Income-tax was referenced, which examined the scope of the second proviso before its amendment in 1949. The Supreme Court held that the sale by a company in the course of winding up was not an operation in furtherance of the business and that the machinery and plant must be used for the purpose of the business during the accounting year for the second proviso to apply. The amendment in 1949 allowed the proviso to apply even if the sale occurred after the cessation of business, but the assessee must have carried on the business during some portion of the year of sale. In this case, the assessee company ceased its business in December 1954 and did not carry on any business in 1955, the year of the sale. Therefore, 1955 could not be considered the "previous year" for the assessment year 1956-57. The existence of the business and the "previous year" must be factual, not fictional. The proviso did not enact a fiction that the assessee shall be deemed to carry on the business in the year of sale. The Department's alternative argument that the profits should be taxable under section 12 as income from other sources was not considered, as it was a new claim involving fresh investigation of facts. The court concluded that no portion of the sale proceeds realized by the assessee company in 1955 was assessable to tax as income deemed under the second proviso to section 10(2)(vii) to be profits of any business of the assessee. 2. Validity of the Tribunal's Estimation of the Sale Value of the Buildings: The second question was whether there were materials for the Tribunal estimating the sale value of the buildings at Rs. 2,32,973. The Appellate Assistant Commissioner accepted the experts' valuation, finding no collusion or manipulation. The Tribunal did not reject the genuineness of the experts' valuation but estimated the sale value of the buildings based on the replacement cost, considering the rise in prices and depreciation. The court found that the Tribunal had no material basis for its estimate of the sale value or the profits realized by the sale of the buildings. The experts' valuation represented the real market value, and there was no evidence to the contrary. The court answered the second question in the negative, stating that the sale value of the buildings was Rs. 1,31,732 as disclosed by the assessee and accepted by the Appellate Assistant Commissioner. Conclusion: The court held that the assessee was not liable to be taxed under the second proviso to section 10(2)(vii) for the assessment year 1956-57, as the company did not carry on any business during the year of sale. The Tribunal's estimation of the sale value of the buildings was not supported by material evidence, and the genuine valuation by the experts was accepted. The assessee was entitled to the costs of the reference.
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