1968 (8) TMI 18 - SC - Income Tax

Balancing Charge - assessee contention that the business had been transferred as a whole an therefore no profit could be taxed under the provision to section 10(2)(vii) is rejected - Revenue appeal allowed

Summary

Issues: Interpretation of the second proviso to section 10(2)(vii) of the Income-tax Act, 1922 regarding the assessability of profits from the sale of assets of an assessee for the purpose of closing down the business.

Analysis:
The case involved the appeal by the assessee regarding the assessment of profits under the second proviso to section 10(2)(vii) of the Income-tax Act, 1922, for the sale of buses used in the business of plying buses. The Income-tax Officer assessed the profits on the sale of buses, and the Appellate Assistant Commissioner upheld the assessment, considering it a sale of major assets rather than a transfer of the entire business. The Tribunal also affirmed the assessment, stating that the profit from the sale of buses was taxable under the provision in question. The High Court, assuming the sale was for closing down the business, ruled in favor of the assessee, citing conditions from previous cases for bringing sale proceeds to tax under the proviso. However, the Supreme Court disagreed with the High Court's interpretation. The Court analyzed the impact of the 1949 amendment to the proviso, emphasizing that the sale proceeds would be taxable if the sale occurred during the business's continuance or after its cessation, irrespective of the purpose of the sale. The Court highlighted that the amendment eliminated the condition that the sale should not be for closing down the business, making the profits from the sale of buses chargeable to tax under the proviso. The appeal was allowed, and the High Court's decision was overturned.

The Court referred to previous cases like Liquidators of Pursa Ltd. and Commissioner of Income-tax v. West Coast Chemicals and Industries Ltd. to establish the applicability of the proviso to the present case. It was clarified that the conditions laid down in earlier judgments were no longer relevant post the 1949 amendment, and only the requirements of the business being carried on during the previous year and the machinery being used in the business needed to be met for the proviso to apply. The Court highlighted that the sale proceeds would be taxable under the proviso regardless of the purpose of the sale, as long as the business was operational during the relevant period. The Court concluded that the profits from the sale of buses were indeed assessable as per the provisions of section 10(2)(vii), and the appeal was allowed in favor of the revenue. The Court also addressed the issue of the death of one of the legal representatives of the assessee, leaving it to the Tribunal to decide on the implications of the non-impleadment of the deceased's legal representatives.