COMMISSIONER OF INCOME TAX, HYDERABAD versus M/S. MOTOR AND GENERAL STORES (P.) LTD.

Citation: [1967] 3 S.C.R. 876 · Decided: 02-05-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

COMMISSIONER OF INCOME TAX, HYDERABAD 
A 
v. 
M/S. MOTOR AND GENERAL STORES (P.) LTD. 
May 2, 1967 
[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.] 
B 
I,ncome-tox Act, 1922 s. 10(2) (vli)-Assessee selling 'cinenut attd 
<Jther assets in exchange for shares in another Company-Whether tran-
sactum one of 'sale' or 'exchange'-Therefore whether 
difference 
be. 
tween book-value of assets and exchange consideration taxable-Deter-
1nining 
the substance 
rather than form of 
transaction 
in 
revenue 
.n1atters-Conditions for. 
The respondent private Limited Company owned a cinema house 
and at a meeting of its Board of Directors on September 9, 1955, 
it 
was resolved that the Managing Director may be authorised to nego• 
tiate with a buyer !or the sale of the entire concern with all its equip-
ment and machinery etc. for a consideration of Rs. 1,20,000. 
After 
an agreement had been concluded to effect a sale and had been con-
firmed at an extraordinary general meeting of the company on October 
4, 1955, an "exchange deed" was entered into on February 21, 1956 
=d the consideration was received by the 
assessee company in the 
shape of transfer of certain shares of the face value of Rs. · 1,20,000 
owned by the buyer in another company. 
In the course of its assessment to tax for the year 1956-57, 
the 
Income-tax Officer computed the respondent's profits under s. 10(2) (vii) 
hy including an amount of Rs. 43,568 on account of the excess amount 
realised over the written down value of the assets sold. The order of 
the Income-tax Officer was confirmed, in appeai by the Appellate Assis-
tant Commissioner and substantially also by the 
Tribunal. However, 
upon a reference under s. 66(2) of the Act the High Court answered 
the question in favour of the respondent. 
In the appeal to this Court it was contended on behalf of the appe!· 
iant that the money consideration for the assets was fixed at Rs. 1,20,000 
and the mode of payment was by transfer of shares so that the tran· 
.saction was really a sale and not transfer by way of exchange; that the 
resolution of the Board of Directors and of the shareholders reproduc· 
«! in the preamble of the exchange deed showed clearly that what was 
authamed was the sale of the entire 
concern; and that in 
revenue 
matters it was the substance of the transaction which must be looked 
at and not the form in which the parties have chosen to clothe the 
transaction. 
HELD : The Income-tax authorities were not entitled to treat the 
transaction as a sale and to apply the provisions of s. 10(2) (vii) of the 
Income-tax Act, 1922. -In essence the ti-ansaction was one of exchange 
and there was no sale of the properties described in the exhcange deed. 
There was no price paid or promised to be paid for the transfer of the 
properties but there was only a consideration in the shape of transfer 
<>f shares in another company by the buyer. [883E-G) 
It was clear from the operative part of the exchange deed that there 
was an exchange of the prope·rties desoribed in it for the shares of a 
c 
D 
E 
F 
G 
H 
C.I,T. v. MOfOR & GENERAL STORES (Ramaswami, J.) 
877 
A 
company. Neither the recital in the preamble nor the resolutions could 
control the language of the operative portion of the deed or its legal 
effect. [8830-El 
B 
c 
D 
E 
F 
G 
H 
i\1adan1 Pilh;i v. Badrokali An1111al, I.L.R. 45 Madras 612, reft:rrcd 
to. 
The contention that in the present case it was the substance rather 
than the form of the transaction which should be looked at must be re-
jected. There was no suggestion on behalf of the appellant of 
bad 
faith nor was it alleged that the particular form of the transaction was 
adopted as a cloak to conceal a different transaction. In the absence 
of any such suggestion the true principle is that the taxing statute has 
to be applied in accordance with the legal rights of the parties to the 
transaction. When the transaction 
is embodied 
in a document, the 
liability to tax depends upon the meaning and content of the language 
used in accordance with the ordinary rules of construction. 
[883H; 
884BJ 
Bank of Cliettinad Ltd. v. C.l.T. Madras, 1940 I.T.R. 522; Duke of 
1¥estminster's case,. 19 T.C. 490; and Conunissioner of Inland Revenue 
v. IVesloyan and General .11ssuranre Society, 30 T.C. 11, referred to. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 819 of 
1966. 
Appeal by special leave from the judgment and order dated 
October 30, 1964 of the Andhra Pradesh High Cour

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