LexCOMMISSIONER OF INCOME-TAX, MADRAS versus AJAX PRODUCTS LTD. THROUGH ITS LIQUIDATOR
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700
COMMISSIOJ'l.'ER OF ll'liCOME·TAX, MADRAS
\'.
AJAX PRODUCTS LTD. THROUGH ITS LIQUIDATOR
October 8, 1964
IK. Si.;BBA RAo, J.C. S11AH A"D S. M. SIKRJ JJ.J
Indian /11come Ta:c Act, 1922, s. 10(2) (vii), 2nd pro\•iso atJd section
66--No business activity in year of sale of assets-Excess of sale-price over
written dnwn values whether can be treated at profits under proviso--Appel-
/ate Ttihunal niaking its own estiniare o.f
safe-~·alue of buildingJ--No
1ruiterial for finding -Jurisdiction of lligh Court to interfere in Reference.
A
B
The respondent con1pany y.•ent into voluntary Jiquidation in October c
I 95..t.
Tiic comp<1.ny h:id the calen<l<ir year as its accounting year and the
busines.s of the con1pc1ny wa~ finally clo:-'cd fieforc the end of the c;dcndar
year 1954. lllc liquid;itor sold the comp:1ny's assets including buildings.
plant and the machinery in ~larch 1955 at a price higher than th~ \vritten
dov•n value.
The Jncomc-tax Office; ta ..... ed the surpluc; in the a~scssment
year l956-57 invoking the pro\"iso to s. 10(2)(vii) of the Indian lneon1c-
tax Act. His order in this respect v.-;is upheld by the Appcllat<· As3istant
Commisc;ioner as ,,.eJJ i'\S hy the Ar.ncllate Tribunal.
Hov.·cvcr rhc J-tiqh
D
Cou11 held that since there was no business in the acc.ounting year t 955,
the proviso was not attracted.
ft further held that the c...-stin1ate of !he salc-
valuc of the buildings made bv t!1c l"ribunal contd not st:ind as ir w;;is
based onlv on surn1ises.
The · Commis:-ioncr of Income-ta"" appe:llcd to
the Supreme Court.
HELD: (i) The l!igh Court rightly inlcrfcrell \\"ith the l'ribu:ia\'s esti-
m;1te of the salc-\·alt:e of the buildin2:'i hL·causc ihc ·rrihunal's findin~ w~t-"
E
1101 hased on any material. {704 D}
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·
(ii) The li!g:tl fiction in the second pro..-iso to s. 10(2) (vii) i-:. :! L111;1cd
fiction for ;1 specific purpose. \Vhal :1:-c nor regarded ;i ... prolirs in com:i1er-
cial practice arc under the proviso trc;1tcd :t'i profile; of the previous yc;1r.
·mis fiction aJcquatcly serves the puq){)SC of the $CCtnin. The fic::on n111st
not he stretched bc)Ond the purpose for \\·hich it \Y.JS cn:1c1cd. [710 F-GJ
·Addirin.,r,J /1u·nn1r Tox nm,., ... , lirc!t· I So!r1n v. F. A!fr1•rl, f1 1)f11l
F
Supp. 1 S.C.R. 143 and C.l.T. Bombay City I v. Amarchand N.
Shro!J,
( 1963] Supp. I S.C.R. 699, referred to.
(iii) If the \vords of a stalutc arc precise and un:lmhiguous they n111st he
taken as declaring the expres<; intention of the le!!islaturc.
By giving the
natur;:il meaning to every exprec;sion u<;cd in the riro,·i,o in question. the
proviso serves the purpose intended by the Icglslature.
To sustain the
argument of the Revenue many words have to he read in it which are not
G
there. [706 F; 710 G]
Cape Brandy Syndicatr ,._ l.R.L. [1921] I K.B. 6-1. referred to.
(iv) The expression 'previous year' does not have a different meaning
in the proviso from what it hears under the definition in s. 2( 11) (h).
[711 C.D]
Dandhania Kedia & Co. v. C.I. T. [ 1959] Supp. 1 S C.R. 204 and Com-
1nissioner of Income-tax v. K. Srinivasan and K. Gopalari, {1953] S.(~.R.
1-1
486, referred to.
(v) Even if a pro .. ;so is construed as a substanti,.·e clause it must be con\~
-trued harmoniously with the main enactment. (709 B..C]
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D
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F
G
H
C.I.T. v. AJAX PRODUCTS (Subba Rao J.)
701
Commissioner of Income-tax, Mysore, Travancore-Cochin and Coorg v.
Jndo Mercantile Bank Ltd. [1959) Supp. 2 S.C.R. 256, referred to.
(vi) Before the amendment of 1949 the proviso in question was inter-
preted by this Court as laying down three conditions for its applicability,
namely, that business should have been carried on by the assessee for the
whole or at least a part of the previous year, that the machinery etc. should
have been ·used in the business and that the machinery should have been
sold while the business was being carried on and not for the purpose of
closing it down or winding it up. The amendment removed only the last
condition for the exigibility of the tax. [706 B; 711 F;G]
The Liquidators of Pwsa Ltd. v. Commissioner of Income-tax, Bihar
[1954) S.C.R. 767 and Commissioner of Income-tax, Madras v. Express
New•papers Ltd. ( 1964) 53 I.T.R. 250, relied on.
The expressed intention of the legislature is that the surplus mentioned in
the proviso is not exigible to tax unless the assessee did business during the
accounting year and unless such buExcerpt shown. Read the full judgment & AI analysis in Lexace.