COMMISSIONER OF INCOME-TAX, MADRAS versus EXPRESS NEWSPAPERS LTD., MADRAS

Citation: [1964] 8 S.C.R. 189 · Decided: 07-05-1964 · Supreme Court of India · Bench: K. SUBBA RAO · Disposal: Dismissed

Cited by 3 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

S S.C.R. 
SUPREME COURT REPORTS 
COMMISSIONER OF INCOME-TAX, MADRAS 
v. 
EXPRESS NEWSPAPERS LTD., MADRAS 
(K. SUBBA RAO, J. C. SHAH AND S. M. SIKRI. JJ.) 
111con1e-tax-Sale of 111achiner)' after cfO.H! of 
busi111'.~s-A:no1111t 
i11 
excess received 01·er written dow1t 1·11/11c a11d 01·er Ifie ori;;i11(/I cost 
price of n1aclli11ery-Whetlier 1axah!t1-IVherlier Stl(Tt'.\'.W!f !iahfr 1,., 
be assessed 011 capital gains-f/u·o111c-tax Act, 1922 ( 11 of 1922;, 
ss. 19(2) (vii) second pro1·iso, s. 26(2) 011d prvri!>·o. 
The Free Press Company was a private limited conipany carrying on 
business ".\S printers and publishers of certain newspaper~. On • .\ugust 31, 
1946, tl: 
Free Press Company transferred the right 10 print and publish 
the newspapers to the assessee company and let out i1s n1achinery and 
assets to the latter v,.·ith effect from Septen1ber l, ! 946. The as~cssee­
company al!cordingly started publishing nc\vspapers fro•n September 1, 
1946. 
The Free Press Company \\·ent into voluntary liquidation on 
01.'.:tober 31, 1946_. and the Liquidator, on November 1, 1946, confirn1ed 
the transfer of the assets made by the Free Press Con1pan;· to the 
assessee-company. On November l, 1946 the aforesaid 
tn.:i.chit~i:ry was 
sold yielding a profit of Rs. 6,08,666. That sun1 wus made up of. 
(i) the difference between the original cost price rtnd the written down 
of price machinery 
R'i. 2.14,090. (ii) the an1ount in l'X( C'>S over rhe 
original cost price . . J~s. 3,94,576. In assessing the assessee to incomc-
tax for the accounting year 1946-47 the Income-tax Officer included. the 
said two items in the total income of the assessee-con1pany. The first 
item was assessed as profit under proviso to s. 10(2) (vii) of the Income-
tax Act and the second item was assessed as capital ,gains. 
The matter 
went up to the High Court. On a reference the High Court held that 
the assessee was not liable to tax in respect of the said two items. 
Held: (i) The second proviso to s. 10(2)(vii) of the Act wduld 
only aprly to the sale of such machinery which was used for the purpose 
of business during the accounting year. In order to bring the sale 
proceeds to charge under the second proviso the foUowing conditions 
shall be fulfilled: (I) During the entire previous year or a part of it 
the business sha11 have been carried on by the assessee; (2) the 
machinery shall have been used in the business; and (3) the machinery 
shall have been sold when the business was being carried on and not 
for the purpose of closing it down or winding it up. 
On the facts of 
this case it was held that the sale of the machinery in the instant case 
having taken place after the business \Vas closed and during the '\vinding 
up proceedings therefore it would fall outside the scope of the said 
proviso and thus the first item i.e. the sun1 of Rs. '.!,14.090 could not 
be assessed to income-tax. 
1964 
.\fay 7 
190 
SUPl<EME COURT REPORTS 
[1g64] 
1964 
The Liquidator9 of Pnrsa Lilnited v. Comniissioner of Income-tax, 
Bihar, [19541 S.C.R. 76i an<l K. 
Af. 
S. 
Reddy, 
Con1n1issioner 
of 
1 
C.!:T. 
lncon1e-tax, Kerala v. West Coast Chemicals and Industries Ltd. (in 
Express 
News- liquidation), Alleppy, [1962] Supp. 3 S.C.R. 960, relied on. 
papers Ltd. 
I
Co111n1issioner of lnco1ne-tax, Bonibay Circle fl v. 
The National 
Syndicate, Bombay, [1961] 2 S.C.R. 229, explained. 
(ii) Both the sub-s. (2) of s. 26 and the proviso deal only with 
profits under the 4th bead mentioned in s. 6 and, so construed, it 
excludes capital gains. The profits and gains of business and capital 
gains are two distinct concepts in the Income-tax Act: the former arises 
front the activity which is called business and the latter accrues because 
capital assets are disposed of at a value higher than what they cost 
the assessee. Therefore under s. 26(2) of the Act the assessee being 
the successor could not be liable to income-tax ·in respect of Rs. 3,94,576 
(the second item) which represented the capital gains because capital 
gains are excluded from the purview of s. 26(2) of the Act. 
United Conunercial Baok Ltd. v. Commissioner of lncome•tax1 We.st 
Be11g11/, [1958] S.C.R. 79, referred to, 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 596 
of 1963. 
Appeal from the judgment dated March 1, 1960 of the 
Madras High Court in Case Referred No. 11 of 1955. 
K. N. Rajagopal Sastri and R. N. Sachthey, for the 
appellant. 
R. Ganapathy Iyer and R. Gopalakrishnan. for the 
re

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