LexK. M. S. REDDY, COMMISSIONER OF INCOME. TAX, KERALA (COIMBATORE), ERNAKULAM versus THE WEST COAST CHEMICALS AND INDUSTRIES LTD. (IN LIQUIDATION), ALLEPPY
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
1962
Mah1raj Joeat
Bahadur Smgti
v.
Badri Pratad Stth
Dos J.
A1arch :?0,
960 SUPREME COURT REPORTS [1962] SllPl'.
to that testimony, the lcarne<l District Judge
rightly came to the conclusion that cl. (iii) of s.1.1(:!)
(a) of the Act was not attracted to the Catie.
For these rea.sons we have com!i to the con-
clusion that there is no merit in the appeal whi~h
i~ accordingly dismissed with costs.
AppP,al dismissed.
K. M. S. REDDY, CO:\fi\HSST01\ER OF INCOME.
TAX, KERALA (CODIBATORE), EHNAKl1LA.Jl
r.
THE WEST COAST CHEMICALS AND JN"DUS-
TIUES LTD. (I!\ LIQCIDATION"), ALLEPPX
(S. JC DAS, :VT. HrnAYATULLAH and .J.C. SHAH, .TJ.)
lncomr Tax-lri11dirig up of bu.sine . .;s-Rra[isation of
r1ssf:fs-~)'afe rlurin(f loinding up, if an l'lt;,t of lradi'tl'}-l'rofits
an'si1;q out of sale--Lial1ili1y to lox.
The respondent cornpany \\·as
incorportrd
in
1937
primarily with the object of acqnirini:r and \\·orking- a match
factorv.
Under the 1nr.morandun1 of as-;oc:iation the company
\\·as a·tso empo\\'Cred, inter a/ia, to rnanufacture and deal in
chemicals. The business of rnanufa.cturing 1natches \\':lS carri<~rl
on hy the company till 1941.
Thercaf1cr thr. prr.•fits hccame
less and less due to y,:ar conditions.
On
~1a.y 9, 19-lJ, the
company rntere:d into an agreement with a third party for th~
sale of the land-.. buildings. plant ancl machinery of it~ match
factory for Rs . .i,75,000.
It ,vas agreed that this price \\'oulci
not include manufacturrd roods, cttn1irab ancl
CJtb<r 1a,,·
1naterials or any other asset not shown in the agrc~ment of
~le. J.ater, a fresh a~TTce1n~nt ,..,as entered into on .J\11g11.-.t 9,
19-13, under which the sale includeci chernical~ and paper for
rnanufacture \vhich had not hecn sold in the first instance an<l
the price \\'as Rs. 7,'.~5.000.
In a report to thr. sharcholdc:rs
dated ..-\ugust l, 1944, the Direc.tof!C stated t!1at the price
obtained had shown a capita) appreciation of about six tinH:>s
the cost price and that the sale of chemicals harl resulle<l in
substantial profit.
In proceedings for assessing income which
had escaped a'isessment
the income·tax authorities, relying
upon the memorandum of association \\"hic:h allowed the
\
•
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::!S.C.R.
SUPREME COURT REPORTS
961
colnpany to manufacture and sell chemicals and on the
Directors' report, held that the profit from the sale of the
chemicals and other raw materials was liable to income-tax on
a
profit of Rs. 2,00,000
which wu reduced later to
Rs. !, 15,259.
The company claimed that the stock of raw
materials was sold not ·in the course of ordinary trading but
only in a realisation sale after th~ company had qeen wound
up. The evidence showed that the clause in the memorandum
of association giving power to the company to sell chemicals
was seldem used and that prior to the sale of chemicals to the
purchaser, two. transactions of sale of chemicals for small
alnonnts in 1943 were too petty in
themselves
to afford
e~i<lence of trading in chemicals.
•
Held, that though under the second agreement dated
August 9, 1943, more price was paid, the transaction was still
a winding up sale and no part of this slump price was identifi-
ahle as the price of the chemicals and other raw materials .
There was
no eVidence. that before the winding 1up the
company had sold chemicals as part of its business, and the
two instances cited were too petty in them:5elves to afford
evidence of a continued or sustained trading in chemicals.
A winding up salf" is not "trading or doing business" and the
sale of the raw materials including the chemicals was not part
of any busine!';s done.
Accordingly, the sum of Rs. 1, 15,259 was not liable to tax.
.
Dou.ghly v
Commi8sioner of Taxes, (1927) A. C. 327,
discussed and relied on.
Case Jaw revie\ved.
CrvrL APPELLATE .JURISDICTION: Civil Appeal
No. 286 of 1961.
Appeal from the judgment and order dated
January 27, 1960, of the Kerala High Court in
I. T. R. Case No. 14 of 1955.
·
K. N. Ra,iar;opal Sastri and D. Gupta, for the
Appellant.
S. T. De.sai, J. B. Dadachan,ii, 0. o: Math1~r
and Ravinder Narain, for the respondent.
1962. March 20. The Judgment of the Court
was delivered by
'1962
K.M S, Reddy,
Commiss•
00"1er of
lncomt·tax, Ktraf
v.
Tht West Coas'
Chemieals an~'
Industries I.Id_
HrnAYATULLAH, J.- In this a1 peal 1 y the
HidayatullahJ,
('< nwiF8icr.rr d hcc n.e·tn:. Kernle, filcd with
ICM.s. lltdd1"
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