M/S. KILLICK NIXON & COMPANY versus COMMISSIONER OF INCOME-TAX, BOMBAY

Citation: [1967] 3 S.C.R. 971 · Decided: 05-05-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

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M/S. KILLICK NIXON & COMPANY 
v. 
COMMISSIONER OF INCOME· TAX, BOMBAY 
May 5, 1967 
[J. C. SHAH, S. M. SIKRI AND V. RAMASWAMI, JJ.] 
Indian Income-tax Act (11 of 1922), ss. 12B (2), 3rd provilo, and 
L5(3) and 32(4)-Tribunal disposing of apper.1-Duty to consider evl· 
dence-Scope of s. 12B (2) 3rd proviso a·nd s. 25(3). 
The assessee-firm sold its assets to two companies and discontinued 
its business with effect from !st February 1948. For t'he assessment year 
1949-50 the income-tax department sought to assess, under s. 12B of 
the Indian Income-tax Act, 1922, the capital gains made by the ' lSessee. 
Capital gains under the section are computed, in a case (a) where there 
is no dispute about the market value of the asset on the date of transfer 
and (b) where the assessee has exercised the option under tbe 
third 
proviso to the section to adopt the value of the asset on !st January 
1939 as its actual cost, by deducting from the market value of the asset 
on the date of transfer the value of the asset on January !, !!139. In the 
present case the department ac:epted the market value of the assets on 
February I, 1948, the date of transfer, and estimated tbe value of the 
assets on !st January 1939, at a certain figure and brought to tax the 
difference between the two, rejecting the assessee's claim under s. 25(3) 
to the be,1efit of exempt:on from taxability arising from discontinuance 
of the business. 
The Appellate Tribunal confirmed the order. 
It re-
jected the contention of the assessee that the evidence on the record 
showed that the market value of some of the assets on !st January 1939 
exceeded the value as estimated by the department and that· therefore 
the capital gains to be taxed would be much le'.\S, by merely recording 
a bare conclusion that the value of the assets on !st January 1939 could 
not be more than the 
estimated 
value 
without 
considomng 
the 
evidence. 
The High Court, on reference, (I) held against the assessee that it 
was not entitled to the benefit under s. 25(3), and (2) held against the 
department that the Tribunal misdirected itiielf in not considering the 
evidence produced before the Income-tax Authorities regarding the valu· 
ation on !st January 1939. The assessee and the 
Commissioner 
of 
Income-tax appealed to this Court. 
HELD : (I) It is only income earned by carrying on business that 
is entitled to exemption under s. 25 (3). Capital gains, though by the 
d~finition in s. 2(6C) are income and liable to tax by virtue of s. 6 read 
w1tb s. 12B, not being income which arises from a trading activity are 
not entiiled to such ex-•mption. [980B-C] 
' 
Commissioner of Income-tax, Bombay City I v. Chugandas & Co. 
[1964)"1! S.C.R. 332 and Commissioner of Income-tax, Madras v. Express 
Newspapers Ltd. [1964) 8 S.C.R, 189, referred to. 
[Whether an .assessee was entitled to exemption under s. 25 ( 3) in 
respect of a receipt, such as capital gains, which was not chargeable as 
income under the Income-tax Act 7 of 1918, not decided.) [979E) 
. 
(2) Under the. scheme of the Income-tax Act, the Appellate Tribunal 
" the final authority on questions of fact. While the onus lies upon the 
972 
SUPREME COURT REPORTS 
[1967] 3 <;C.R. 
assessee to prove the mrrrket value of the assets on January 1, ~939 the 
Tribunal, in disposing of the appeal under s. 33(4) of the Act, is bound 
to hear the parties and consider the entire evidence produced .before the 
Income-tax Authorities. In the present case, therefore, the Tribunal had 
to determine, on a consideration of all the evidence, the value of the 
assets of the assessee on !st January 1939. [977E-G] 
C1v1L APPELLATE Jumso1cnoN : Civil Appeals Nos. 1919-
1920 of 1966. 
Appeals from the judgment and order dated October 12, 13, 
1962 of the Bombay High Court in Income-tax Reference No. 2.1 
of 1959. 
S. T. Desai, O. P. Malhotra, and 0. C. Mathur, for the appel· 
B 
!ant (in C.A. No. 1919 of 1966) and the respondent (in C.A. 
C 
No. 1920 of 1966). 
D. Narsaraju and R. N. Sachthe,v, for the appellant (in C.A. 
No. 1920 of· 1966) and the respondent (in C.A. No. 1919 of 
1966. 
The Judgment of the Court was delivered by 
Shah, J. 
These are cross appeals from the order passed by 
the High Court of Bombay recording answers to que5tions sub-
mitted in a reference under s. 66 of the Indian Income-tax Act. 
J 922. 
Messrs Killick Nixon & Co.-hereinafter called "the assessee" 
-was a firm which carried on diverse trading 

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