MESSRS. ASSOCIATED CLOTHIERS LTD. versus COMMISSIONER OF INCOME-TAX, CALCUTTA

Citation: [1967] 1 S.C.R. 512 · Decided: 23-09-1966 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

MESSRS. ASSOCIATED CLOTlllERS LID. 
v. 
COMMISSIONER OF INCOME-TAX, CALCUTTA 
September 23, 1966 
A 
(J. C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.] 
B 
Indian lncome·ta:c Act, 1922 (II of 
1922), s. 10(2)(vii)-Sale o/ 
assets by one company to another--Circumstances in lvhich sale can b~ 
treated as "in substance to se/f'-App/icabi/ity o/ s. 
10(2) (vii) to such 
transaction. 
The appellant a private limited company, was originally registered as 
"Mis. Phelps & Company Ltd." but on March 21, 1952 .. by an order under 
C 
s. 11 ( 4) of the Indian Companies Act, 
1913, its name was changed to 
"Messrs Associated Clothiers Ltd." 
On the same day a company styled 
"Messrs. Phelps & Co. Ltd." was incorporated. 
By a written agreement, 
also of the same date, the appellant company agreed to transfer its assets 
to Messrs Phelps & Co. Ltd. Consideration for the transfer consisted, apart 
from cash, of allotment of certain shares of Messrs Phelps & Co. Ltd, to 
the appellant and the taking over of the latter's liabilities by the former. 
Among the assets transferred under the agreement was a building describ-
D 
ed in the second schedule to the ai:reement. 
The original cost of this 
building was Rs. 97,252/- and its wntten value was Rs. 57,0111-, but in 
the balance sheet for the account year ending March 31. 1953 as well as 
in the aforesaid 
agreement 
its value was shown as Rs. 2,24,573/-. In 
Income-tax: proceedings relating to the account year 1952~53 the Income4 
tax Officer brought to tax under s. 10(2)(vii) of the Indian Income-tu 
Act, 1922, the difference between the original cost and the written down 
value of the building on the date of 
transfer. 
Before the Income-tax 
E 
Appellate Tribunal it was contended by the appellant that the sale of the 
assets of the appellant company was 'in substance to s~lr and therefore 
s. 10(2) (vii) was in30pl1cable. 
The Tribunal decided, in favour of the 
company but the High Court held against it. 
The 
company thereupon 
came 10 this Court in ;i:->'.)eal by certificate. 
HELD : The sale '"a" hy one company to another, it was not a case in 
which persons carrying on busincs-s had floated a private limited company 
F 
and had attempted to readjust their business positions. The sale was for a 
stated consideration \\•hich had not been shown to be notional and since 
the cons:dcration was in excess of the original cost of the 
building the 
difference bct\\'CCn the original cost and the written do\\'ll value was profit 
within the meaning of s. 10(2)(vii) second proviso. 
[517 0-H; 519 Fl 
Sir Ho111i 1'.fehta's Executors' case, 28 I.T.R. 928 and Rogers & Co. v. 
Commissioner of Income-tax, Bombay City II 34 l.T.R. 336, distingukhed. 
G 
Chittoor Motor Transport Co. (P) Ltd . . v. Income-tax Officer, Chittoor, 
59 l.T.R. 238, relied on. 
Bank of Chettinad Ltd. v. Commissioner of Income-tax, Madras, 8 
I.T.R. 522., Maharajadhiraj Sir Kamesliu·ar Singh 
v. 
Commissioner of 
lncome-ta.r, Bihar and Orissa, 48 l.T.R. 483 and Doughty v. Conunissioner 
of Ta:ccs, (1927] A.C. 327, referred to. 
H 
CIVIL APPELLATE Jl'RISDICTIOS : Civil Appeal No. 969 of 
1965. 
ASSOCIATED CLOTHIERS v. c.r.T. (Shah, J.) 
513 
A 
Appeal from the judgment and order dated February 5 
B 
c 
D 
E 
F 
G 
H 
1963 of the Calcutta High Court in Income-tax Reference No. 3 
of 1958. 
· 
S. S. Shukla, for the appellant. 
S. T. Desai, A. N. Kripal and R. N. Sachthey, for the res-
pondent. 
The Judgment of the Court was delivered by 
Shah, J. M/s. Phelps & Company Ltd. was registered as a 
private limited company on September 30, 1939 to carry on the 
business of "Clothiers and Tailors". On March 21, 1952 under 
an order made under s. 11(4) of the Irn:lian Companies Act, 1913, 
the name of the Company was altered to Messrs 
Associated 
Clothiers Ltd. On the sa,me day a company styled "Messrs. 
Phelps & Co. Ltd." was incorporated. By a written agreement 
.also of the same date the appellant Company agreed to transfer 
its assets and liabilities to Messrs. Phelps & Co. Ltd. in con-
sideration of allotment of shares of the value of Rs. 12,30,000/-
of Messrs. Phelps & Co. Ltd. and Rs. 23,291/10/5 payable in cash, 
and Messrs. Phelps & Co. Ltd. taking over liabilities of the ap-
pellant Company of tii,r aggregate amount of Rs. 6,05,601/-/6. 
Under the terms of the 
agreement the appellant Company pur-
ported to transfer seven items of property described in the Sche-
dules annexed to the deed : one of the properties so agre

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