HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income Tax, Madras v. Ajax Products Ltd. through its Liquidator
Civil Appeal No. 1098 of 1963
[1965] 1 SCR 700 ·
Indian Income Tax Act, 1922: section 10(2)(vii), second proviso · Indian Income Tax Act, 1922: section 66
Sources & disclosures includedDownload original judgment / order
3-judge bench · K. Subba Rao, J. · J. C. Shah, J. · S. M. Sikri, J.
Assessment years: 1956-57
01 · Facts of the case
Ajax Products resolved to enter voluntary liquidation in October 1954 and closed its manufacturing business by mid-December. In March 1955 the liquidator sold land, buildings, plant and machinery above written-down value. Revenue invoked the second proviso to section 10(2)(vii) for assessment year 1956-57 and the Tribunal also re-estimated the building value without supporting material.
02 · Discussion by the Hon’ble Court
The Court treated the proviso’s deemed-profit rule as a limited fiction. Earlier law required business in at least part of the previous year, use of the asset in that business and sale while business continued; the 1949 amendment removed only the last condition. It did not eliminate the need for business activity in the relevant previous year. The Tribunal’s unsupported valuation finding was also open to correction on reference because it rested on no material.
03 · Judicial decision
Revenue’s appeal was dismissed with costs. The surplus was not taxable under the second proviso because no business was carried on during any part of calendar year 1955, and the High Court was right to reject the unsupported building valuation.
Source: Holding and operative order
04 · Outcome / in whose favour
In favour of the assessee/respondent. The statutory balancing-charge fiction did not reach the post-closure sale on these facts.
Source: Operative result
05 · AKHB REVIEW POINT
AKHB analysis: when applying a deeming provision to asset disposal, identify every statutory precondition and the precise previous year. Do not extend a fiction beyond its expressed purpose, and preserve valuation evidence capable of supporting any allocation among land, buildings and machinery.
Source & verification
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Statutory scope
The judgment concerns the 1922 Act balancing-charge fiction. It is not a statement of current block-of-assets or capital-gains treatment.
Later treatment
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