HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Mysore, Bangalore v. The Bangalore Transport Company Ltd., Bangalore
Civil Appeal No. 435 of 1966
[1967] 3 SCR 393 ·
Indian Income-tax Act, 1922: sections 3, 4(1)(a), 10(1), 26(2) and 66(1) · Bangalore Road Transport Service Act, 1956: section 3
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by J. C. Shah, J. · J. C. Shah, J. · S. M. Sikri, J. · V. Ramaswami, J.
Assessment years: 1957-58
01 · Facts of the case
Bangalore Transport Company Ltd. operated a public motor-transport service until the Bangalore Road Transport Service Act, 1956 vested its undertaking, assets and documents in the Mysore Government on 1 October 1956 for compensation of Rs.15,50,000. For the previous year ending 31 March 1957, the company returned no business income because the undertaking had been taken over. Its audited accounts nevertheless disclosed Rs.4,01,954 taxable business income for 1 April to 30 September 1956. The officer assessed that amount; the first appellate authority affirmed, and the Tribunal allowed Rs.97,208 development rebate and adjustments, leaving Rs.3,16,439. The Mysore High Court answered the referred taxability question negatively after treating it as whether compensation replaced the profit (SCR pp.394-395; PDF pp.2-3).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The High Court had addressed the wrong receipt: Revenue did not seek to tax any part of the compensation, but the company's operating profit before takeover. Section 10(1) contained no requirement that business continue for the whole previous year or to year-end. Money or money's worth received in the course of business carried embedded income subject to an ambulatory charge; if year-end accounts showed no overall income, the charge would not crystallize. Here the April-September audited accounts disclosed net operating profit, reduced by allowable outgoings, so closure on 1 October did not remove the tax charge (SCR pp.395-396; PDF pp.3-4). Ashokbhai Chimanbhai did not establish that all profits accrue only at year-end. A partner's right to a share could depend on later account settlement, while these profits arose directly to the company transaction by transaction and could be ascertained at year-end or business closure. The unraised section 26(2) succession question was left undecided (SCR pp.396-398; PDF pp.4-6).
Source: Primary judgment: discussion
03 · Judicial decision
The Court discharged the High Court's negative answer, answered the referred question affirmatively, allowed Revenue's appeal and ordered the company to pay the Commissioner's costs in both courts (SCR p.398; PDF p.6).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of Revenue/the Commissioner. The company remained taxable on Rs.3,16,439 adjusted business profit for the part-year before takeover; compensation character and succession allocation were not decided (SCR pp.397-398; PDF pp.5-6).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: when business ends mid-year, separate operating receipts, compensation and succession consequences. Close accounts for the actual operating period, map when the taxpayer obtained rights to receipts, deduct allowable outgoings, and then test any specific closure or succession rule. The fact that final annual computation occurs later does not by itself erase directly accrued part-year profit. Do not treat this ruling as a present classification of takeover compensation or a current section 170 opinion (based on SCR pp.395-398; PDF pp.3-6).
Source: Primary judgment: reviewPoint
Source & verification
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Statutory scope
The judgment concerns business-profit accrual and assessment under the repealed Indian Income-tax Act, 1922 following a statutory takeover under the Bangalore Road Transport Service Act, 1956. It does not determine current business-closure, succession, compulsory-acquisition, compensation, capital-gains or timing consequences under the Income-tax Act, 1961. No current-law or comprehensive later-treatment clearance was undertaken.
Later treatment
Source checked 2026-10-11. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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