HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Hyderabad v. M/s. Motor and General Stores (P.) Ltd.
Civil Appeal No. 819 of 1966
[1967] 3 SCR 876 ·
Indian Income-tax Act, 1922: section 10(2)(vii), especially the second proviso · Transfer of Property Act, 1882: sections 54, 118 and 119 · Sale of Goods Act, 1930: sections 2(10) and 4
Sources & disclosures includedDownload original judgment / order
3-judge bench; unanimous judgment delivered by V. Ramaswami, J. · J. C. Shah, J. · S. M. Sikri, J. · V. Ramaswami, J.
Assessment years: 1956-57
01 · Facts of the case
Motor and General Stores (P.) Ltd. owned Sree Rama Talkies at Bobbili. Its board authorized negotiations to sell the concern for Rs.1,20,000, and shareholders confirmed the arrangement. The 21 February 1956 instrument was titled an exchange deed: the company transferred the cinema, machinery, equipment, movables, goodwill and related property, valued in two Rs.60,000 components, and received 5 percent tax-free cumulative preference shares in Sri Rama Sugar and Industries Ltd. with a face value of Rs.1,20,000. For assessment year 1956-57 the company returned Rs.9,823 from the transaction. The officer treated Rs.43,568, the excess realized over written-down value, as profit under section 10(2)(vii); the first appellate authority and Tribunal substantially agreed, while allowing Rs.5,000 for goodwill. On a section 66(2) reference the Andhra Pradesh High Court answered for the assessee (SCR pp.877-878; PDF pp.2-3).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
Section 10(2)(vii) applied only if the building, machinery or plant had been 'sold'. Because the 1922 Act did not define sale, the Court used section 54 of the Transfer of Property Act and sections 2(10) and 4 of the Sale of Goods Act: sale requires money consideration, while reciprocal transfer for another thing is exchange or barter. The operative deed clauses unambiguously exchanged the Schedule I cinema assets for the Schedule II shares. Neither the board resolutions nor sale language in the recitals could control those clauses, and the Rs.1,20,000 valuation was for stamp duty rather than a price paid or promised (SCR pp.879-883; PDF pp.4-8). The broader 'substance' argument also failed on this record. No bad faith, fraud or cloak was alleged; the deed was intended to operate according to its legal terms. Tax liability therefore followed the parties' actual legal rights under the construed instrument, although nomenclature alone would not control a transaction of different true character (SCR pp.883-885; PDF pp.8-10).
Source: Primary judgment: discussion
03 · Judicial decision
The Court held that the 21 February 1956 transaction was an exchange, not a sale, and that the income-tax authorities could not apply section 10(2)(vii) to tax the Rs.43,568 excess on that footing. It affirmed the High Court and dismissed Revenue's appeal with costs (SCR p.885; PDF p.10).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of Motor and General Stores/the assessee-respondent. The non-cash exchange fell outside the sale-specific historical balancing-charge provision on the deed as proved (SCR pp.883-885; PDF pp.8-10).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: for a non-cash asset transfer, identify the exact charging language, the legal form created by the operative clauses, and whether any money price was paid or promised. Compare recitals, approvals and operative provisions, but do not replace a genuine deed with a hypothetical taxable transaction merely because the parties assigned rupee values. Conversely, investigate sham, side consideration and modern deeming rules separately. Present depreciation, capital-gains and slump-sale provisions require fresh analysis; this historical section 10(2)(vii) result is not a current non-cash-transfer exemption (based on SCR pp.879-885; PDF pp.4-10).
Source: Primary judgment: reviewPoint
Source & verification
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Statutory scope
The ruling construes the sale-specific second proviso to section 10(2)(vii) of the repealed Indian Income-tax Act, 1922 through property and goods-law definitions. It does not determine present depreciation recapture, slump sale, exchange, capital-gains, non-cash consideration, anti-avoidance or company-law consequences under later statutes. No current-law or 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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