HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
M/s. Killick Nixon & Company v. Commissioner of Income-tax, Bombay
Civil Appeals Nos. 1919 and 1920 of 1966
[1967] 3 SCR 971 ·
Indian Income-tax Act, 1922: sections 2(6C), 6, 12B(1), 12B(2) third proviso, 25(3), 25(4), 33(4) and 66
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: 1949-50
01 · Facts of the case
Killick Nixon & Company, a Bombay firm with diverse trading activities, transferred managing agencies, shares, debentures, debts and other assets to Killick Industries Ltd. under a 28 November 1947 agreement, principally for shares, and transferred goodwill, premises, plant, stock, securities, agencies and other assets to Killick Nixon & Co. Ltd. under a 29 January 1948 agreement, again principally for shares. It dissolved and discontinued business from 1 February 1948. For assessment year 1949-50 the officer assessed capital gains at Rs.32,01,747. The first appellate authority printed capital gains of Rs.25,40,737, capital loss of Rs.4,00,530 on three assets and a taxable figure of Rs.21,06,455; those three figures do not arithmetically reconcile. The Tribunal confirmed and rejected section 25(3)/(4) relief. On four referred questions the Bombay High Court ruled against the assessee on section 25(3), section 12B and capital-gains liability, but held for it that the Tribunal had misdirected itself on valuation evidence. The parties filed cross-appeals (SCR pp.972-974; PDF pp.2-4).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
On Revenue's appeal, the Court distinguished the first and third provisos to section 12B(2). The transfer-date market value was undisputed; the issue was the assessee's optional 1 January 1939 value for managing agencies, 240 Cement Agencies Ltd. shares and goodwill. Although the assessee carried the evidential burden, the Tribunal as final fact authority had to consider the whole record and arguments under section 33(4). Its bare statement that the value could not exceed the appellate estimate, without engaging the evidence or giving supporting reasons, was a legal misdirection; the High Court's answer on question 4 was correct (SCR pp.974-977; PDF pp.4-7). On the assessee's appeal, only section 25(3) remained pressed. The Court accepted that the relief was not mechanically confined to the business-income head, but it still applied only to income earned by carrying on the discontinued business. Capital gains were income under section 2(6C) and taxable under sections 6 and 12B, yet the statutory fiction did not turn them into profits of the business. As these gains did not arise from trading activity, section 25(3) did not exempt them (SCR pp.978-980; PDF pp.8-10).
Source: Primary judgment: discussion
03 · Judicial decision
The Court upheld both relevant High Court conclusions: the Tribunal had to reconsider the valuation evidence in accordance with section 12B(2) and section 33(4), while section 25(3) did not exempt the capital gains. It dismissed both cross-appeals with costs (SCR p.980; PDF p.10).
Source: Primary judgment: decision
04 · Outcome / in whose favour
Mixed. The assessee succeeded on the valuation-procedure issue but failed on the discontinued-business exemption; Revenue succeeded on section 25(3) but failed to restore the Tribunal's unsupported valuation treatment. Neither side obtained reversal, and both appeals were dismissed (SCR pp.977-980; PDF pp.7-10).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: keep computation procedure separate from substantive exemption. A taxpayer exercising a historical valuation option carried the proof burden, but the final fact-finder still had to address material evidence and give intelligible reasons. Separately, a receipt's inclusion in statutory 'income' did not establish that it was earned by carrying on the discontinued business. For current matters, identify the applicable valuation date and evidence, the precise source character of the receipt, and the modern closure/succession provisions rather than importing section 25(3)'s historical scheme (based on SCR pp.974-980; PDF pp.4-10).
Source: Primary judgment: reviewPoint
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Statutory scope
The decision concerns capital gains, discontinued-business relief and appellate procedure under the repealed Indian Income-tax Act, 1922, including a 1 January 1939 fair-market-value option and the separate 1918 Act assessment history required by section 25(3). It does not determine present computation, grandfathering, succession, closure or appellate consequences under the Income-tax Act, 1961. No current-law or later-treatment clearance was undertaken.
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