HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income-tax, Madhya Pradesh v. Dewas Cine Corporation
Civil Appeal No. 2163 of 1966
[1968] 2 SCR 173 ·
Indian Income-tax Act, 1922: section 10(2)(vii), second proviso · Indian Partnership Act, 1932: sections 46 and 48
Sources & disclosures includedDownload original judgment / order
3-judge bench · J. C. Shah, J. · V. Ramaswami, J. · V. Bhargava, J.
Assessment years: 1952-53
01 · Facts of the case
Two partners each contributed a cinema theatre to their film-exhibition partnership effective 1 March 1947. Depreciation of Rs. 44,380 was allowed for AYs 1950-51 to 1952-53. On dissolution on 30 September 1951 the theatres were returned to their original owners through account adjustments. The Tribunal treated this as sale and recoupment; the High Court rejected inclusion of Rs. 44,380 for AY 1952-53.
Source: SCR p. 174 / PDF p. 2
02 · Discussion by the Hon’ble Court
The theatres had become partnership property, but distribution of the residue on dissolution adjusted partners’ rights under sections 46 and 48. A sale ordinarily requires property transfer for a price. Allotting property in satisfaction of a partner’s share did not become a sale merely because its value was determined on an actual or notional-sale basis. The Revenue’s deemed-sale argument therefore failed.
Source: SCR pp. 175-176 / PDF pp. 3-4
03 · Judicial decision
The High Court’s answer favouring the assessee was upheld. Revenue’s appeal was dismissed with costs; the disputed Rs. 44,380 was not includible under the second proviso on this dissolution allotment.
Source: SCR p. 176 / PDF p. 4
04 · Outcome / in whose favour
In favour of the firm on the depreciation-recoupment provision litigated. No general immunity for a genuine asset sale or for later statutory dissolution charges was decided.
Source: SCR pp. 175-176 / PDF pp. 3-4
05 · AKHB REVIEW POINT
AKHB analysis: distinguish a genuine sale from distribution settling partnership rights, supported by the dissolution instrument and capital accounts. Do not infer a sale from an accounting revaluation alone. For a current transaction, separately verify the operative charging and deeming provisions rather than relying on this historical sale-based test.
Source: AKHB analysis based on SCR pp. 175-176 / PDF pp. 3-4
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This decision applies the Indian Income-tax Act, 1922 to the stated historical assessment years. Current statutory applicability and any Income-tax Act, 1961 or 2025 crosswalk are not determined.
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