HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
C.I.T., U.P. v. Bankey Lal Vaidya (Dead) by L. Rs.
Civil Appeal No. 1223 of 1967
[1971] 3 SCR 406 ·
Indian Income-tax Act, 1922: sections 12B(1) and 66(1)
Sources & disclosures includedDownload original judgment / order
3-judge bench · J. C. Shah, C.J. · K. S. Hegde, J. · A. N. Grover, J.
Assessment years: 1947-48
01 · Facts of the case
The respondent, acting for his HUF, partnered with Devi Sharan Garg in pharmaceutical products and related literature. On dissolution on 27 July 1946, assets were valued at Rs. 2,50,000. Garg took the business and goodwill; the respondent received Rs. 1,25,000 for his share. For AY 1947-48 the Tribunal sustained Rs. 65,000 as capital gains, reduced from Rs. 70,000 assessed. The High Court answered the reference against that charge.
Source: SCR pp. 406-407 / PDF pp. 1-2
02 · Discussion by the Hon’ble Court
The settlement adjusted partners’ rights on dissolution: one received the assets and the other their money equivalent. The Court found no sale, exchange or transfer of the respondent’s share. Valuation followed by payment of a partner’s entitlement was a recognised distribution method. It distinguished James Anderson, where an executor’s agent actually sold securities, and relied on the explanation of dissolution adjustments in Dewas Cine Corporation.
Source: SCR pp. 408-409 / PDF pp. 3-4
03 · Judicial decision
The Court agreed that the referred question should be answered in the negative. Revenue’s appeal was dismissed with costs; the Rs. 65,000 was not taxable as capital gains under section 12B in this transaction.
Source: SCR p. 409 / PDF p. 4
04 · Outcome / in whose favour
In favour of the assessee on the historical capital-gains charge arising from this dissolution settlement. The Court did not approve an exemption for an actual sale of assets followed by distribution of the sale proceeds.
Source: SCR pp. 408-409 / PDF pp. 3-4
05 · AKHB REVIEW POINT
AKHB analysis: distinguish a distribution adjusting partners’ rights from a sale for a price by examining dissolution terms and asset movements. Preserve that factual distinction when citing the case, but do not carry the 1922 Act result into a modern dissolution or reconstitution without checking the provisions operative on that transaction date.
Source: AKHB analysis based on SCR pp. 407-409 / PDF pp. 2-4
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Statutory scope
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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