HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
COMMISSIONER OF INCOME-TAX, WEST BENGAL CALCUTTA v. CALCUTTA DISCOUNT CO., LTD.
Civil Appeal No. 495 of 1970 — Supreme Court appeal or expressly printed appeal group decided in this judgment / Income-Tax Reference No. 61 of 1966 — Originating High Court appeal/reference docket; not an additional Supreme Court appeal
[1973] 3 SCR 952 ·
1922 Act: 66(1)
Holding and result. On the accepted bona fide transaction between separate companies, market value alone could not create taxable profits that the seller had not actually made.
Sources & disclosures includedDownload original judgment / order
2-judge bench · K. S. Hegde, J. · H. R. Khanna, J.
Assessment years: 1947-48
01 · Facts of the case
For assessment year 1947-48 under the Indian Income-tax Act, 1922, Calcutta Discount transferred shares to a newly formed subsidiary in exchange for the subsidiary’s shares. The officer substituted market values and assessed a deemed profit, although the transaction was accepted as genuine and no concealed profit was found. The Appellate Assistant Commissioner remitted the matter to identify any actual profit. The Tribunal summarily dismissed the Revenue’s appeal for failing expressly to request that the order be set aside. A section 66(1) reference followed.
Source: SCR953C–955C
02 · Discussion by the Hon’ble Court
The Supreme Court criticised that procedural approach: sufficient substantive grounds do not require a prescribed verbal formula for relief. But the Appellate Assistant Commissioner’s underlying approach was correct, making a procedural remittal pointless. Parent and subsidiary were separate legal entities, and neither sham dealings nor a higher actual receipt had been established. Following A. Raman and approving Ramalinga Choodambikai Mills, the Court held that potential earnings were not automatically accrued income. A genuine transfer below market value did not itself justify taxing the difference. Sharkey v. Wernher and Dooar’s Tea were distinguished because they concerned goods withdrawn for the trader’s own use, rather than sales between distinct traders.
Source: SCR955D–958F
03 · Judicial decision
The Court accepted the direction to ascertain actual profits and rejected a fictional addition based solely on market price. Although it disapproved the Tribunal’s technical objection, it expressly declined to answer the third referred question because reversal and remittal would be futile. The first two questions were not pursued before it.
Source: SCR953F–G,958F–G
04 · Outcome / in whose favour
The Revenue’s appeal was dismissed, with no order as to costs. The Appellate Assistant Commissioner’s remand to examine actual profits remained effective; no final quantified profit was substituted by the Court.
Source: SCR958F–G
05 · AKHB REVIEW POINT
Use the case for its genuine-transaction and actual-profit reasoning, and identify the statutory basis for any proposed market-value substitution. Its broad tax-planning language is historically situated; it does not answer every later valuation, related-party or anti-avoidance rule. Also distinguish criticism of appellate procedure from the relief actually granted: this Court did not order the Tribunal to rehear the appeal. The checked section 28(i)/2025 section 26 comparison is confined to the business-income charge. Marghabhai Kishabhai Patel (1976) later applied the principle to genuine purchases from partners and a relative.
Source: SCR955D–958G; section28 opening andclause(i), web lines67-69; adjacent compensation clauses not used; section26(1),(2)(a), web lines2189-2194, reported physical55-56; Title and section 1(3), physical1/web0–13; section536(1),(2)(a)–(c), physical584–585/web24385–24399; subsections(3)–(4), physical589/web24597–24601. No full-section536 reading claimed.; Identity and paragraphs 1–20, web lines35–125 personally read. Calcutta Discount 1973 cited and applied in paragraphs15–19, disposal paragraph20.
Source & verification
Download original judgment / order · Open cited source rendition
7-page retained public-mirror SCR report. The complete report was read as text and page images. The acquisition URL is preserved provenance; current endpoint availability and authentication as a signed original are not newly verified.
- The 1961 section 147(b) passage is quoted from A. Raman; it is not the operative reassessment provision in this 1947-48 appeal.
- SCR954A prints a loss of Rs27,02,398, inconsistent with the two printed transaction figures. The note does not use those immaterial amounts or silently correct them.
Statutory scope
Indian Income-tax Act, 1922; 66(1), Section147(b) of1961 Act appears only in quoted A.Raman reasoning
The official 2024 (No. 1)-labelled section 28(i) charges business/profession profits and gains. This bounded charging-text comparison does not establish a rule overriding later specific valuation or anti-avoidance provisions.
Section 26(1)–(2)(a), Finance Act 2026 edition, charges business/profession profits and gains. The historical genuine-transaction or real-accrual analysis still requires the particular governing computation provisions.
The checked section 1(3) generally commences the 2025 Act on 1 April 2026. Section 536 preserves previous operation and accrued rights and keeps specified pre-commencement-year proceedings under the 1961 Act, subject to its savings. None of these comparisons retrospectively replaces the operative law of the judgment.
Later treatment
Source checked 2026-10-07. Marghabhai Kishabhai Patel & Co., Gujarat High Court, 16 February 1976, paragraphs 15–19, expressly uses the 1973 Calcutta Discount actual-price principle in the converse setting of purchases from partners and a relative. On the stated absence of sham, non-bona-fide or unrecorded-price findings, it rejected market/average-price substitution. That specific historical application does not override later statutory valuation or related-party controls.
Subsequent-history status remains unverified beyond any specific use recorded below.
Page references identify the supplied PDF; paragraph references identify the judgment unless stated otherwise.
Identified source links
- Income-tax Act, 1961; Page labels2024(No.1)
Page labels2024(No.1) section28 opening andclause(i), web lines67-69; adjacent compensation clauses not used Selected web-extracted statutory passages personally read; no raw-PDF, rendered-page or full-enactment read claimed. The stated version and bounds control this comparison.
- Income-tax Act, 2025; FA2026
FA2026 section26(1),(2)(a), web lines2189-2194, reported physical55-56 Selected web-extracted statutory passages personally read; no raw-PDF, rendered-page or full-enactment read claimed. The stated version and bounds control this comparison.
- Income-tax Act, 2025, as amended by Finance Act 2026
Title and section 1(3), physical1/web0–13; section536(1),(2)(a)–(c), physical584–585/web24385–24399; subsections(3)–(4), physical589/web24597–24601. No full-section536 reading claimed. Selected web-extracted statutory passages personally read; no raw-PDF, rendered-page or full-enactment read claimed. The stated version and bounds control this comparison.
- Marghabhai Kishabhai Patel & Co. v. Commissioner of Income-tax, Gujarat (1976-02-16)
Identity and paragraphs 1–20, web lines35–125 personally read. Calcutta Discount 1973 cited and applied in paragraphs15–19, disposal paragraph20. Nonofficial full judicial-text rendition personally read; no original PDF/image validation. Questionable reporter-header citation not adopted.
AI disclosure & professional disclaimer
AI-assisted research. The AKHB Review Point is editorial analysis, not part of the Court’s judgment.
AI-assisted legal research note for general information and professional research. It is not legal or tax advice. Verify the original judgment, applicable statutory version and subsequent judicial treatment before relying on it. The AKHB Review Point is editorial analysis, not part of the Court’s judgment.