HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Commissioner of Income Tax, Gujarat v. M/s Electric Control Gear Mfg. Co.
Civil Appeal No. 101 of 1982
[1997] Supp 1 SCR 570 ·
41(2) (historical) · 45 (reference history) · 114 (historical reference question) · 34(2) (question not pressed)
Sources & disclosures includedDownload original judgment / order
Two-judge bench · S.C. Agrawal, J. · G.B. Pattanaik, J.
Assessment years: 1967-68
01 · Facts of the case
Thirteen partners transferred the entire business assets and liabilities as a going concern to Electric Control Gear Pvt. Ltd. on 31 March 1966 for Rs 8 lakh, satisfied by shares allotted in their profit-sharing proportions. For AY 1967-68, the ITO treated Rs 3,32,863 of earlier depreciation as section 41(2) income and also brought capital gains to tax. The appellate proceedings concerned the charge, the assessee’s status and other reference questions (physical pages 2–4).
The High Court answered questions 2, 4 and 8 against Revenue: section 41(2) applicability, registered-firm status and refusal of circular relief. Question 6 about depreciation was not pressed, while question 7 under section 114 did not survive. The printed sentence identifying the Supreme Court appeal wrongly lists question 5 instead of 8; the final decision clearly addresses questions 2, 4 and 8 (physical pages 4–5).
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02 · Discussion by the Hon’ble Court
The Court distinguished the Artex judgment delivered the same day. In Artex, the assessment record identified asset values used in arriving at the sale consideration. Here nothing showed the part of Rs 8 lakh attributable to machinery, plant or building. Merely identifying total past depreciation did not establish the excess of asset-price over written-down value required for the historical section 41(2) charge (physical pages 4–5).
The High Court’s status answer was upheld by reference to Artex. However, its circular-relief answer was reversed for the reasons in that judgment: the two described circulars did not apply to the transaction. These are separate issues; preservation of the assessee’s balancing-charge answer did not give it an exemption from every possible tax on the transfer (physical page 5; Artex physical page 18).
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03 · Judicial decision
The appeal was partly allowed only to reverse the High Court’s answer to question 8, with that question answered for Revenue. The answers to questions 2 and 4 were affirmed. There was no order as to costs. The Supreme Court did not declare the entire Rs 8 lakh tax-free, make a fresh capital-gain computation or revive the unpressed depreciation question (physical page 5).
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04 · Outcome / in whose favour
In whose favour: Mixed: assessee on section 41(2) and status; Revenue on circular relief
Revenue appeal partly allowed only on question 8; questions 2 and 4 affirmed; no costs
Final narrow reference disposition on the three identified appealed questions
No blanket exemption of business-transfer proceeds or modern slump-sale computation. Past depreciation did not itself establish a taxable asset-price surplus, and failure of this balancing charge did not dispose of the separate capital-gains history.
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05 · AKHB REVIEW POINT
Compare actual evidence, not labels. To apply the old balancing charge, past depreciation is not a substitute for the sale-price attribution required by the provision. Read this short decision with Artex: the agreement’s silence was overcome by contemporaneous valuation evidence there, whereas such evidence was absent here.
Track each reference question to its final answer. The assessee retained important rulings yet lost its circular claim, and the decision did not erase the distinct capital-gains history. A bounded check of the official Department-hosted 2011 compilation shows a separate section 2(42C)/50B slump-sale framework, inserted from 1 April 2000, and that original section 41(2) was omitted from 1 April 1988, with a later provision linked to section 32(1)(i) inserted from 1 April 1998. These historical changes prevent direct use of the AY 1967-68 computation as a present-day formula. Later changes, transaction exemptions and any 2025 Act correspondence are not verified.
Source: See the proposition-specific paragraph and PDF-page references below.
Proposition-specific source paragraphs and PDF pages
- topic
- Identity, transaction and actual reference questions
- source url
- Open cited source
- pdf pages
- 1; 2; 3; 4
- paragraphs
- Unnumbered judicial text
- source role
- reported metadata and judicial text
- topic
- No asset-price evidence and precise partial disposition
- source url
- Open cited source
- pdf pages
- 4; 5
- paragraphs
- Unnumbered judicial text
- source role
- judicial text
- topic
- Expressly incorporated same-day valuation/status/circular comparison
- source url
- Open cited source
- pdf pages
- 17; 18; 19
- paragraphs
- Unnumbered judicial text
- source role
- same day companion judgment
- topic
- Later statutory framework and historical limits
- source url
- Open cited source
- pdf pages
- 69; 306; 361; 362
- paragraphs
- Sections 2(42C), 41(2) and 50B with specified footnotes
- source role
- bounded historical statutory text
Judicial authorship and separate opinions
S.C. Agrawal, J.Act identified in the reviewed source
Income-tax Act, 1961Source & verification
Download original judgment / order · Open cited source rendition
Identified source rendition: 5 PDF pages; SHA-256 0859f1c6bf50b3837ffbd8b6b65a8a90dea7519e119ee1d5e0a9cf14eb18f6a6. Original bytes preserved. Complete judicial text physical pages 2–5/SCR 571–574; operative questions 2, 4 and 8 control over the contradictory appeal-question sentence within the judicial text on physical page 4 and the inconsistent first-page editorial narrative.
- The first-page narrative mistakenly says the High Court upheld section 41(2) applicability and registered-firm status. The actual question-by-question judicial discussion and final answers on pages 4–5 control.; Physical page 4 first identifies questions 2, 4 and 8 as the adverse answers, then prints the appeal as concerning 2, 4 and 5. The operative order resolves 2, 4 and 8; that conflict is not silently erased.; The appealed status question contrasts registered firm and association of persons; the incorporated Artex status paragraph uses body of individuals. The note preserves the affirmed non-registered-firm result without inventing a general equivalence of those categories.; Rs 3,32,863 is earlier depreciation, not an independently established sale-price surplus. Rs 8 lakh is the aggregate consideration, not a Supreme Court-determined exempt amount.; The historical Rs 5,000 capital-gains exclusion and section 114 history are not present-day thresholds. The Court did not separately reopen every reference question.; The circulars are not identified by number in this judgment; the same-day Artex reasons supply the bounded explanation, without a current concession being inferred.
Statutory scope
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Later treatment
Source checked 2026-10-04. Comprehensive subsequent judicial and statutory treatment has not been verified. Only the expressly identified bounded comparisons have been checked. No current-law or Income-tax Act, 2025 mapping is certified.
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Identified source links
- reported judgment — PDF 5 pages
SHA-256: 0859f1c6bf50b3837ffbd8b6b65a8a90dea7519e119ee1d5e0a9cf14eb18f6a6
- official department hosted historical statutory compilation — PDF 1251 pages
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- bounded same day reported judgment — PDF 19 pages
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