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Killick Nixon and Co. Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 21 of 1959
Judge
Reported in[1963]49ITR244(Bom)
ActsIncome Tax Act, 1922 - Sections 12B
AppellantKillick Nixon and Co.
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateN.A. Palkhivala, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
(i) direct taxation - interpretation - sections 2 (6c) and 12b (1) of income tax act, 1922 - under section 2 (6c) capital gain chargeable under section 12b is included in definition of income - income which arises by way of capital gains cannot be regarded as income from business simply because gain has arisen on sale of capital assets which were held by assessee for its business purpose. (ii) capital assets - sections 2 (4c) and 12b (1) of income tax act, 1922 - capital gains under section 12b (1) is gain which arises on sale, exchange or transfer of capital asset as specified in section 2 (4a) - fact that property is connected with business or unconnected is immaterial - existence of property and gain arising on its disposal by sale, exchange or transfer is necessary for purpose of.....v.s. desai, j.1. in this case we have before us four questions, two of which were framed by the tribunal on an application under section 66(1) of the indian income-tax act made by the assessee and the other two on a requisition made by this court under section 66(2) of the income-tax act. all the four questions relate to the capital gains which were found to have accrued to the assessee company in the assessment year 1949-50. 2. the assessee was a partnership concern carrying on various businesses in bombay under the name and style of messrs. killick nixon & co. an agreement was entered into by the partners of the assessee firm on 20th november, 1947, with a company called 'killick industries limited' under which the said partners agreed to sell as on february 1, 1948, - (1) the full.....
Judgment:

V.S. Desai, J.

1. In this case we have before us four questions, two of which were framed by the Tribunal on an application under section 66(1) of the Indian Income-tax Act made by the assessee and the other two on a requisition made by this court under section 66(2) of the Income-tax Act. All the four questions relate to the capital gains which were found to have accrued to the assessee company in the assessment year 1949-50.

2. The assessee was a partnership concern carrying on various businesses in Bombay under the name and style of Messrs. Killick Nixon & Co. An agreement was entered into by the partners of the assessee firm on 20th November, 1947, with a company called 'Killick Industries Limited' under which the said partners agreed to sell as on February 1, 1948, -

(1) the full benefit of the managing agency contracts held by the assessee firm;

(2) the several shares and debentures held by the assessee firm including the 240 shares of the Cement Agencies Ltd.; and

(3) all book and other debts.

3. The consideration for the said sale was agreed to be Rs. 80 lakhs which was to be satisfied by an allotment of 79,993 shares of Rs. 100 each of the Killick Industries Limited and Rs. 700 in cash. In addition to this amount of Rs. 80 lakhs, a certain amount representing a part of the dividend that might be declared by the Cement Agencies Ltd. in respect of the financial year commencing on January 1, 1948, and which was subsequently quantified at Rs. 1,25,378 was also be paid to the assessee.

4. On January 29, 1948, another agreement was entered into by the partners of the assessee firm with a company called the Killick Nixon and Company Limited, under which they agreed to sell (a) the goodwill; (b) freehold and leasehold hereditaments; (c) plants and machinery; (d) stock-in-trade and book-debts; (e) Government securities and shares; and (f) full benefit of all shipping and general agencies, distributorships, etc. for a consideration of Rs. 10 lakhs to be satisfied by an allotment of 9,996 shares in the vendee company of Rs. 100 each and Rs. 400 in cash. The transactions as embodied in these two agreements were duly completed and the assessee firm was dissolved and its business was discontinued with effect from February 1, 1948. The account year of the assessee firm was the year ending on the 30th of June, 1948. For the assessment year 1949-50, relevant previous year for which was the year ending with 30th June, 1948, the Income-tax Officer proceeded to determine and tax the capital gains arising to the assessee firm on the sale of its capital gains under the agreements referred to above. It was contended by the assessee before the Income-tax Officer that there was no question of any capital gains having arisen to the assessee in the present case. In the alternative it was contended that as a matter of fact there had been a capital loss to the assessee on the basis of the valuation of the assets as on January 1, 1939. The Income-tax Officer did not accept the contentions which were raised by the assessee before him and computed the capital gains at Rs. 32,01,747. The assessee appealed to the Appellate Assistant Commissioner against the decision of the Income-tax Officer and repeated the contentions which were raised before the Income-tax Officer. In view of the contentions raised by the assessee relating to the computation of the capital gains the Appellate Assistant Commissioner remanded the case to the Income-tax Officer for a proper computation of the capital gains. At this stage considerable material was produced by the assessee relating to the question of the valuation of the assets on January 1, 1939. The Income-tax Officer considered the entire material and submitted his report. Thereafter, in appeal the Appellate Assistant Commissioner recomputed the capital gains and ultimately came to the conclusion that the capital gains which had arisen to the assessee and were liable to tax were Rs. 21,06,455. Against the order of the Appellate Assistant Commissioner the assessee appealed to the Appellate Tribunal. It was contended by the assessee before the Tribunal that the assessee was entitled to the benefit contained under section 25(3) of the Indian Income-tax Act even in respect of capital gains assessed to tax under section 12B of the Indian Income-tax Act and consequently, no tax was liable to be paid by the assessee in respect of the said capital gains. It was further contended that section 12B has no application to the present case because the assessee has sole its business lock, stock and barrel and the said section has no application when the business is sold as a whole. It was also contended that the disposal of its assets by the assessee on its dissolution and discontinuance of the business was for the purpose of distribution of its capital assets amongst the partners and consequently, the third proviso to section 12B(1) applied to the present case and the disposal of the assets by the assessee firm could not be treated as a sale of the capital assets for the purpose of section 12B. In addition to these legal contentions, the further contention of the assessee before the Tribunal was that the computation of the capital gains as determined by the income-tax authority was wrong and that on a proper valuation of the assets as on January 1, 1939, the assessee-firm had suffered a capital loss by its sale of the assets on February 1, 1948. The Tribunal did not accept any of the contentions raised by the assessee before it. It held that the assessee was not entitled to the benefit of section 25(3) : that section 12B applied to the assessee's case and the assessee was not entitled to the benefit of the third proviso to section 12B(1). As to the assessee's contention with regard to the computation of capital gains, the Tribunal took the view that it was not necessary to deal in detail with the evidence produced before the income-tax authorities in respect of the valuation as on January 1, 1939, because the stand taken by the assessee was inconsistent and involved the valuation of an asset by applying one method on February 1, 1948, and another on January 1, 1939. According to the Tribunal if the stand taken by the assessee was to be contained in the first proviso to section 12B(2) of the Act, which the income-tax authorities had completely lost sight of. In view of what was stated before the Tribunal in the course of the arguments that the assets were transferred to a company in which the partners of the assessee firm were interested, and therefore, the consideration for the transfer was likely to be below the market value, the Tribunal was of the opinion that it was not open to the assessee to contend that the market value as on January 1, 1939, should be taken in respect of such assets. It then observed that on part of assets, which had a market quotation there was an overall surplus of Rs. 25 lakhs. According to the Tribunal, the rest of the assets for which there was no market quotation, the said value could not possibly be less on January 1, 1939, since there was an increase in the value of assets after the war. The Tribunal pointed out that the Appellate Assistant Commissioner had, as a matter of fact, valued the assets at Rs. 51,40,802 as on January 1, 1939, which was higher than the value of Rs. 46,40,279, which the assessee had realised for these assets on February 1, 1948. The income-tax authorities therefore, had allowed a capital loss of Rs. 4 lakhs, which, in the opinion of the Tribunal, was a liberal view taken in favour of the assessee. This, according to the Tribunal, was sufficient for disposing of the contention which the assessee had raised in the appeal before them. They, however, further mentioned that they had carefully examined the remand report and the order of the Appellate Assistant Commissioner and had found that the valuation placed by the department was reasonable. The Tribunal further expressed the view that even if the business was to be valued as a whole, since a valuation on that basis would have to be done both as on January 1, 1939, as well as on February 1, 1948, the result of such valuation would not affect the assessment made by the income-tax authorities. In the view that the Tribunal had taken of the several contentions raised before it, the Tribunal dismissed the appeal of the appeal of the assessee.

5. The assessee applied under section 66(1) requesting the Tribunal to raise certain questions and refer them to the High Court. On the said application, the Tribunal raised the following two questions and referred them to this court :

'(1) Whether on the facts and circumstances of the case, the assessee firm is entitled to the benefit contained under section 25(3) in respect of capital gains assessed to tax under section 12B of the Income-tax Act

(2) Whether on the facts and in the circumstances of the case, the firm is liable to pay capital gains tax in respect of profits and gains arising from the sale of its assets to the limited companies ?'

6. The assessee took out a notice of motion before the court praying for directions requiring the Tribunal to raise and refer further questions of law as arising out of its order. This notice of motion was heard by us when the reference made by the Tribunal came before us for hearing and on the said notice of motion, we directed the Tribunal to draw up a further statement of the case raising two more questions of law. In accordance with the said requisition the Tribunal has now drawn up a further statement of the case and referred the additional questions. These further questions, which will be numbered as Nos. 3 and 4, are as follows :

'(3) Whether section 12B of the Indian Income-tax Act, 1922, at all applied to the applicant's case

(4) Whether on the facts and in the circumstances of the case, the Tribunal misdirected itself in law and/or acted without evidence or in disregard of the most material evidence on record in making the valuation of the applicant's assets as on first day of January one thousand nine hundred and thirty-nine ?'

7. With regard to the first question, viz., whether the assessee firm was entitled to the benefit contained in section 25(3) in respect of the capital gains assessed to tax under section 12B, the contention of Mr. Palkhivala who appears for the assessee, is two-fold. His first contention is that the income, profits and gains in respect of which exemption from payment of tax is allowed is the total income of the assessee and not only the income, profits and gains from business computed under section 10 of the Indian Income-tax Act. His second contention is that even if the exemption under section 25(3) be only in respect of income, profits and gains from business, the capital gains which have accrued to the assessee in the present case, could be regarded as income from business, and therefore, entitled to exemption under section 25(3).

8. In our opinion neither of these two contentions can be accepted. The first is concluded by a decision of this court in Ambalal Himatlal v. Commissioner of Income-tax where an identical contention was raised and was negatived by this court. That case was dealing with the expression 'income, profits and gains' occurring in section 25(4), but the decision will equally apply to the said expression occurring in section 25(3) also. With regard to the second contention, Mr. Palkhivala's argument is that 'income' in order to fall within section 25(3) has no doubt to be income from business, but it is not necessary that it must be income which it computed under section 10. Income from business within the meaning of section 25(3) may also be capable of computation under some other head. He has in that connection relied upon a decision of this court in Commissioner of Income-tax v. Chugandas & Co. In that case the question were whether the interest received on securities held by the assessee as its stock-in-trade formed part of the assessee's business income for the purpose of claiming relief under section 25(3) and it was held by this court that it formed such income and the assessee was entitled to the benefit of the said provision of section 25(3). The view taken in that case was that the expression 'business' under section 25(3) only referred to the activity, which was styled business and the exemption from the payment of tax was in connection with the income, profits and gains derived from that activity of business irrespective of the head or heads under which such income, profits and gains were required to be shown under the provisions contained in the Indian Income-tax Act. The securities held by the assessee in that case constituted the stock-in-trade of the business of the assessee and arose to the assessee in the course of its business activity, and thus were income, profits and gains made in connection with the business. Mr. Palkhivala argues relying on this decision that the assets held by the Appellate Assistant Commissioner in the present case also were business assets and the capital gains, which had arisen to the assessee on the sale of the assets could be styled as income arising from his business assets. The income in the form of capital gains, therefore, has arisen to the assessee in connection with the business and, therefore, was entitled to exemption from payment of tax under section 25(3) of the Act.

9. In our opinion, the argument advanced by Mr. Palkhivala is unsound and the case on which reliance has been placed by him is clearly distinguishable from the present case. Under section 2(6C) 'capital gain chargeable under section 12B' is included in the definition of 'income' but the income, which arises by way of capital gains, cannot be regarded as income from business simply because the gain has arisen on the sale of capital assets, which were held by the assessee for the purpose of its business. The circumstance that the assets were held for the purposes of business will not be sufficient to constitute the gain arising on their sale a profit or gain of the business. In order that the profit or gain should be of the business, it must arise from the activity which is business. The capital gain arises not because of any activity of the business but because of the existence of the capital assets, which are disposed of at a value higher than what they had cost the assessee. In the case on which reliance has been placed by Mr. Palkhivala the securities constituted the stock-in-trade of the business of the assessee; they were not only connected with the business of the assessee, but formed the material part of the business itself and of the activity of the business. The stock-in-trade was held for the purpose of dealing in them and getting profits out of them, and the income produced by the securities as well as the gain realised from the sale thereof constituted the profit arising from the business activity although a part of the profit was computed under one head while the other part under another head. The case, therefore, has no application to the present case.

10. In Commissioner of Income-tax v. Express Newspapers Ltd. the Madras High Court held :

'... the words 'profits and gains of a business' had a distinct meaning under the Income-tax Act and they could not include another equally distinct concept recognised by the Act, viz., a capital gain.'

11. The question which arose in that case was whether the income, profits and gains of the business referred to in section 26(2) would include a capital gain and the question was answered in the negative. The capital gain in that case had arisen on the disposal of a part of the machinery used for the purpose of the business. The case in Commissioner of Income-tax v. Chugandas & Co. was cited to the court in support of the submission that the capital gain would be regarded as a part of the income, profits and gains of the business. The case was distinguished, as we have distinguished it, and the learned judges observed that they were not prepared to read the decision in the case as laying down that the words 'income, profits and gains of a business' would include profits not merely of the business, etc., as such but also those falling under distinct heads of income for the mere reason that there is some connection between the two. In our opinion, therefore, the second contention, which Mr. Palkhivala has urged, has also no substance and the question No. 1 must be answered in the negative and against the assessee.

12. We now come to the second question which is as follows :

'Whether, on the facts and in the circumstances of the case, the assessee firm is liable to pay capital gains tax in respect of profits and gains arising from the sale of its assets to the limited companies ?'

13. Now, the assessee's contention before the Tribunal was that in the first place since in the present case the assessee has sold its business lock, stock and barrel, section 12B had no application at all. Secondly, even if section 12B was capable of applying to the present case, the transfer of the capital assets by the assessee being only for the purpose of the distribution of the capital assets amongst the partners of the assessee firm, on the dissolution of the firm and discontinuance of its business, the transfer could not be regarded as sale, exchange or transfer of the capital assets so as to give rise to capital gains. The Tribunal in its order had dealt only with the latter aspect of the second contention and the question, which it had raised and referred to us, was likely to be considered as relating to the said aspect only. It was for that purpose that the assessee in the notice of motion, which it had taken out, had urged for the raising of a specific question relating to the first aspect of the contention. Since that question has now been raised as prayed for by the assessee, the question No. 2 raised by the Tribunal would be regarded as confined to the latter aspect, viz., that the transfer of the assets by the assessee firm to the two companies being for the purpose of distribution of the assets amongst the partners of the assessee firm on its dissolution could not give rise to any capital gains, in view of the third proviso to section 12B. Now this question is concluded by the decision of the Supreme Court in James Anderson v. Commissioner of Income-tax where it has been held that the expression 'distribution of capital assets' under the third proviso to section 12B(1) meant distribution of capital assets in specie and not distribution of the sale proceeds. There is obviously no distribution in specie of the assets by the assessee firm amongst its partners in the present case. The third proviso to section 12B(1) cannot, therefore, apply to the present case.

14. Our answer, therefore, to the second question would be that the assessee is not saved from paying capital assets to the limited companies by reason of provisions of the third proviso to section 12B(1).

15. We now come to question No. 3, which is first of the two additional questions raised on the further statement submitted by the Tribunal under section 66(2). The contention of Mr. Palkhivala is that section 12B(1) will not apply where there is a transfer of the business lock, stock and barrel. According to him in order that section 12B(1) may come into operation, there must be a transfer of capital assets as such. Where the entire business as a whole is disposed of including the capital assets held for the purpose of its business, it is not a sale or transfer of the capital assets as such but it is a sale or transfer of the business itself. Section 12B(1), therefore, will not apply to such cases.

16. In our opinion, the argument cannot be accepted. Capital assets, as defined in section 2(4A), is 'property of any kind held by an assessee whether or not connected with his business, profession or vocation' with the exception of certain specific items as are specified in the said definition. Capital gains under section 12B(1) is gain, which arises on the sale, exchange or transfer of a capital asset, i.e., on the sale, exchange or transfer of property of any kind as specified in section 2(4A). The fact that the property is connected with business or unconnected with the business is immaterial. It is the existence of the property and the gain arising on its disposal by sale, exchange or transfer that alone is necessary for the purpose of constituting a capital gain whether the assets are sold along with the business or as a part of the business as a going concern or without the business and separately would not make any difference. If the sale even of the business, the gain arising on such sale as is attributable to the capital assets would be a capital gain. There is nothing in section 12B(1) which, in our opinion, supports the submission of Mr. Palkhivala that in order that the gain to be a capital gain under section 12B(1) there must be a sale of the capital assets as such and not a sale of the capital assets involved in the transfer of a business as a whole. The third question, therefore, also has to be answered against the assessee and our answer to the said question is, therefore, in the affirmative.

17. We then come to the fourth question which is :

'Whether on the facts and in the circumstances of the case, the Tribunal misdirected itself in law and/or acted without evidence or in disregard of the most material evidence on record in making the valuation of the application's assets as on the first day of January, one thousand nine hundred and thirty-nine ?'

18. In order to appreciate the submission which the Mr. Palkhivala has made with regard to this question, it will be necessary to state the material which was placed before the Appellate Assistant Commissioner by the assessee and the manner in which the said material was disposed of by the Appellate Assistant Commissioner and thereafter by the Tribunal. As we have already pointed out earlier, the assessee had transferred its assets to two companies for a total consideration of Rs. 90 lakhs. It was found by the income-tax authorities that although the consideration under agreements with the two companies totalled to Rs. 90 lakhs, the assessee firm has, as a matter of fact, realised as the full value of the consideration a sum of Rs. 1,16,75,108. This position was not disputed by the assessee also and, therefore, before the Appellate Assistant Commissioner and the Tribunal it was common ground between the parties that the full value of the consideration arising to the assessee from the transfer of its assets was Rs. 1,16,75,108. Under section 12B(2) the capital gain had to be computed by deducting from the full value of the said consideration either the actual cost of the assets to the assessee or at the option of the assessee of the fair market value of the said assets as on January 1, 1939. The assessee had placed before the income-tax authorities considerable material for the purpose of determining the valuation of the assets as on January 1, 1939. This consisted of the affidavit of one Hartley, a partner in the assessee firm, along with his statement of valuation for the assets of the assessee firm as on January 1, 1939. There was also a report on the value of the business of the assessee firm as on January 1, 1939, made by a London firm of accountants. Then there was the affidavit of one H. S. Captain relating to the valuation of 240 shares of the Cement Agencies Limited, which formed part of the assets of the assessee firm. Mr. Captain was also examined under section 37 by the income-tax authorities. In addition to that, there were also other statements filed by the assessee relating to the valuation of the assets.

19. Now, the assets transferred by the assessee firm to the two companies comprised in part of assets which had a market quotation. There was, therefore, no difficulty in ascertaining the fair market value of such assets on January 1, 1939. The value received by the assessee for these assets under the agreements also was readily ascertainable and consequently the capital gain relating to such assets was easily determined. That gain, according to the Appellate Assistant Commissioner, was about Rs. 25 lakhs and the position was not disputed by the assessee also. The assets, regarding the valuation of which there was controversy, were only three, viz :

(1) The meaning agency contracts, which the assessee firm had of the several companies and the benefits in such contracts which had been transferred by the assessee to the two companies.

(2) 240 shares of the Cement Agencies Limited, for which there was no market quotation, and

(3) The goodwill of the assessee's business.

20. As regards these three items, the valuation submitted by Mr. Hartley in the statement, which he had prepared, came to Rs. 1,60,20,000. Now in making these calculations, while ascertaining the value of the managing agencies, Mr. Hartley had taken into account the value of the goodwill also and goodwill again had been valued by him as a separate item. There was thus an overlapping in respect of these figures to a certain extent and the value of Rs. 1,60,20,000 was, therefore, to a certain extent an inflated value. Mr. Hartley had also valued the business as a whole and that valuation, according to him, came to Rs. 1,17,00,000 and old. Mr. Roland of Fergusson, Rowland and Davies, who had also valued the business as a whole, had arrived at a figure of Rs. 1,18,15,140 as the value of the entire business of the assessee firm on January 1, 1939. On either of these valuations, there was no capital gain to the assessee since this valuation was more than the value of the full consideration, which had been received by the assessee in 1948. These valuations, however, were not accepted by the Appellate Assistant Commissioner and he proceeded to determine the value of the three items, viz., the managing agencies, the shares of the Cement Agencies Limited and the goodwill of the assessee's business. He adopted the basis of ascertaining the value of cash of the managing agencies by ascertaining the average yearly commission immediately prior to January 1, 1939, obtained by the assessee from each of the managing agencies and then capitalising it on the basis of a tax-free yield of six per cent. As to the goodwill and the shares of the Cement Agencies, he did not accept the affidavit of Mr. Captain or his evidence, but accepted the valuation, which the Income-tax Officer in his remand report had given to those shares. So far as the goodwill was concerned, he valued it at a sum of Rs. 8 lakhs. On the calculations made by the Appellate Assistant Commissioner, he came to the conclusion that the valuation of these three assets as on January 1, 1939, was Rs. 51,40,802. Since the sale price received by the assessee on February 1, 1948, which was attributable to these three items, was Rs. 47,40,272 he held that there was a capital loss of Rs. 4 lakhs in connection with these three items. Since there was an overall profit of Rs. 25 lakhs in respect of the rest of the assets, the Appellate Assistant Commissioner held that the total capital gain of the assessee, which was liable to tax, was Rs. 21,06,455.

21. Now, when the matter went before the Tribunal, the assessee's grievance was that the valuation of those three items as on January 1, 1939, made by the Appellate Assistant Commissioner was not correct for several reasons. The assessee, therefore, wanted the Tribunal to consider the entire material on record relating to the valuation of these three items of the assets as on January 1, 1939, in the light of the contentions, which the assessee had raised against the conclusions arrived at by the Appellate Assistant Commissioner. The Tribunal was, however, of the view that it was not necessary to go into the evidence, which the assessee had produced before the income-tax authorities in respect of the valuation as on January 1, 1939, because it was not open to the assessee to rely on such valuation for the purpose of ascertaining its capital gain. The view of the Tribunal was that if the valuation as on January 1, 1939, was to be taken into account, then the assets on the same basis will have to be valued as on February 1, 1948, and since that had not been done by the income-tax authorities the assessee was not entitled to have the valuation as on January 1, 1939.

22. Now, under the third proviso to section 12B(2), the assessee was entitled to substitute the fair market value of the said assets as on January 1, 1939, when the capital assets had been held by the assessee or the previous owner before January 1, 1939, in place of the cost of the assets for the purpose of determining the capital gains. This right of the assessee, which was given to him under the statute, could not be denied to him. The other value, which had to be taken into consideration for the purpose of the determination of the capital gains, was the full value of the consideration for which the assets were sold, exchanged or transferred by the assessee firm. Now, the full value of the consideration, it was common ground between the parties, was Rs. 1,16,75,108. It was nobody's case that it did not represent the full value of the consideration of the assets. There is a provision under section 12B(2) that if the Income-tax Officer has reason to believe that the full value of the consideration for which the sale, exchange or transfer is made by the assessee, is not the full value of the consideration, he will be entitled, with the prior approval of the Inspecting Assistant Commissioner of Income-tax, to take the fair market value of the capital assets on the date on which the sale, exchange or transfer had taken place. In the present case, the Income-tax authorities have not availed themselves of this provision and it is, therefore, clear that they had no reason to believe that the value of the consideration of the assets received by the assessee was not the full value of the consideration under section 12B(2). It is, therefore, surprising to find that the Tribunal should have taken the view that it was not open to the assessee to take the valuation as on January 1, 1939, for the purpose of computation of capital gains and that if the said basis was to be allowed to the assessee, the case would have to be looked into in relation to the provisions contained in the first proviso to section 12B(2) which has been completely lost sight of by the income-tax authorities. It is in this view which the Tribunal took and which, in our opinion, is clearly unjustified and unwarranted, that the Tribunal proceeded to consider the question as to the quantum of the capital gains in a different manner altogether. Its view was that so far as the three items of the assets were concerned, viz., the managing agencies, the goodwill and the shares of the Cement Agencies Limited, there could be no question of their values being less on February 1, 1939, and February 1, 1948, it was common knowledge, that the values had undergone a change because of the war. Since on the rest of the assets there was clearly a capital gain of Rs. 25 lakhs, the assessee's capital gains came to be about Rs. 25 lakhs. The income-tax authorities, however, had allowed the assessee a capital loss of Rs. 4 lakhs in respect of these three items, which the advantage of the assessee and the assessee, therefore, has no complain against the figure of capital gains as computed by the Appellate Assistant Commissioner. This, according to the Tribunal, dismissed the assessee's appeal. It then proceeded, however to mention had also looked at the remand report and the order of the Appellate Assistant Commissioner and expressed the view that the prices, by the Appellate Assistant Commissioner on the several items reasonable. They also expressed the opinion that even if the business valued as a whole, that would have made no difference to the order made by the Appellate Assistant Commissioner. These of the Tribunal, which appear to have been made in passing, disposed of the assessee's appeal on the view that they had, cannot be regarded as proper appreciation or consideration of the on record. It is not, therefore, possible to regard these last observations as findings of fact properly arrived at by the Tribunal. In our opinion, therefore, there is considerable force in the contention, which has been urged by Mr. Palkhivala, that the Tribunal has misdirected itself in law in taking the view that it was not open to the assessee to contend that the market value of these there assets as on January 1, 1939, should be taken for the purposes of computation of the capital gains of the assessee and that its observation that the valuation placed by the department on these several items is reasonable and its further observation that, even if the business was to be valued as a whole, it could not affect the assessment made are not observations, which are made on a proper application of its mind to the evidence on record. It is clear beyond any doubt that the assessee was entitled to take the fair market value of the three assets, viz. the managing agencies, 240 shares of the Cement Agencies Limited and the goodwill of its business as on January 1, 1939, for the purpose of the computation of the capital gains and the said capital gains, if any, had to be determined by deducting the said valuation as on January 1, 1939, from the full value of the consideration, which the assessee had received and which, it was common ground between the parties, was Rs. 1,16,75,108. The Appellate Assistant Commissioner had proceeded to determine the value of the assets as on January 1, 1939. As against the said valuation arrived at by the Appellate Assistant Commissioner, the assessee has raised objections before the Tribunal which objections the Tribunal has to consider on their merits. In so far as the Tribunal has failed to do so and has proceeded on the erroneous view which it has taken that it was not necessary to deal in detail with the evidence produced before the income-tax authorities, the Tribunal has clearly misdirected itself and has also not applied its mind properly to the material on record. In the view that we have taken our answer to the fourth question must be in the affirmative. We answer accordingly. There will be no order as to costs.

23. Questions answered accordingly.


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