Shah, J. - (1.) These are cross appeals from the order passed by the High Court of Bombay recording answers to questions submitted in a reference under S. 66 of the Indian Income-tax Act, 1922.
(2.) M/s. Killick Nixon and Co.-hereinafter called 'the assessee'-was a firm which carried on diverse trading activities in Bombay. The assessee agreed to sell on November 28, 1947 to a Company called "Killick Industries Ltd.", the benefit of managing agency contracts held by it, shares of limited Company (including 240 shares of the Cement Agencies Ltd.) and debentures, and book and other debts in consideration of 79,998 shares of the face value of Rs. 100 each of Killick Industries Ltd., and Rs. 700 in cash. By another agreement, dated January 29, 1948 the assessee agreed to sell to "Killick Nixon and Co., Ltd." goodwill of the business of the assessee, freehold and leasehold hereditaments, plant and machinery, stock in trade and book debts, Government securities and shares and full benefit of all shipping and general agencies, distributorship, etc. in consideration of 9,996 shares in the Vendee Company of the face value of Rs. 100 each and Rs. 400 in cash. The assessee was dissolved and its business was discontinued with effect from February 1, 1948.
(3.) In a proceeding for assessment to tax payable by the assessee for the year 1949-50 (the relevant previous year being the year ending June 30, 1948) the Income-tax Officer assessed the capital gains made by the assessee, on the transfer of its capital assets to the two Companies, at Rs. 32,01,747. In appeal, the Appellate Assistant Commissioner modified the order. He was of the view that the assessee had made capital gains amounting to Rs. 25,40,737 by sale of shares to the two companies and other assets transferred to Killick Nixon and Co. Ltd., and had suffered a capital loss of Rupees 4,00,530, being the difference between the market value of the managing agencies, 240 shares of the Cement Agencies Ltd. and the goodwill on January 1, 1939 estimated at Rs. 51,40,802 and the market value of those assets on February 1, 1948 estimated at Rs. 47,40,272. Debiting the loss against the capital gains made by sale of shares, the Appellate Assistant Commissioner brought to tax an amount of Rs. 21,06,455. The Appellate Assistant Commissioner rejected the claim of the assessee to the benefit of S. 25 (3) and (4) of the Income-tax Act, 1922. The Appellate Tribunal confirmed the order passed by the Appellate Assistant Commissioner.;