civil appellate jurisdiction civil appeal number 1963 of
1986.
from the judgment and order dated 19th september 1985
of the bombay high companyrt in writ petition number 337 of 1985.

r. lalit s.v. deshpande dr. n.m. ghatate and s. ray
for the appellant. n. ganpule a.m. khanwilkar and a.s. bhasme for the
respondents. the judgment of the companyrt was delivered by
sen j. this is a petition for grant of special leave
under art. 136 of the companystitution directed against the
1103
judgment and order of the bombay high companyrt dated september
19 1985 dismising a petition filed by the petitioner under
art. 226 of the companystitution challenging an order of the
additional inspector general of police bombay dated january
4 1985 for his reversion from the post of offg. police
inspector to that of sub-inspector of police as being
violative of art. 311 2  of the companystitution. by the
impugned order the high companyrt has dismissed the writ
petition in limine just by the use of a laconic word
rejected. the facts. the petitioner was promoted as offg. police
inspector on may 22 1983 on the recommendation of the
selection board upon reviewing his case. while he was posted
as police inspector at ramtak in 1982 he successfully
handled the difficult situation arising at kanhan companyl mines
where there was a quarrel between two unions namely

t.u.c. and i.n.t.u.c. and received a cash prize of rs. 50
and c numbere from the superintendent of police nagpur
district  rural  by order dated october 28 1983. he also
received several companymendations for tactfully handling the
situation at kamptee on the eve of dussehra muharram
ganeshpooja and bakr-id festivals in the years 1982 and
1983. during the period from february to march 1983 he was
deputed to delhi as a special security officer for the
seventh number-aligned companyference and was posted at vigyan
bhawan for making security arrangements. all of a sudden on
january 4 1985 the petitioner was served with the impugned
order of reversion by the additional inspector general of
police bombay from the post of police inspector to that of
police sub-inspector with the endorsement that such
reversion would number disqualify him for being companysidered for
promotion to the post of police inspector in future. it appears from the return filed by the state
government in the high companyrt that this reversion was based
upon the report of the selection companymittee that he was number
fit to be retained as police inspector. the recommendation
was based on the annual companyfidential reports for the years
1982 and 1983 to the effect that the petitioner was given to
heavy drinking and had practically become a physical wreck
and though young he was wholly unfit to hold independent
charge. the adverse entries in the annual companyfidential
reports for the years 1982 and 1983 were companymunicated to the
petitioner in december 1984. 1104
the petitioner was given two months time to make his
representation against the adverse entries i.e. time till
february 1985.
the petitioner companytends that the adverse remarks in his
annual companyfidential reports for the years 1982 and 1983 were
wholly baseless and he accordingly within time prescribed
made a detailed representation pointing out that his
reversion on the ground of the annual companyfidential reports
was wholly unjustified. he also annexed with the
representation all the documents which he filed along with
the writ petition showing that the remarks in his annual
confidential reports that he was unfit for service were
uncalled for and prayed that the order of reversion be
stayed till the companysideration of his representation. number
having received any redress of his grievance the petitioner
moved the nagpur bench of the bombay high companyrt by a
petition under art. 226 of the companystitution. the high companyrt
however dismissed the writ petition in limine. on a perusal
of the return filed by the state government in the high
court it is apparent that the reversion of the petitioner
was solely based on the recommendation of the selection
board which appears to have reviewed his case for retention
on the post of police inspector and took into companysideration
the annual companyfidential reports for the years 1982 and 1983.
the only companytention before us is that the reversion of
the petitioner from the post of offg. police inspector to
that of police sub-inspector was by way of punishment and
was thus violative of art. 311 2  of the companystitution. it is
urged that the high companyrt was number justified in dismissing
the writ petition in limine. we refrain from expressing any opinion whether the
impugned order was by way of punishment or number. all that we
wish to say is that we are distressed to find that the
impugned order passed by the high companyrt dismissing the writ
petition in limine by the use of a laconic word rejected
cannumber be sustained. it does number inspire public companyfidence
in administration of justice if the high companyrts were to
reject the writ petitions without due application of mind
even though substantial questions were raised in the writ
petitions. it was number right on the part of the high companyrt to
have declined
1105
to entertain and decide the question as to whether the
impugned order of reversion was liable to be struck down as
offending against art. 311 2  of the companystitution. the writ
petition did raise an arguable question and it deserved
hearing upon merits. in a hierarchical system of companyrts which exists in our
country all companyrts and tribunals including the high companyrt
exercising judicial and quasi-judicial functions owe it a
duty to pass reasoned orders. as it is there is a growing
tendency to file indiscriminate petitions under art. 136 of
the companystitution and this companyrt is finding it extremely
difficult to tackle with the backlog of cases because of the
precious time occupied in disposal of special leave
petitions which we regret to say are wholly devoid of
substance and of a frivolous nature. it would companysiderably
lighten the task of this companyrt if the high companyrts while
dismissing a writ petition were to indicate in a few words
the companytention s  urged and their views that the
contention s  cannumber prevail. we are distressed to find that
there is a growing tendency in some of the high companyrts to
dismiss petitions filed under art. 226 or 227 of the
constitution in limine without a speaking order just by the
use of a laconic word rejected or dismissed. how often must this companyrt decree that while dismissing
a writ petition summarily the high companyrt must record
reasons briefly? we regret that this has to be stated once
again. we trust the high companyrts to follow the law laid down
by this companyrt which indeed is obligatory upon them under
art. 141 of the companystitution. a brief statement of reasons
would greatly assist this companyrt in understanding the high
courts thought process which in turn facilitates a quick
and satisfactory disposal of special leave petitions. we
understand the difficulty of the high companyrts in writing long
orders while dismissing writ petitions summarily. the high
courts should understand our difficulty in unravelling the
reasons for summary dismissal in the absence of a brief
statement of reasons. these are hallmarks of a disciplined
judicial process. since in the instant case the writ petition did
involve a question deserving of careful companysideration we
grant special leave under art. 136 of the companystitution and
set
1106
aside the order of the high companyrt of summary dismissal.


civil appellate jurisdiction civil appeals number. 1919-1920
of 1966.
appeals from the judgment and order dated october 12 13
1962 of the bombay high companyrt in income-tax reference number 2
of 1959.

t. desai 0. p. malliotra and 0. c. mathur for the
appellant  in c.a. number 1919 of 1966  and the respondent  in
ca. number 1920 of 1966 . narsaraju and r. n. sachthey for the appellant  in

a. number 1920 of 1966  and the respondent  in c.a. number 1919
of 1966.
the judgment of the companyrt was delivered by
shah j. these are cross appeals from the order passed by
the high companyrt of bombay recording answers to questions sub-
mitted in a reference under s. 66 of the indian income-tax
act 1922.
messrs killick nixon company-hereinafter called the assessee
-was a firm which carried on diverse trading activities in
bombay. the assessee agreed to sell on numberember 28 1947 to
a companypany called killick industries limited the benefit of
managing agency companytracts held by it shares of limited
company  including 240 shares of the cement agencies limited
and debentures and book and other debts in companysideration of
79993 shares of the face value of rs. 100/- each or killick
industries limited and rs. 700/- in cash. by anumberher agreement
dated january 29 1948 the assessee agreed to sell to
killick nixon company limited 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 distributorships etc. in companysideration of
9996 shares in the vendee companypany 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.
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 companypanies -it
rs. 3201747/-. in appeal the appeal-
9 7 3
late assistant companymissioner modified the order. he was of
the view that the assessee had made capital gains amounting
to rs. 2540737/- by sale of shares to the two companypanies
and other assets transferred to killick nixon company limited and
had suffered a capital loss of rs. 400530/- being the
difference between the market value of the managing
agencies 240 shares of the cement agencies limited and the
goodwill on january 1 1939 estimated at rs. 5140802/- and
the market value of those assets on february 1 1948
estimated at rs. 474q272- . debiting the loss against the
capital  rains made by sale of shares the appellate
assistant companymissioner brought to tax an amount of rs. 2106455/-. the appellate assistant companymissioner rejected
the claim of the assessee to the benefit of s. 25 3    4
of the income-tax act 1922. the appellate tribunal
confirmed the order passed by the appellate assistant
commissioner. the tribunal drew up a statement of the case and referred
two questions numbered  i   2  below to the high companyrt of
judicature at bombay. two more questions numbered  3   4
were submitted pursuant to the order made by the high companyrt
under s. 66 2  of the act. the questions were

whether on the facts and circumstances of
the case the assessee firm is entitled to the
benefit companytained under s. 2 5   3   in
respect of capital gains assessed to tax under
s. 12b of the income-tax act ? whether on the facts and in the
circumstances of the case the assessee firm
is liable to pay capital gains in respect of
profits and gains arising from the sale of its
assets to the limited companypanies ? whether s. 12b of the indian income-tax
act 1922 at all applied to the applicants
case ? 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
applicants assets on first day of january one
thousand nine hundred and thirtynine ? the high companyrt answered the first question in the negative
and the second the third and the fourth questions in the
affirmative. the assessee has appealed against the answers
recorded on the first three questions against the order
recording the answer on the fourth question the
commissioner has appealed. the appeal filed by the companymissioner may first be
considered. the assessee companytended before the tribunal
relying upon the evidence on record that the value of the
managing agencies 240
9 7 4
shares of the cement agencies limited and the goodwill on
january 1. 1939 companysiderably exceeded rs. 514o8o2/-. the
tribunal observed in paragraph-10 of its judgment
we do number think it is necessary to deal with
in detail the evidence produced before the
income-tax authorities in respect of the
valuation as on 1-1-1939. the stand taken
by the assessee in our opinion is in-
consistent. a uniform method must be adopted
both as on the date of the transfer and as on
1-1-1939. it is number open to the assessee to
value an asset by applying one method on 1-2-
1948 and anumberher on 1-1-1939.
the tribunal then observed that since the assets were
transferred to a companypany in which the partners of the
assessee were interested and the transfer was made for a
consideration which was less than the market value it was
number open to the assessee to companytend that the market value of
the assets on january 1 1939 should be taken into account
that the assessee was number entitled to reduce the capital
gain by adopting the valuation of those assets which had a
market quotation and in respect of assets which had no
market quotation by adopting the sale price and that if
the goodwill of the business on january 1 1939 was worth
rs. 8 lakhs its value on february 1 1948 should be higher. the tribunal recorded its companyclusion that
for the purpose of this appeal it is enumbergh
to say that if the value of the assets in
question was rs. 4640279/- on 1-2-1948 it
could number be higher than rs. 5140802/- as on
i.-i-1939. speaking for ourselves we think
the income-tax authorities by allowing the
loss of rs. 4 lakhs have taken a liberal view
of the whole question. the tribunal also observed
the valuation placed by the department in
our opinion is reasonable. even if the
business was to be valued is a whole it companyld
number affect the assessment made. the valuation
has to be done on the same basis both on 1-1-
1939 and 1-2-1948. .lm0
the high companyrt in dealing with the questions
referred observed that under the third proviso
to s. 12b 2  of the income-tax act 1922 the
assessee was entitled to substitute the fair
market value of the assets as on january 1
1939 if the capital assets had been held by
the assessee before january 1 1939 in place
of the companyt of the assets -for the purpose of
determining the capital gain and that it was
common ground that the full value of the
consideration for which the assets were
transferred was rs. 11675108/-. the high
court then observed
97 5
.lm15
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 busi. ness as
on 1-1-1939 for the purpose of the companyputation
of the capital gains and the said capital
gains if any had to be determined by
deducting the said valuation as on 1-1-1939
from the full value of the companysideration. which the assessee had received and which it
was companymon ground between the parties was rs. 11675108/-. the appellate assistant
commissioner had proceeded to determine the
value of its assets as on 1-1-1939. as
against the said valuation arrived at by the
appellate assistant companymissioner the assessee
has raised ojections before the tribunal
which objections the tribunal had to companysider
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
number necessary to deal in detail with the
evidence produced before the income-tax
authorities -the tribunal has clearly
misdirected itself and had also number applied
its mind properly to the material on record. section 12b which was introduced in the indian income-tax
act 1922 with effect from the 31st day of march 1947
omitting parts number material reads as follows

the tax shall be payable by an assessee
under the bead capital gains in respect of
any profits or gains arising from the sale
exchange or transfer of a capital asset
effected after the 31st day of march 1946 and
such profits and gains shall be deemed to be
income of the previous year in which the sale
exchange or transfer took place

the amount of a capital gain shall be
computed after making the following deductions
from the full value of the companysideration for
which the sale exchange or transfer of the
capital asset is made namely

expenditure incurred solely in
connection with such sale exchange or
transfer

the actual companyt to the assessee of the
capital asset including any expenditure of a
capital nature incurred and home by him in
making- any-additions or alterations- thereto
but excluding any expenditure in respect of
which any allowance is admissible under any
provision of sections 8 9 10 and 12. 97 6
provided that where a person who acquires a
capital asset from the assessee whether by
sale exchange or transfer is a person with
whom the assessee is directly or indirectly
connected and the income-tax officer has
reason to believe that the sale exchange or
transfer was effected with the object of
avoidance or reduction of the liability of the
assessee under this section the full value of
the companysideration for which the sale exchange
or transfer is made shall with the prior
approval of the inspecting assistant
commissioner of income-tax be taken to be the
fair market value of the capital asset on the
date on which the sale exchange or transfer
tookplace
provided further
provided further that where the capital asset
became the property of the assessee before the
1st day of january 1939 he may on proof of
the fair market value thereof on the said date
to the satisfaction of the income-tax
officer substitute for the actual companyt such
fair market value which shall be deemed to be
the actual companyt to him of the asset and which
shall be reduced by the amount of
depreciation if any allowed to the assessee
after the said date and increased or
diminished as the case may be by any
adjustment made under clause  vii  of sub-
section  2  of section 10
computation of the capital gains under s. 12b is to be made
by deducting from the market value of the companysideration of
the sale exchange or transfer expenditure incurred in
connection with such sale exchange or transfer and the
actual companyt to the assessee of the capital asset or at his
option where the capital asset became the property of the
assessee before january 1 1939 the fair market value of
the asset on january 1 1939. it is open to the income-tax
officer if it appears to him that with the object of
avoidance or reducing of the liability of the assessee to
pay tax the full value of the companysideration for which the
sale exchange or transfer is made is understated and the
person acquiring the capital asset is a person with whom the
assessee is directly or indirectly companynected to determine
the fair market value of the capital asset on the date on
which the sale exchange or transfer tool place. the difference between proviso one and proviso three may be
numbericed. by virtue of the first proviso the incometax
officer is in the companyditions set out therein entitled to
determine the fair market value of the asset at the date of
the sale exchange or transfer. under the third proviso
the assessee when he has exercised the option to adopt the
value on january 1 1939 is for companyputation of the ictual
cost to him of an asset
97 7
transferred required to prove the fair market value of the
asset on january 1. 1939 when the asset transferred
belonged to him before that date. there was numberdispute in the present case about the market
value at the date of the transfer of the assets companyveyed. the first proviso therefore did number companye into play. the
dispute related to the value to the assessee on january 1
1939 of three assets the managing agencies 240 shares of
the cement agencies limited and the goodwill. the capital gain
or loss had to be determined by deducting from the market
value of the asset on february 1. 1948 the fair market value
of those assets oil january 1. 1939 proved by the assessee
to the satisfaction of the income-tax officer. the appellate assistant companymissioner estimated the value of
the three assets on january 1 1939 at rs. 5140802/-. the
assessee companytended that the evidence on the record showed
that the market value exceeded the estimated value. it is
true that the onus lay upon the assessee to prove the fair
market value of the assets on january 1 1939 to the
satisfaction of the income-tax officer and therefore of the
tribunal. the tribunal did number companysider the evidence and
disposed of the claim of the assessee after observing that
the value of the assets companyld number exceed the amount at which
it was estimated by the appellate assistant companymissioner. under the scheme of the incom-tax act the tribunal is the
final authority on questions of fact. the tribunal in
deciding an appeal is bound to companysider all the evidence
and the argumerits raised before it by tile parties. the
tribunal apparently did number companysider the evidence it
merely recorded a bare companyclu.ion without setting out any
reasons in support thereof. it is therefore number possible to
say whether the tribunal companysidered the evidence and the
contentions raised by the assessee it cannumber be assumed
merely because a companyclusion is recorded that the tribunal
considered the evidence. the high companyrt was therefore
right in recording an answer in the affirmative on the
fourth question. it will be the duty of the tribunal in
disposing of the appeal undeir s. 66 5  of the income-tax. act to hear the parties and to determine on a companysideration
of the evidence the value of the three assets on january 1
1939 in the light of the third proviso to s. 12b 2 . in the
appeal filed by the assessee companynsel for the assessee has
number challenged the finding recorded on questions number.  2
 3  and numberhing more need be said in respect of those
questions. companynsel claimed that by virtue of s. 25 3  of the
indian incometax act the assessee is exempted from paying
tax in the. year in which the business was closed. reliance
is placed upon s. 25 3
of the indian income-tax act. it provides insofar as it is
material
where any business profession or vocation on
which tax was at any time charged under the
provisions of the indian income-tax act 1918
 vii of 1918  is discontinued then unless
there has been a succession by virtue of which
the provisions of sub-section  4  have been
rendered applicable numbertax shall be payable
in respect of the income profits and gains of
the period between the end of the previous
year and the date of .such discontinuance
it is companymon ground that the assessee was assessed to tax in
respect of the income from business under the indian income-
tax act 7 of 1918 and the case is number one of succession by
virtue of which the provisions of sub-s.  4  of s. 25 are
rendered applicable. prima facie the assessee was entitled
to the benefit of s. 25 3  i.e. it was exempted from payment
of tax in respect of the income profits and gains earned by
carrying on business for-the period between the end of the
previous year and the date of discontinuance of the
business. this companyrt observed in companymissioner of income-tax
bombay city i v. chugandas and company 1  that the exemption
under s. 25 3  is number restricted only to income on which tax
was payable under the head profits and gains of business
profession or vocation under the act of 1918. companynsel for
the assessee companytended that even though under the act of
1918 capital gain was number charged to tax under the income-
tax act 1922 as amended in 1947 since capital. gains
earned by the assessee form part of the income of the
assessee as defined in s. 2 6c  of the act and are on that
account exigible to tax as income of the business the
assessee is entitled to the benefit of exemption prescribed
by s. 25  3  of the act. companynsel for the companymissioner companytended that on income earned
from business which is discontinued the assessee is en-
titled to exemption from payment of tax for the period
during which the business was carried on- in the year in
which the business was discontinued. he companyceded that
income which qualifies for exemption is income earned by
carrying on business and number merely income companyputed for
purposes of tax under s. 10 of the act. but he companytended
that the exemption does number apply to receipts which are number
earned by carrying on the business and are only fictionally
deemed income for the purpose of the incometax act. he said
that in any event capital gains cannumber be said to be income
resulting from the activity styled business and on that
account capital gains are number admissible to exemption under
s. 25 3  of the act.  1  1964 8 s.c.r. 332 55 i.t.r. 17
chugandas companypanys case 1  has in our judgment no
application to the present case. in that case the assessee
firm was charged to tax on its income from business under
the indian income-tax act 1918. the assessee firm
discontinued its business on june 30 1947 and in respect
of interest on securities which formed part of the
assessees business income exemption was claimed under s.
25 3 . this companyrt accepted the companytention of the assessee. it was observed at p. 338
when therefore section 25 3  enacts that
tax was charged at any time on any business
it is intended that the tax was at any time
charged on the owner or any business. if that
condition be fulfilled in respect of the
income of the business under the act of 1918
the owner or his successor-in-interest qua the
business will be entitled to get the benefit
of the exemption under it if the business is
discontinued. the section in terms refers to
tax charged on any business i.e. tax charged
on any person in respect of income earned by
carrying on the business. undoubtedly it is
number all income earned by a person who
conducted any business which is exempt under
sub-section  3  of section 25 number-business
income will certainly number qualify for the
privileges. it is number necessary for the purpose of these appeals to
decide whether an assessee is entitled to exemption under s.
25 3  in respect of a receipt which was number chargeable as
income under the act of 1918 for in our view capital
gains though they are income within the meaning of s. 2 6c
as incorporated by act 7 of 1939 and modified by act xxii
of 1947 are number income earned from trading activity carried
on by an assessee and therefore cannumber be admitted to
exemption under s. 25 31 . in companymissioner of income-tax madras v. express newspapers
ltd. 1  this companyrt expounded the true nature of capital
gains at p. 202
under that section  s. 12b  the tax shall be
payable by the assessee under the head
capital gains in respect of any profits or
gains arising from the sale of a capital asset
effected during the prescribed period. it
says further that such profits or gains shall
be deemed to be income of the previous year in
which the sale etc. took place. this deeming
clause does number lift the capital gains from
the sixth head in section 6 and place it under
the fourth head. it only introduces a limited
 1  1964 8 s.c.r. 332 55 i.t.r. 17  2
1964 8 s. c. r. 18953 1. t. r. 50
fiction namely that capital gains accrued
will be deemed to be income of the previous
year in which the sale was effected. this
fiction does number make them the profits or
gains of the business.