C.I.T., U.P. vs BANKEY LAL VAIDYA (DEAD) BY L.R.S.

The Supreme Court held that under Section 12-B(1) of the Indian Income-tax Act, 1922, capital gains tax applies only to the sale, exchange, or transfer of capital assets. The Court found that the respondent did not sell or transfer his share in the capital assets of the firm upon dissolution, as the assets were taken over by another partner and the respondent was compensated in cash. Therefore, the amount of Rs. 65,000 was incorrectly taxed as capital gains, and the High Court's negative answer to the reference was upheld, resulting in the appeal being dismissed.