TMI Blog1957 (2) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... and Haji Adam Haji Ahmed. 3. In the assessment made on Abdul Karim Co. for the assessment year 1944-45, all transactions of the business up to the end of January, 1944, were taken into account. No assessment was made on the receiver. Abdul Karim Co. treated the transactions up to 31st January, 1944, as its transactions and brought them to assessment in the assessment year 1944-45. Ordinarily, the accounting year in respect of this source of income was ending with 31st December, 1943. The Income-tax Officer, however, allowed the assessee the accounting year ending with 31st January, 1944, (i.e., 13 months), as the business changed hands. The assessee company's accounting year starts from 1st February, 1944. 4. The mill was put up for sale by the receiver and the assessee company's offer of ₹ 6,25,000 was accepted by the receiver on 22nd January, 1944. The following assets were sold by the receiver: Rs. Machinery 5,99,000 Temporary structures 5,000 Furniture 4,000 Yarn and finished stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 13 months was 2,17,122 lbs. (iii) Assessment year 1944-45: The Income-tax Officer writes: The mill was sold on 25th January, 1944, and therefore the only business during the accounting period was the sale of goods lying in stock. In this also the assessee has lost due to the fall in prices of cloth in the earlier half of the year. The accounts accompanying the return disclosed the opening stock at ₹ 1,06,705. 6. From these facts it appears that in spite of the fact that the receiver was appointed, the business continued to be conducted by the firm of two partners and was assessed as such in their hands. No assessment was at any time made on the receiver. The Tribunal observed: We think that the Income-tax authorities were right in holding that the identity and the nature of the business carried on by the assessee as from 1st February, 1944, was the same which was previously carried on by Haji Moosa Haji Abdul Karim Others. It matters little if a part of the mill is worked for a short time or stopped for a short time. A copy of the deed of partnership dated 31st May, 1943, and a copy of the order of the Tribunal dated 18th March, 1953, are annexures A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact was not accepted by the Tribunal as is apparent from paragraph 5 reproduced hereinabove. 8. As directed by their Lordships we refer the following questions: (1) Whether the Tribunal misdirected itself in law in applying section 8(3) of the Excess Profits Tax Act, 1940, for the purpose of computation of capital and calculation of depreciation allowance? (2) Whether the assessee was entitled to law to depreciation of capital on the basis of the original costs of the assets to the assessee? 9. The statement of the case has been finalised after hearing the parties. The order of the Tribunal dated 20th February, 1952, in an earlier appeal is annexure C and has been made a part of the case at the special request of the assessee. Mr. Daphtary also wants that 4 letters exchanged between the assessee and the Indian Art Textile Mills Co., to be made part of the case. These letters at no stage were referred to by the assessee in this appeal. In our opinion, they have no bearing on the question in issue. The request of the assessee in this respect has, therefore, been rejected. The order of the Appellate Assistant Commissioner dated 2nd June, 1952, is also made a part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat although there may be only a change in the persons carrying on a business, the business shall be deemed to have been discontinued and a new business to have been commenced. Therefore, notwithstanding a succession to a business, for the purposes of sub-section (1) the business will be looked upon as a new business and the old business would be considered to have been discontinued. Sub-section (3) of section 8 does away with the fiction introduced in section 8(1) and the fiction is done away with for the limited purposes mentioned in sub-section (3), and one of the purposes is the question of computations of depreciation. Therefore, if there is a succession to a business, then for the purpose of sub- section (3) that succession has got to be accepted and the consequences of that succession would follow, and one of the consequences would be that the successor would not be entitled to claim the consideration paid by him for the purchase of the business in computing depreciation under the Excess Profits Tax Act. The contention of the assessee in this case was that it was not the successor of the business of Abdul Karim Silk Mills. According to it, it was a new business and in hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y no attention was given by the Tribunal to this aspect of the matter. Now, an application was made by the assessee to the Tribunal for a reference under section 66(1) of the Income-tax Act. That application having been rejected, the assessee came before us under section 66(2) and it raised these two questions: (1) Whether the Tribunal misdirected itself in law in applying section 8(3) of the Excess Profits Tax Act, 1940, for the purpose of computation of capital and calculation of depreciation allowance? (2) Whether the assessee was entitled in law to depreciation of capital on the basis of the original cost of the assets to the assessee? When we turn to the statement of the case we find a very elaborate statement which has been submitted to us, and Mr. Palkhivala has made a grievance of the fact that many materials have been incorporated in this statement of the case which were never before the Tribunal when it functioned as an appellate authority and which were never referred to either by the assessee or the Department. I think we must point out to the Tribunal what the correct procedure is with regard to the submission of a statement of the case. It is true that ver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal is disposed of; anything outside the record should not be looked at by the Tribunal, nor can we ourselves look at it. At one stage Mr. Palkhivala attempted to satisfy us that there was no evidence for the finding of the Tribunal that there had been a succession by the assessee to the firm of Abdul Karim Silk Mills. But we pointed out to Mr. Palkhivala that the two questions raised did not relate to the absence of evidence with regard to the finding of any fact. All that question (1) would entitle him to contend would be that on the facts found by the Tribunal, which facts were not challenged, the legal inference that there was a succession was not justified. It would not however be true to say that the finding of the Tribunal that there was a succession is a finding of fact. It is a finding of law and at most it is a mixed finding of fact and law and it is always open to an assessee to challenge that finding, not indeed as a finding of fact but as an inference of law wrongly arrived at from consideration of facts established before the Tribunal. It is, therefore, from this point of view that we now proceed to consider the order passed by the Tribunal and to see whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d at what moment of time antecedent to the purchase of the business by the assessee the business was stopped, nor has it considered what the nature of the stoppage was. There is another rather serious error in the statement of the case to which Mr. Palkhivala has drawn our attention and that is with regard to the assets purchased by the assessee. In paragraph 4 the Tribunal sets out the assets which were sold by the receiver and which consist of machinery, temporary structures, furniture, yarn and finished stock, trade marks and tenancy, and in the very next sentence the Tribunal goes on to state: It may be noted here that the goodwill trade marks, yarn and finished stock were all sold by the receiver. It is difficult to understand where the Tribunal got this goodwill which according to this part of the paragraph was sold by the receiver to the assessee. The sale of the goodwill would be a very important and material fact because if goodwill was sold it would considerably assist the contention of the Department that what was sold was a going business. If, on the other hand, the goodwill was not sold, then it would support the contention of the assessee that if the business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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