TMI Blog1986 (6) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... The facts relevant for appreciating the point at issue may be summarised as under: The assessee-company was doing business as dealers and exporters in tobacco. The assessee-company was incorporated in 1969 that is the assessment year 1970-71 for which the previous year is the calendar year. For the assessment year 1974-75 the previous year ended on 31-12-1973. From its inception till 31-12-1973, the assessee carried on its own business as dealers and exporters of tobacco. Briefly stated, the business of the assessee is that it purchases Virginia Tobacco from the growers or agriculturists, cure it, grade it, pack different grades of tobacco and 'sell' it in India to cigarette manufacturers or export it outside India to cheroot and cigarette manufacturers of several countries including USSR and China. Thus, the assessee does business in Virginia Tobacco as manufacturers, dealers and exporters. The assessee set up a factory as well as its office in three acres of land situated in D. No. 148-B of Agathavarapadu village bearing assessment No. 217 of Agathavarapadu Gram Panchayat situated on outskirts of Guntur town, on Mangalagiri Road. The assessee was having buildings, sheds and ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gro Products (P.) Ltd. was also filed before us. It is stated that the lease agreements of 1974 and 1977 executed in favour of the same lessee contain similar terms as found in the lease deed dated 14-4-1980. So is the case with the lease agreement executed in 1980 in favour of Gogineni Tobacco (P.) Ltd. For reasons more than one it is essential to note the main stipulation of the lease deed dated 14-4-1980 for correct appreciation of the point in controversy. Para No. 4 in the preamble of the lease deed states as follows : "Whereas the lessee, which is a company registered under the Companies Act, and carrying on business in tobacco are desirous of taking on lease the said land, water storage tank, furniture, scales, conveyer system, laboratory and office building, etc., under the terms and conditions mentioned below, for their tobacco business and the said lessor has agreed to give on lease, the said property detailed in the Schedule appended hereto, the parties hereunto have agreed to execute this indenture." Annual rent was fixed at Rs. 85,000 to be paid by the lessee to the lessor or his nominee, Andhra Bank Ltd., Guntur. It is also said that the demised property mentioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actory was stopped as losses were sustained in the running of the cotton ginning factory. In the directors' report dated 29-6-1981 provided at page 11 of paper book filed on behalf of the assessee, it was mentioned that cotton ginning machinery was sold away last year and the cotton pressing machinery was sold in this year and the profit on the sale of machinery which was estimated at about Rs. 80,000 was credited into profit and loss account. In the directors' report dated 30-6-1980 provided at page 9, it was stated that the company did not utilise the cotton ginning factory nor was there any demand for leasing out the same. For that reason the cotton ginning and pressing machinery was sold and proceeds were credited to the Andhra Bank Ltd., towards repayment of loan. Copies of the directors' report submitted on 8th and 9th November at general meetings of the shareholders, held on 30-6-1980 and 29-6-1980, respectively, were filed at pages 9 and 11 of the paper book. At the 8th November general meeting shareholders were informed as follows : "Your directors are happy to inform you that they are getting orders for export of tobacco. Taking the above facts, your directors are hopef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll scale and commission on tobacco, besides rents from office building, godown, machinery, etc. A sum of Rs. 2,645 was said to be the income derived by the assessee from its tobacco business and a sum of Rs. 1,08,973 was said to be the commission earned by the assessee on tobacco as per profit and loss account. So also in the assessment year for 1981-82, the ITO clearly stated as follows: "The assessee claimed to have purchased little quantity of tobacco from agriculturists at Rs. 33,386 and sold it for Rs. 73,702 clearing a gross profit of Rs. 40,316. Commission of Rs. 3,70,452 has been received from Audinarayana Co., and Indian Tobacco Co. of Guntur. The assessee sold the tobacco without grading or processing it." In the above set of circumstances, the assessee claimed that it had retained the whole of the infrastructure essential to carry on the business in Virginia Tobacco as dealers and exporters intact and it had never abandoned the idea of resuming its own business at any time. It was waiting only for appropriate moment to again enter and do its own business. The assets which were let out were commercial assets and in whichever fashion the said commercial assets were e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 08---CIT v. Kum. Satya Setia [1983] 143 ITR 486 (MP), Jeypore Timber Veneer Mills (P.) Ltd. v. CIT [1982] 137 ITR 415 (Gauhati), Atlas Cycle Industries Ltd. v. CIT [1982] 133 ITR 231 (Punj. Har.), CIT v. Steel Cast Corpn. [1977] 107 ITR 683 (Guj.), CIT v. Tuttapullan Estates [1976] 104 ITR 418 (Mad,) and 8 ITR 367 (sic.). In support of his proposition that the period of lease is not a criteria to determine whether there is abandonment of business or not, the learned advocate cited decision of this Tribunal passed in the case of Suleman Khan and Mahaboob Khan [IT Appeal No. 510 (Hyd.) of 1984, dated 31-1-1986]. 5. As against the above arguments advanced by the learned advocate for the assessee, the learned senior departmental representative, Shri P. Pradhan mainly relied upon the impugned order of the Commissioner (Appeals). He also argued that the facts as well as ratio of the Hon'ble Supreme Court in New Savan Sugar Gur Refining Co.'s case are quite near to the facts now before us, and, therefore, the ratio of that decision was correctly made, applicable by the lower authorities and, hence, the impugned orders do not call for any interference from us. He further stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition. This ground does not seem to be legally correct. The argument which was felt to be sound, and acceptable by the Hon'ble Supreme Court in Shri Lakshmi Silk Mills Ltd.'s case was that the nature of commercial assets was not effected simply because if a particular person is unable to make use of them and the inability of the assessee-company to make use of its commercial assets in certain circumstances do not in any way affect the nature of the assets and cause any infirmity in the assets itself. The assets of the assessee-company were fit to be used only by a businessman engaged in the tobacco business or its export. The assets of the assessee-company also were let out only to persons engaged in such business. That means the lessee, namely, Viswabharat Agro Products (P.) Ltd., who took on lease the assets of the assessee-company from 1974 to 1982 or Gogineni Tobacco Co. (P.) Ltd., who had taken the assets of the assessee-company for lease from 1982 to 1987 were either traders in Virginia tobacco or exporters. Admittedly, they made use of the assets of the assessee-company only in tobacco business. The case considered by the Supreme Court in Shri Lakshmi Silk Mills Ltd.'s cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years 1979-80 to 1981-82. 7. Shri A. Satyanarayana, the learned advocate of the assessee, repeatedly contended before us that the assessee-company never abandoned the idea of resuming its business by making use of assets of the assessee-company and this important aspect in this case distinguishes this case from the case considered by the Hon'ble Supreme Court in New Savan Sugar Gur Refining Co. Ltd.'s case. Firstly, let us see the facts placed to substantiate this contention. The penultimate para of the director's report dated 30-6-1986, a copy of which furnished at page 9 of the paper book filed by the assessee is as follows: "Your directors are happy to inform you that they are getting orders for export of tobacco. Taking the above facts, your directors are hopeful that the company will be able to earn much more profits and thereby wipe off the carried forward losses." Similar portion of the director's report is also available in the director's report dated 29-6-1981, copy of which is furnished at page 11 of the paper book. At page 13 copy of the letter addressed to the assessee-company by the Tobacco Board, granting certificate of registration as a dealer, was forwarde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,70,452 from Audinarayana Co. as well as from Indian Tobacco Co. of Guntur. 8. From the above material it is sought to be contended by Shri A. Satyanarayana, the learned advocate of the assessee that the assessee never abandoned the idea of doing the business in tobacco, but it was only bitting time in order to come out of woods before again starting to conduct business on a larger scale with the assets of the assessee-company. Ultimately, in 1986 it cleared all the debts previously due to the Andhra Bank and they applied for a fresh loan to the extent of Rs. 25 lakhs with a view to start the business as a dealer and exporter of Virginia tobacco in the demised premises at Mangalagiri Road. No doubt these are subsequent events but they are very essential to know the intention of the assessee-company whether it wanted to abandon the business and exploited its assets merely as property or whether it wanted to resume its business and enjoy its assets as commercial assets. It is no doubt true that these materials were not placed before the lower authorities, but according to him all these materials would clinchingly prove the intention of the assessee-company that it wanted to resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... having regard to the dates of the new material they were not available on the respective dates on which the assessment for the three assessment years now under consideration were completed. This is also one of the grounds which we will invoke to admit the new material into evidence. We hold that the above documents clearly proved that the assessee never abandoned the intention of doing its own business in the demised premises with the assets of the assessee-company as when favourable conditions exist and in fact in 1986 it had obtained requisite licences and it began resuming its business in the demised premises with the assets of the assessee-company. 9. In our opinion, the decision relied by the revenue, namely, New Savan Sugar Gur Refining Co. Ltd.'s case is distinguishable on facts. Firstly, the dictum of the Hon'ble Supreme Court in Shri Lakshmi Silk Mills Ltd.'s case was not disputed by the subsequent Supreme Court decision in New Savan Sugar Gur Refining Co. Ltd.'s case. They only distinguished the same in the later Supreme Court case. The findings of the Supreme Court in New Savan Sugar Gur Refining Co. Ltd.'s case on considering the various clauses of lease deed b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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