TMI Blog1967 (4) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... e company," operated a public motor transport service in the town of Bangalore for several years. The legislature of the State of Mysore enacted the Bangalore Road Transport Service Act, 1956 (Mysore Act VIII of 1956), with a view to provide for the acquisition of the undertaking of the company. By virtue of section 3 of the Act the undertaking, assets and documents of the company vested in the Government of Mysore, on October 1, 1956, and the company was paid Rs. 15,50,000 as compensation for loss of its undertaking, assets and documents. In respect of the previous year ending March 31, 1957, the company submitted a return under the Income-tax Act, claiming that it had earned no income from its business, since its undertaking and busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part thereof was received by the company in lieu of the profits earned by it, and that the nature of the payment was decisive of its character and " not the method of payment or measure". The High Court accordingly held that there was no material on the record from which it could be reasonably held that any portion of the compensation paid represented replacement of profits earned during April 1, 1956, to September 30, 1956. In our judgment the High Court erred in assuming that the character of the compensation received by the company was determinative of the question submitted by the Tribunal. It was the claim of the revenue that in the previous year the company had earned taxable profit amounting to Rs. 3,16,439 and that profit was subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd if before the conclusion of that year the business is closed, no profit may in law be deemed to accrue to the assessee. There is no warrant for his argument in the scheme of the Income-tax Act. Under section 10(1) of the Income-tax Act, 1922, tax is payable by an assessee under the head "Profits and gains of business, profession or vocation" in respect of the profits or gains of any business, profession or vocation carried on by him. There is nothing in the Act which supports the argument that for profits of the business to be taxable, the business must be actively carried on for the whole of the previous year, or till the end of the previous year. Under the scheme of the Income-tax Act, whenever an assessee receives in the course of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6, and September 30, 1956, and the audited accounts of the company disclosed that embedded in the gross receipts was a net profit of Rs. 4,01,954 during that period. That profit reduced by outgoings properly allowable in the computation of the total taxable income became subject to a charge to tax. The total taxable profits may under the scheme of the Act be determined at the end of the previous year: but it does not follow therefrom that to profits earned during the year, the charge of tax does not attach. Assuming that the business of the company was closed on October 1, 1956, when its undertaking and assets were taken over by the Government of Mysore, it was, for reasons stated earlier, still liable to be taxed in respect of its profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had accrued to the Hindu undivided family at any time in the year of account prior to the date of dissolution. It was observed in Ashokbhai Chimanbhai's case, at page 46 : " In the gross receipts of a business day after day or from transaction to transaction lies embedded or dormant profit or loss: on such dormant profit or loss undoubtedly taxable profits, if any, of the business will be computed. But dormant profits cannot be equated with profits charged to tax under sections 3 and 4 of the Income-tax Act. The concept of accrual of profits of a business involves the determination by the method of accounting at the end of the accounting year or any shorter period determined by law. If profits accrue to the assessee directly from the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual share of the company in the profits and gains of the previous year was never raised before the Income-tax Appellate Tribunal and has not been decided. Counsel for the company merely contended that the amount sought to be charged was not liable to be taxed, because it was not profit of the company. Counsel has also not contended before us that for the profits received by the company the State of Mysore is, by virtue of section 26(2) of the Income-tax Act, liable to be taxed. The answer recorded by the High Court will, therefore, be discharged and there will be an answer in the affirmative. The appeal is allowed. The company will pay the costs of the Commissioner in this court and the High Court. Appeal allowed - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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