TMI Blog1968 (12) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of running ginning and pressing factories at Viramgam in Gujarat and other places. The assessee owned two presses at Viramgam. The ginning and pressing trade is a seasonal trade. It is carried on only during the time that the cotton season is on. It is not in dispute that in the present case the cotton season was from March till the end of May, or, as has been stated in the statement of the can, till the beginning of June. There were other factories in Viramgam doing similar business, and they entered into a pooling agreement with the assessee. The two other presses belonged to the Viramgam Vepar Uttejak Ginning Co. Ltd. and Keshavlal Lalloobhai Naraindas Cotton Pressing Co. The pooling agreement is dated 8th February, 1950, and the above four presses were directly involved in that agreement. The principal provisions of the pooling agreement were as follows : The association between these four presses was for a period of 11 years, that is to say, till 20th October, 1960, and clause (2) provided : " . . . . Hence none of us shall be at liberty to go out of the association during the said period ". Clause (3) indicated that of the four presses, two belonged to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... limits of Viramgam. If other presses are sold, mortgaged or given on licence to any one, then the said transferees shall deal with the presses of the association subject to all the rules and regulations and terms set out in this document and those that may be passed at the meetings of the association." On 28th July, 1956, G.D. Shah, a director of the company, wrote to the Income-tax Officer at Ahmedabad, that the company was giving notice under section 25(2) of the Income-tax Act that the business of Cotton Ginning and Pressing Factory hitherto carried on by Whittle Anderson Ltd. at Viramgam and elsewhere had been discontinued with effect from 15th July, 1956. The company also claimed relief under the provisions of the third and fourth sub-sections to section 25 because they alleged that they had been assessed to income-tax under the provisions of the Indian Income-tax Act of 1918. It appears that this claim of the assessee failed because it was held that provision of the law was not attracted in that case, but it may be stated here that in those proceedings no decision was given as to the continuance or discontinuance of the business as claimed by the assessee in their letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, and decided to tax it. The assessee objected upon several grounds, the principal ground being that the assessee-company had discontinued its business on 15th July, 1956, and they had intimated to the Income-tax Officer the fact of discontinuance by their letter of 28th July, 1956, giving notice under section 25(2) of the Act. The assessee had also claimed to set off the loss sustained against this item of Rs. 2,70,797 proposed to be taxed in their, hands as their profit under the provisions of section 10(2A) but that question no longer survives, for the Tribunal on appeal has decided that question in favour of the assessee. The findings of the authorities as well as of the Tribunal have been concurrent throughout. They have held that, upon the facts and circumstances, they were unable to accept the contention of the assessee that they had closed down or discontinued their business on 15th July, 1956. They have also held that the assessee continued to use the machinery within the meaning of that word in section 10(2)(vii) and in the second proviso thereof and that, therefore, they could not escape from the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value : .... Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place. " The clause speaks of " such building, machinery or plant " and in order to find out as to what the word " such " refers one has to read back wards to clause (iv) of section 10(2) which is " in respect of insurance against risk of damage or destruction of buildings, machinery, plant, furniture, stocks or stores, used for the Purposes of the business, profession or vocation. . . " (the underlining is ours) Therefore " such building, machinery or plant " in clause (vii) means building, machinery or plant used for the purposes of the business, profession or vocation The words in the proviso " whether during the continuance of the business or after the cessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire previous year or a part thereof, and (2) whether the machinery in the instant case was used in, the business during the whole or any part of the previous year. We have stated this position as it emerges from a consideration of the law, only in order to show what is the true nature of the question which has been actually raised for decision. The question posed merely raises the issue whether the machinery was " used " so as to attract the operation of the second proviso to section 10(2)(vii) of the 1922 Act. As such, the question is limited only to, the second of the three ingredients to which reference has been made above in the judgment of the Supreme Court. The question does not comprise within its ambit the first requirement as stated in the decision of the Supreme Court, namely, whether the business was being carried on during the whole or part of the previous year. Counsel urged that that question was also implicit in the language of the question referred and he relied upon its concluding words " so as to attract the operation of the second proviso to section 10(2)(vii) of the 1922 Act, is right in law. " No doubt reference has been made to the second proviso to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e circumstances of the case, the second proviso to section 10(2)(vii) of the Indian Income-tax Act, 1922, was applicable to the receipts on the sale of the assessee-company's buildings, machinery and plant. The question is couched in wide terms and would include the question whether the business continued in the relevant previous year but that is not the question referred. The very fact that the assessee posed this question as a question which it required the Tribunal to refer to this court shows that the assessee itself did not consider that in the actual question which has been referred this question was also implicit or implied. The Tribunal unfortunately does not seem to have given any decision, in the sense that it has not stated any reason why this question whether the business was continued or not or was closed on 15th July, 1956, did or did not arise. However, in paragraph 11 of the statement of the case the Tribunal has stated that : " The only question of law that arises out of the Tribunal's order is as follows : " That certainly amounts to a decision that the question No. 1 in paragraph 9 of that order did not arise, though we would certainly have preferred it that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tire order of the Tribunal does not show that this question was at all raised or agitated before the Tribunal. We cannot consider a question which does not arise upon the order of the Tribunal, however, much it may be pertinent, as counsel urged. In this respect, therefore, we are in agreement with the order of the Tribunal in paragraph 10 of the statement of the case ruling out question No. 2 mentioned in paragraph 9 thereof because " it does not arise out of the Tribunal's order. While we have said this, so far as an independent and separate question is sought to be raised, we may say that the question actually referred must be read in its true perspective and in the light of the facts and circumstances of the case and, so reading it, it is clear that at no stage was the controversy raised or decided upon that the second proviso to section 10(2) also applied to the surplus that may have been received by the assessee in respect of the factories outside the pooling agreement. We will make this clear after having considered the question referred. There was also some argument sought to be raised before us as regards the true computation of the profits and as regards the figures f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be used for the purposes of the business which earned the profits, although it was not actually worked, and the depreciation allowance granted by section 10(2)(vi) could be given in respect of such machinery. No doubt, that was said in connection with clause (vi) of section 10(2), but the Supreme Court has pointed out that all these clauses are in pari materia and the expression used in either of them would apply to the other : see the Liquidators of Pursa Ltd. v. Commissioner of Income-tax. In Viswanath Bhaskar Sathe's case, the facts were similar to the present case. The assessee owned a ginning factory and was a member of a pool with the owners of other ginning factories. During the assessment year in question in that case the assessee's factory had not been actually employed in the work of ginning in accordance with the pooling agreement, though he had received a share of the profits. That was because the assessee was under the agreement bound at his own expense to keep his gins and other working plant and machinery in good repair and condition and workmg or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as clearly kept ready for use by the assessee-company pursuant to the pooling agreement. The decision of this court was followed by the Patna High Court in Commissioner of Income-tax v. Dalmia Cement Ltd. Here again the same principle was applied. The Patna decision directly relied upon the decision of this court in Viswanath Sathe's case. We are aware that the decision in Viswanath Sathe's case, has been dissented from in Niranjan Lal Ram Chandra v. Commissioner of Income-tax, by the Allahabad High Court, but the dissent was not directed to the actual decision in the case but to the ground upon which Chief Justice Beaumont distinguished the earlier decision in Bhikaji Venkatesh v. Commissioner of Income-tax. Now no doubt Chief Justice Beaumont gave it as a reason in Viswanath Sathe's case, that Bhikaji Venkatesh's case, was distinguishable on the ground that " it does not appear from the report of that case that there was any covenant to maintain the machinery in question in reserve ready for actual use during the year of assessment ". We have gone through Bhikaji Venkatesh's case and we can see no reason why that remark of the learned Chief Justice was incorrect. There does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances, the agreement stipulated that those presses subject to the pooling arrangement which were idle could be used during the entire year at any time under certain circumstances. This is clear from the provisions of clauses (5) and (6) of the agreement. Clause (5) contemplates a case where if in any year the cotton crop exceeded expectations or if circum stances arose where larger number of bales were required to be pressed, then such press or presses out of the group which was idle could be called upon to work as may be decided at a meeting of the association. This stipulation was not merely relegated to the cotton season from March to May, but the same terms continued to apply during the rest of the period of the year also. We do not think, therefore, that we can accept this contention. The agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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