TMI Blog1971 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... ited company. The assessee originally was doing business in the manufacture of steel forgings and steel castings. This business of the assessee, however, was dropped and the machinery of the pilot plant of the assessee's Bahadurgarh factory was sold by the company as borne out from the report of the directors of the company for the year 1966-67. The assessee for the said accounting year had shown an income of Rs. 913 under the head " Interest " and another income of Rs. 318 by way of profit on sale of stores and spare parts. On the expenditure side the assessee had shown Rs. 11,080 on account of power and fuel including minimum consumption charges, Rs. 2,200 as freight and cartage charges and Rs. 2,583 as loss on sale of fixed assets. The assessee during the said accounting year, i.e., 1966-67, had sold machinery worth Rs. 3,34,948 on credit. The assessee charged interest on dues on that account. Before the Income-tax Officer the assessee claimed deduction of full expenditure incurred by it in the year of account. However, the Income-tax Officer allowed expenses proportionate to the income under the head " Other sources " comprising interest and profit on sale of stores and spares. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this court for its opinion : " (1) Whether, on the facts and in the circumstances of the case, the assessee was entitled to the deduction of any expenditure other than the expenditure allowed by the Tribunal either under the head 'Business' or under the head ' Income from other sources '? (2) Whether, on the facts and in the circumstances of the case, the assessee was entitled to carry forward the loss in the business of forgings and castings brought forward from earlier years and set it off against any income determined for the assessment year 1967-68 ?" It may be stated here that the assessment year in question was the year 1967-68 and the corresponding previous year was the year ending on 31st March, 1967. The learned counsel appearing for the assessee submitted that although the assessee-company had dropped the steel forgings and steel castings business yet the assessee was still carrying on business as it was in the process of realisation of charges and the assessee had earned interest on outstandings from the purchaser who had taken over the machinery from it. The question, therefore, would be whether, in the circumstances as stated above, the assessee-company can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the case, the conclusion of the Appellate Tribunal that the assessee-company had not ceased to carry on business during the relevant accounting period was, in law, correct ? and (2) if the answer to the first question be in the affirmative, whether all the expenses which the Tribunal had allowed were admissible under section 10(2)(xv) of the Income-tax Act ? But the department gave up question No. 2. While considering the first question, their Lordships of the Supreme Court, in the majority judgment delivered by Sarkar J., observed as follows at pages 5 and 6 : " It would be laying down strange law to hold that where a business has in fact ceased to be run, it must be deemed as continuing because the outstanding liabilities of that business had not been liquidated. The question whether the company was carrying on business arises only because, if it was, it would be entitled under section 10 to deductions from its business income in regard to certain expenses incurred by it for the purpose of that business. Business as contemplated by that section is an activity capable of producing a profit which can be taxed. Payment of outstanding liabilities is not an activity which can e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icient to hold that the assessee was engaged in any business. In Inderchand Hari Ram v. Commissioner of Income-tax, the applicants were the managing agents of the Shankar Sugar Mills Ltd., Gorakhpur. An Ordinance was promulgated by the Government according to which the sugar mills had to sell sugar direct to its customers and not through its selling agents. The assessee's selling agency, therefore, came to a stop. The directors of the sugar mills did not apprise the assessee till 7th March, 1945, to disband their establishment and staff but during the period, i.e., beginning of the accounting year 1st October, 1944, up to 7th March, 1945, the sugar mills did not send any goods to the assessee and the assessee did not make any sales of the sugar for the mills. The assessee claimed expenses of the establishment under section 10(2)(xv). The Tribunal negatived the contention of the assessee holding that the selling agency had to be stopped under the Ordinance and the same stood terminated by the mills who did not send any goods for sale and the assessee as such was not required to maintain any staff or establishment. On the asking of the assessee the question whether, in the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting the expenses would not arise. In the case before us we find that the Tribunal has found it as a fact that the assessee did not carry on business during the relevant assessment year and on their own showing also the assessee-company has not been able to dispel the fact that no business was being carried on by the assessee. The learned counsel for the assessee placed great reliance on Commissioner of Income-tax v. Bharat Nidhi Ltd., in which case the assessee under its name of Bharat Bank Ltd., apart from carrying on other business, was engaged in the banking business as well. In 1949, the Banking Companies Act, 1949 (10 of 1949), was enacted. Because of the restrictions imposed under the aforesaid Act the assessee did not wish to continue its banking business and it transferred its banking business to the Punjab National Bank Ltd. on 10th March, 1951. By a resolution passed by the shareholders of the assessee its name was changed from Bharat Bank Ltd. to Bharat Nidhi Ltd. The assessee after 10th March, 1951, actually did not do any banking business and it was only in September, 1952, that it advanced some money to a borrower. In the year ending December 31, 1951, the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re March 10, 1951, the assessee was carrying on both the banking as also the business of financing in general but thereafter it dropped the banking business but carried on the business of financing in general was not sustained and the High Court held that after March 10, 1951, the business that remained with the assessee and was carried on by it was the business which it had carried on previously as well before that date. In the result the High Court held that all the amounts claimed as allowable under section 10(2)(xv) were rightly allowed by the Tribunal to the assessee as being laid out or expended wholly or exclusively for the purposes of its business. Support was also drawn from General Corporation Ltd. v. Commissioner of Income-tax, in which case the petitioner-company carried on business in motor accessories and in mica mining. The latter business had to be stopped on account of a cyclone. For the assessment year 1929-30 the company claimed a certain sum on account of loss incurred in respect of the mining business. This loss was entirely made up of expenses on account of salary and wages, depreciation, legal expenditure, etc. The Income-tax Officer disallowed the amount s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaging itself in one of those businesses. We are afraid this argument is not open to the assessee, as the Tribunal has found it as a fact against the assessee that the business of the assessee in castings and forgings had been brought to a close and the sale of the machinery in the year of account was an active step in the process of the closure. Moreover, there is no material on the record from which it could be gathered that the assessee-company is exploring the possibility of engaging in any other trade or business in which it may legitimately engage, being one of the objects for which the assessee-company was formed. Lastly, the learned counsel for the assessee relied upon the decision in In re Chunni Lal Kalyan Das, wherein the court while examining the scope of the word " business " held that it would include any adventure and that it was not possible to exclude from the expression " adventure ", indeed successful adventure, the negotiation of a sale of a large mill which resulted in a commission payable to the value of Rs. 75,000. In the result it was held that the receipt was from a transaction which was from business of a broker and that came within the definition of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of them and the second proviso to section 10(2)(vii) could have no application to the sale proceeds of such machinery and plant. Their Lordships found that the intention of the company was to discontinue its business and the sale of the machinery and plant was a step in the process of winding up of its business and observed as follows at page 275 : " The sale of the machinery and plant was not an operation in furtherance of the business carried on by the company but was a realisation of its assets in the process of gradual winding up of its business which eventually culminated in the voluntary liquidation of the company. " In the case before us, as already stated, the company had sold its pilot plant of the Bahadurgarh factory and discontinued the business of steel castings and steel forgings. That being so, it cannot be said that the sale of the pilot plant was in any manner in furtherance of the business carried on by the assessee. Rather after the sale of the pilot plant the assesseecompany was only engaged in the realisation of its assets. In view of our discussion above, question No. 1 has to be answered in negative. The next question is that if the net result of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany and directed the Income-tax Officer to modify the assessment by allowing the loss which was held to be in the business of the company to be set off against the profits of the company's business in the relevant accounting year. The High Court, on reference, observed that when a company which was dealing in a number of commodities discontinued its dealings in one commodity and concentrated its attention on dealing in another commodity, it could not be said that it carried on another business, and that it changed the nature of its business. There can be no dispute that the unabsorbed loss can be carried forward provided the business of the company continues during the relevant assessment year. Section 72(1) of the Income-tax Act, 1961, permits an assessee to carry forward the unabsorbed losses to the following assessment year provided the business or the transaction for which the loss was originally computed continued to be carried on by the assessee in the previous year. That being so, it would be permissible to the assessee to carry forward the unabsorbed loss if the assessee had continued its business of manufacturing of steel castings and steel forgings. In the present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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