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TMI Blog1971 (10) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... 966-67, 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. The order of the Income-tax Officer was challenged in appeal before the Appellate Assistant Commissioner before whom it was contended that the assessee planned to deal in non-ferrous metals and that it was exploring the fields for starting the business. The Appellate Assistant Commissioner did not sustain the claim of the assessee as he found that there was no evidence in that respect. He accordingly confirmed the order of the Income-tax Officer. Being aggrieved by the order of the Appellate Assistant Commissioner the assessee filed an appeal before the Tribunal where three contentions were raised, namely, (1) that there was no legal justification to disallow the expenses shown on the debit side and take into consideration the items on the credit side of the profit and loss account whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee-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 said to be carrying on business and as such entitled to the deduction of the expenditure other than the expenditure allowed by the Tribunal either under the head " Business " or under the head " Income from other sources ". The learned counsel for the assessee submitted that the company was not only realising the outstandings from M/s. Texmaco but also was earning interest on the said outstanding amount and that according to the memorandum and articles of association of the assessee-company one of the objects for which the company was established is to carry on trading business in all its branches and in particular to buy, sell, manufacture and deal in goods, stores, consumable articles, chattels and effects of all kinds, both wholesale and retail and to transact every kind of agency business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ever produce such a result. It cannot be said, therefore, that because liabilities of a closed business were outstanding, it has to be held that either the business was continuing or that an intention to resume business must be inferred. " In the instant case we find from the profit and loss account of the assessee-company for the year ended on 31st March, 1967, that no purchases were made by the assessee-company during the said year and neither any amount was spent on the stores and spares consumed. The only income shown by the assessee-company for the said year is a sum of Rs. 913 on account of interest and further a sum of Rs. 381 on account of profit stated to have been made on sale of stores and spare parts. That being so, the company was not engaged in any business and that is why the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 circumstances of the case, the expenditure incurred for the maintenance of the staff of the selling agency during the period when it carried on no business was an admissible deduction under section 10(2)(xv) of the Income-tax Act against the assessee's other income was referred to the High Court. The High Court, while dealing with the question, observed as follows, at page 443 : " In considering, however, whether the expenditure can be deducted as business expenditure one must remember that sub-section (2)(xv) is a part of section 10 and at the time of the computation of the income of a business, though that income may be nil, the expenses incurred wholly and exclusively for the purposes of that business may be a permissible deduction, but in order to be deductible under this clause the expenditure must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess 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-tax Officer computed certain loss for the period from January 1 to March 10, 1951, and income for the remaining period, i.e., March 11, 1951. to December 31, 1951, and the Income-tax Officer set off the loss of the first period against the income of the later period. The assessee had incurred certain losses in the earlier years which it sought to carry forward and set off against profits. This was disallowed by the Income-tax Officer on the ground that the assessee terminated its banking business on March 10, 1951. The Income-tax Officer held that the loss in the preceding years was from business, which could not be set off as carry-forward loss against income after March 10, 1951, because the Income-tax Officer took the view that the said income did not arise from business, profession or vocation but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 stating that the loss was of a capital nature and not a loss incurred in the course of regular business as the company had not done any mining business in the year of account. The Appellate Assistant Commissioner agreed with the order passed by the Income-tax Officer. It appears that the Tribunal also agreed with the revenue. The High Court, on the facts of the case, observed that according to the memorandum of the company one of its objects was to for, win, work and get mica and that when production of mica was stopped by a cyclone, the company started prospecting to find out whether the business could be carried on, and incurred the expenses in question, with a view to resume production. In the circumstances the court held that it could not be said that mica mining business had stopped, more especially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould 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 business. The learned counsel, accordingly, contended that the sale of the machinery of the assessee's pilot plant at Bahadurgarh factory and the resulting dues against that by itself would constitute business. That being so, the assessee-company was entitled to all deductions by way of expenditure incurred by it. We are unable to sustain the contention advanced by the learned counsel for the assessee. The authority in In re Chunni Lal Kalyan Das is distinguishable on its own facts. In that case the sale of a large mill resulted in a commission to the value of Rs. 75,000 and it was as a result of that receipt that it was held that the transaction was from the business of a broker but in the instant case in the sale of machinery of the pilot plant of the assessee's Bahadurgarh factory, no commission has accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o, 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 computation under the head " profits and gains of business or profession " is a loss to the assessee not being a loss sustained in speculative business, whether the assessee is entitled to have the amount of loss set off against his assessable income under any other head or whether such a loss can be carried forward to the following assessment year. The learned counsel for the revenue submitted that the loss could be carried forward and not set off provided if any business has been carried on in the relevant assessment year by the assessee, the loss cannot be carried forward. Reliance was placed by the learned counsel on Commissioner of Income-tax v. Pfaff Sewing Machine Co. (India) Ltd. In that case the assessee-company was formed to deal primarily in the purchase and sale of sewing machines and accessories. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 case, as we have already noted above, the Tribunal has concluded the question that no business was carried on by the assessee. It is a fact found against the assessee. The losses could be carried forward provided there was any business run by the assessee but on their own showing the assessee had discontinued its business and is only engaged in realising assets from the sale of its machinery. In the present case we also note that the assessee was only engaged in the business of steel castings and steel forgings and did not engage itself in any other business. That being so, the question of setting off the loss sustained by the assessee in its aforesaid business does not arise as the loss can be set off against income from any other source of income of the assessee. Earning of interest on the realisation of the sale o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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