TMI Blog1979 (2) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... gh the assessee retained a portion of the premises for its own use and it kept its plant and machinery after it was dismantled from the premises which were let out to Colgate Palmolive (India) Ltd. and Indo-Chem Pvt. Ltd. The assessee got a loan from Bombay Hospital Trust on mortgage of land and buildings and the liabilities of the Finance Corporation were discharged and the assessee took possession of its assets. There were some negotiations between foreign companies and the assessee, but it was not till 31st August, 1967, that the assessee was able to establish a plant in Bhilai in Madhya Pradesh where a part of the machinery was shifted. The then prevalent state of affairs, particularly the financial position of the company, are reflected in the directors' reports made from time to time. The directors' reports from 1953-54 to 1966-67 are annexed to the statement of the case as annex. " A ". The company had run into loss year after year and in the directors' report dated 11th May, 1955, the loss shown was Rs. 1,54,486-14-6, the main reason for the loss being given as depression in the bichromate industry and keen competition as a result of overproduction of bichromates in the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the company would be able to restart the industry as negotiations were being held with foreign firms for collaboration. The report for the year ending 31st August, 1961, which is the relevant report for the purposes of the last assessment year in this reference, stated that the Bombay Hospital Trust had paid Rs. 5 lakhs to pay off the debts of the Finance Corporation and would further pay Rs. 2,50,000 towards development of the Mahim property. It further stated: " The company has now decided to go ahead with the expansion of the Mahim property to enhance the rental income of the property." The company had also applied for the necessary licence for expansion of its capacity and the directors were negotiating for a suitable site. In the assessment years 1959-60 to 1962-63, the ITO disallowed the claim of the assessee for certain expenditure and depreciation and for allowance of unabsorbed depreciation for the earlier years on the ground that the assessee did not carry on any business in the Years of account. The AAC upheld the decision of the ITO that the deductions could not be given effect to and unabsorbed depreciation carried forward could not be set off in the absence of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it did not carry on any business in the years of account, the Tribunal held that the expenditure incurred by the assessee was referable to the assessee's holding on to these assets and the fact that no income was actually earned for some time from those assets was of no consequence or relevance in considering the assessee's claim for deduction of expenditure incurred while holding these assets. The Tribunal, therefore, held that the assessee's claim for deduction of expenditure should be considered by the ITO on merits and he should disallow only such part of the expenditure which is not referable to the holding of the assets. With regard to unabsorbed depreciation the Tribunal also held that just as depreciation could not be allowed, unabsorbed depreciation carried forward could also not be set off against any income of the material years. It took the view that the unabsorbed depreciation in the present case was determined under the head " Business " which had come to a complete stop in the middle of 1955 and to all intents and purposes the unabsorbed depreciation lapsed and it could not be transferred to another head, namely, " Income from other sources " in the subsequent year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal had recorded a finding that the company never gave up its intention to carry on business of manufacturing chemicals and there was only a temporary lull in the business activity during certain years. Indeed, the sheet-anchor of the argument of the learned counsel for the assessee was that in respect of the further assessment years 1963-64 to 1969-70, the Tribunal has taken a different view from the one taken in the order out of which this reference has arisen and further that even the reference applications made on behalf of the revenue on the basis of challenging the findings recorded by the Tribunal have been rejected. Now, it will not be permissible for us to go into the correctness of the findings recorded by the Tribunal in the subsequent orders in respect of the assessment years 1963-64 to 1969-70. The learned counsel for the assessee was, however, no doubt entitled to adopt the argument which had succeeded before the Tribunal in respect of the subsequent years, which he has done. But we must decide the questions referred to us on the material which is on record in this reference. In our view, the reports made by the directors from time to time to the general b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the buildings were all intended to be sold. A mere reference in some of the reports that there is a possibility of the company restarting production, on which heavy reliance was placed by Mr. Mehta, hardly indicated any possibility in the proximate future of the company going back to its original business of manufacture of chemicals. Even this ray of hope shed by the directors disappeared in a few years after 1958. It is, therefore, difficult to appreciate the argument that we must read into the situation in which the company had found itself a lull in the business. This was really a case where the company had completely gone out of its production, it had stopped production, it had decided to discontinue its business and either sell away the plant and machinery and buildings or, in the absence of proper purchasers being found, had decided to develop its real property, so that it could become a useful source of income. There is a marked distinction between " lull in business " and " going out of business ". A temporary discontinuance of business may in certain circumstances give rise to an inference that a business is going through a lean period of transition and it could be rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the company that fact was not relevant for considering the assessee's claim for deduction of expenditure incurred for holding these assets. The Tribunal has expressed the view-and, in our view, correctly-that the expenditure incurred by the assessee, which to a considerable extent was referable to the assessee's holding on to the assets, was allowable in so far as they could be referred to the holding of the assets . The view taken by the Tribunal is based on the decision of this court in Ormerods (India) P. Ltd. v. CIT [1959] 36 ITR 329 (Bom). This decision has now been approved by the Supreme Court in CIT v. Rajendra Prasad Moody [1978] 115 ITR 519. In that view of the matter, question No. 4 must be answered in the affirmative and in favour of the assessee. Accordingly, we answer the questions referred to us as follows : Question No. 1 : In the negative and against the assessee. Question No. 2: Income from letting put of property was assessable as income from property. Question No. 3: In the negative and against the assessee. Question No. 4: In the affirmative and in favour of the assessee. Since the assessee has substantially failed in its contentions, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
