TMI Blog1965 (11) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... for similar purposes in regard to various other places in different parts of India. All these licences were however either terminated or disposed of one by one and in 1942 the only licence which the company possessed was that in respect of the City of Lahore. About the end of 1942 or beginning of 1943, the Government of the then Province of Punjab acquired the cornpany's undertaking in regard to the supply of electricity to the City of Lahore and on September 5, 1946, the company delivered its aforesaid undertaking with all assets to the Government. It was agreed that the company would pay to the Government half of the net profits of the Lahore electric supply undertaking arising between November 27, 1942, and September 5, 1946. On September 5, 1946, the company received from the Government a part of the moneys payable to it in respect of the Lahore electric supply undertaking leaving a large amount due which was to be paid after the listing and valuation of its assets. Besides this sum the company also possessed considerable, assets not appertaining to the Lahore electric supply undertaking. All these funds were invested by the company in Government and other securities and sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the intentions of the company were. The High Court was of the same opinion. We also think that that is the correct view. This postulates that the company was not in fact carrying on any business, for, if it was, it would be superfluous to enquire whether the company intended to carry on a business. The courts below thought that the facts showed that the company intended to carry on business. The facts on which they relied were : (1) the company did not sell its undertaking as a going concern ; (2) it continued in possession of all assets of its undertakings other than those appertaining to the Lahore electric supply undertaking ; (3) it continued to hold deposits made by consumers of electricity supplied by the Lahore electric supply undertaking which had to be returned to them with interest ; (4) it had no intention of going into liquidation (5) the directors' report showed that the directors were considering if they could possibly purchase some manufacturing concern which might become an additional source of profit to the shareholders ; and (6) there was nothing to show that there was permanent discontinuance of the business of the company. So far as the High Court is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and the company had not established an intention to resume it. That would be enough to show that no business was carried on and it would be irrelevant to enquire whether the business was permanently closed. We may add that we do not understand what was meant by saying that the company did not sell its undertaking as a going concern. The only going trading concern that it possessed was the Lahore electric supply undertaking and that it sold ; it had no other commercial undertaking. After the sale of the Lahore electric supply concern all it did was to invest its moneys and the Tribunal has not found this activity to be a business. The facts that the company had to pay the Government half share of the profits between November 27, 1942, and September 5, 1946, and that it had to return to the consumers the deposits made by them would not indicate that it was carrying on a business. 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 woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets of that undertaking and valuing it as the carrying on of business. This contention was rightly rejected by the Tribunal on the ground that the sale of the undertaking, though within its memorandum, was not its business which was really the working of that undertaking. It also seems to us that the condition of the country immediately following the partition is by itself irrelevant for deciding whether the company was doing business. Learned counsel for the respondent contended that the Income-tax Officer's order showed that in one of the assessment years the company had received a certain amount as a result of a business of dealing in investments. The Tribunal however did not find this as a fact. Neither does it seem to us that the Income-tax Officer considered this income as business income though it described it as such, for he held that the company was not doing any business at all. In our opinion, it must, therefore, be held that the company had ceased to carry on business and we would answer the first question in the negative. The appeals must be allowed with costs here and below and we order accordingly. BACHAWAT J.---These appeals by special leave raise the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts and dividends. During the accounting year 1947-48, it was in receipt of some business income from the sale of its investments. It utilised its income to pay dividends to the shareholders and to meet its expenses. It had no intention of going into liquidation and successfully opposed a winding-up petition. In the directors' report for the accounting year 1946-47, dated November 25, 1948, the directors stated : In the meanwhile, however, your directors are considering if they could possibly purchase some manufacturing concern which might become an additional source of profit to the shareholders. For the assessment years 1948-49 and 1949-50, the company claimed deduction of expenses for carrying on its business during the accounting years 1947-48 and 1948-49 under section 10(2)(xv) of the Indian Income-tax Act, 1922. The Income-tax Officer held that the company was not carrying on any business and totally disallowed contribution to employees' provident fund, pension and gratuity to old staff, valuer's remuneration, legal expenses, depreciation and income-tax provision, but he allowed a part on the salary paid to certain employees, rent, office expenses, interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hyderabad. In the instant case, the memorandum of the company discloses that its main purpose is to carry on the business of electric light and power company in all its branches, including generating and supplying electricity. Clause 4 of the memorandum shows that one of its subsidiary objects is to invest in stocks, shares, investments or securities of all classes and descriptions and to hold, sell, exchange or otherwise dispose of and deal with them from time to time. A company may, of course, own shares and make investments, and still not carry on any business ; but in this case there is nothing to show that its investments are not to be regarded as part of its business activities. The main business of generating and supplying electricity had stopped and the company, therefore, invested its funds in deposits and stocks and shares. The activity of investment and getting a return for its capital is a part of its legitimate business activities. In Commissioners of Inland Revenue v. Dale Steamship Co. Ltd. the objects of the company were, inter alia, to acquire steamships and other vessels, to build, charter, let out on hire and trade with ships, to carry on business as ship-owners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I fail to see how the revenue can take an inconsistent stand and claim that the activity of investment was not a business activity of the company. The Tribunal also found that the entire business of the company was not sold to the Punjab Government as a going concern and the company continued to own and hold considerable assets not appertaining to the Lahore licence. The company sold and disposed of only its undertaking relating to the Lahore licence on September 5, 1946. Even then, the Punjab Government did not take up all the business debts and liabilities of the undertaking. The company continued to remain liable to the old consumers in respect of their deposits. The company continued to pay interest on these deposits to the consumers. In paragraph 12 of its order dated December 8, 1951, the Tribunal observed, and, in my opinion, rightly : If payment of interest on consumers' deposits was a proper business expense in the preceding years, we do not see why or how its character changed in the years under review. The Tribunal rightly pointed out that the activity of making lists and valuing the assets of the company for the purpose of ascertaining the price of the L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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