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TMI Blog1954 (2) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... giving divergent answers to the questions, Shearer, J., answering both the questions in the negative and Sarjoo Prasad, J., giving an affirmative answer to both of them. The matter thereupon was placed before a third Judge, Ramaswami, J., who, after a fresh hearing delivered his judgment on the 16th May, 1951, agreeing with Sarjoo Prasad, J., on the first question and with Shearer, J., on the second question. The result was that the High Court by a majority decision answered the first question in the affirmative, i.e., against the assessee and the second question in the negative, i.e., in favour of the assessee. The assessee applied to the High Court for leave to appeal to this Court against the High Court's decision on the first question. The High Court having declined to grant the necessary certificate the assessee applied for and obtained the special leave of this Court to prefer the present appeal. The department has not preferred any appeal against the High Court's decision on the second question and nothing further need be said about that question. The controversy arose in course of the proceedings for the assessment of Pursa Ltd. to income-tax for the assessment year 194 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequent use and consumption in the ordinary course of business) used in connection with the said sugar factory, but excepting stocks of manufactured sugar and stocks of grain in godown on the ninth day of August one thousand nine hundred and forty-three and all stores and other articles bought or received by the company after that date. Dalmia Jain and Company Ltd. paid the sum of Rupees twenty eight lacs on the same day and on the 10th December, 1943, they got possession of the factory. On the date of the aforesaid sale the company possessed sugar stock valued at Rupees six lacs which was excluded from the sale. This stock of sugar the company continued to sell up to June, 1944. It is said that the said stock of sugar was excluded because at the time it was not possible to know at what date such a sale would be concluded and the sugar produced in 1943 had to be sold by and through the exclusive selling agents of the company under a contract entered into with them. It is, however, not disputed that between the 9th August, 1943, when the firm offer was obtained and the 10th December, 1943, when possession of the factory was made over to Dalmia Jain and Company Ltd., the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arried on by the company but were profits arising from the company ceasing to carry on business. The Income-tax Officer, however, by his order dated the 21st June, 1947, held that the profits on the sale of machinery and plant were liable to assessment under Section 10(2)(vii) of the Act and added a sum of Rs. 13,05,14 to the profits. The Appellate Assistant Commissioner of Income-tax having dismissed the liquidators' appeal on the 30th January, 1947, the liquidators went up on further appeal to the Income-tax Appellate Tribunal. By its order dated the 17th May, 1949, the Tribunal dismissed that appeal. Upon an application under Section 66(1) of the Act the Tribunal stated a case to the High Court referring the two questions hereinbefore set out. The subsequent history of the matter has already been mentioned and needs no reiteration. The relevant portion of Section 10 of the Income-tax Act as amended by Act VII of 1939 was as follows :-- "10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a underlying each of these words is the continuous exercise of an activity and the same central idea is implicit in the words "carried on by him" occurring in Section 10(1) and those critical words are an essential constituent of that which is to produce the taxable income. Therefore, it is clear that the tax is payable only in respect of the profits or gains of the business which is carried on by the assessee. Sub-section (2) permits allowances to be made before the taxable profits are ascertained. Proviso (2) to clause (vii) of that sub-section on which the Income-tax authorities have relied makes the excess of sale proceeds over the written down value of "any such machinery or plant" to be deemed to be profits of the previous year in which the sale took place. Any such machinery or plant in the proviso clearly refers to the machinery or plant in respect of which the allowance is to be given under that clause. Although the word "such" was not used in the body of clause (vii), the scheme of sub-section (2) which is apparent from the other clauses of allowances, e.g., clauses (iv), (v) and (vi), clearly indicates that the machinery or plant referred to in clause (vii) must be the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found that sugar continued to be sold for more than 6 months after the sale of the machinery and substantial expenses on establishment and general charges continued to be incurred. From this the Income-tax Appellate Tribunal concluded that the sugar stocks had not been sold on 7th December, 1943, purposely in order to sell these to the best advantage later on. This, the Income-tax Appellate Tribunal held, showed that the applicant company carried on business even subsequent to the sale of machinery on 7th December, 1943." Although the High Court will not disturb or go behind the finding of fact of the Tribunal, it is now well settled that where it is competent for a Tribunal to make findings in fact which are excluded from review, the appeal court has always jurisdiction to intervene if it appears either that the Tribunal has misunderstood the statutory language--because the proper construction of the statutory language is a matter of law--or that the Tribunal has made a finding for which there is no evidence or which is inconsistent with the evidence and contradictory of it. (See Lord Normand in Commissioners of Inland Revenue v. Fraser). It appears to us that the Tribunal misdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant company's carrying on of the business" then the sale must be regarded as an ordinary operation of such business and consequently the profits arising out of such ordinary business operation would be assessable under the provisions of Section 10(1) and it would not be necessary to have recourse to the statutory fiction created by the second proviso to clause (vii) under which the excess of the sale proceeds over the written down value is to be deemed to be profits of the business. If the profits on the sale of the machinery and plant are to be made assessable under the second proviso, as has been done by the Tribunal, then it must be conceded that these deemed profits were not in reality the profits of the business carried on by the company and, therefore, the sale transaction which brought in these profits was not in fact part of the company's business, which conclusion again will be inconsistent with the finding of fact if the business is not understood as limited only to the selling of sugar. For reasons stated above, it appears to us that having misdirected itself in law as to the scope and effect of the relevant portions of Section 10 of the Act the Tribunal did not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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