1965 (1) TMI 72 - HC - Income Tax

Summary

Issues Involved:
1. Whether the assessee carried on the business of financing and money-lending after March 10, 1951.
2. Whether the business carried on by the assessee since March 10, 1951, was the same as the business it had carried on before that date.
3. Whether the Tribunal could in law allow specific losses and expenses claimed by the assessee.

Detailed Analysis:

1. Whether the assessee carried on the business of financing and money-lending after March 10, 1951:

The Tribunal had material before it to conclude that the assessee continued its business of financing and money-lending after March 10, 1951. The assessee's balance-sheet as on December 31, 1951, showed that it maintained its capital and assets, continued to make income realizations, discharged liabilities, paid staff salaries, incurred legal expenses, and paid directors' fees. The Tribunal noted that mere inactivity for a period does not mean the business ceased to exist, citing General Corporation Ltd. v. Commissioner of Income-tax [1935] 3 I.T.R. 350, 355 and Inderchand Hari Ram v. Commissioner of Income-tax [1953] 23 I.T.R. 437, 442. Despite not advancing any loans until September 1952, the Tribunal rightly inferred that the business did not cease. Thus, the answer to the first question is in the affirmative.

2. Whether the business carried on by the assessee since March 10, 1951, was the same as the business it had carried on before that date:

The assessee's business initially included banking and financing in general. After March 10, 1951, it ceased its banking activities but continued with financing. The Tribunal held that the business carried on after March 10, 1951, was the same as before, except for the dropped banking aspect. This approach is supported by Commissioner of Income-tax v. Pfaff Sewing Machine Company (India) Ltd. [1956] 30 I.T.R. 518, where discontinuing dealings in one commodity while continuing in another did not constitute a different business. Therefore, the answer to the second question is affirmative.

3. Whether the Tribunal could in law allow specific losses and expenses claimed by the assessee:

Since the first two questions were answered affirmatively, the Tribunal's allowance of specific losses and expenses is legally justified. The Tribunal allowed:
- Rs. 5,83,944 as a loss on the sale of securities during the transfer of banking business, as it was not a capital loss but a business loss.
- Rs. 20,000 paid to the general manager for premature termination of employment, deemed necessary for business interests.
- Rs. 24,694 paid to a former managing director due to wrong computation of tax liabilities discovered during the previous year.
- Rs. 6,181 as house rent for the second period, as the business had not become defunct.
- Rs. 15,000 and Rs. 10,000 for travelling expenses for the first and second periods, respectively, since the business continued.
- Rs. 4,000 for miscellaneous expenses, deleting the add-back as the business was not defunct.
- Rs. 14,560 as agency service expenses, justified on the same basis as house rent.
- Rs. 29,680 for expenses of stamps, registration, and drafting charges during the transfer of business, as the business did not end with the transfer.

Thus, the Tribunal rightly allowed these sums, and the answer to the third question is in the affirmative.

Conclusion:

The three questions referred to the court were answered in the affirmative. The Commissioner of Income-tax will bear the costs of the assessee in this reference.