1992 (2) TMI 43 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal in upholding the order of the Commissioner of Income-tax (Appeals) regarding the set-off of earlier years' unabsorbed business losses and unabsorbed depreciation.
2. Interpretation of the proviso to section 72(1) of the Income-tax Act, 1961.
3. Determination of whether the business was discontinued or merely suspended.

Issue-wise Detailed Analysis:

1. Justification of the Tribunal in Upholding the Order of the Commissioner of Income-tax (Appeals):

The Commissioner of Income-tax (Appeals) allowed the assessee to set off the loss incurred in earlier years, which was affirmed by the Appellate Tribunal. The assessee, a company incorporated in 1976 with various objects including tea plantations and manufacturing, suspended its manufacturing operations in 1974 due to market and financial conditions but continued maintaining tea plantations and assets. The Commissioner noted that the company had commercial assets like godowns and garden stores, which were let out for additional income, and the company was assessed on the aggregate income of different business branches. The Commissioner concluded that the company had neither abandoned nor discontinued its business, and thus, the unabsorbed losses and depreciation were allowable. The Tribunal agreed with this view, leading to the present reference.

2. Interpretation of the Proviso to Section 72(1) of the Income-tax Act, 1961:

The Revenue argued that to benefit from carry forward and set off of business losses under section 72, the assessee must revive the discontinued business. The assessee contended that it never stopped its business but only suspended part of the manufacturing process. The court found merit in the assessee's argument, emphasizing that the question of suspension or discontinuance is a factual matter already decided by the Commissioner and Tribunal, and thus binding on the court. The court agreed that the last portion of the question regarding the condition in the proviso to section 72(1) was not based on the Tribunal's order and was not legally framed.

3. Determination of Whether the Business was Discontinued or Merely Suspended:

The Revenue contended that the manufacturing of tea was stopped and not restarted within three years, thus disqualifying the assessee from claiming set off. The court disagreed, stating that the head "Profits and gains of business or profession" pertains to the company's activities, not a specific branch. The Commissioner and Tribunal found that the company maintained revenue income and expenditure related to its assets and employees, indicating ongoing business activities. The court distinguished this case from others cited by the Revenue, where businesses were completely discontinued. The court cited the apex court's decision in CIT v. Cocanada Radhaswami Bank Ltd., which held that income from securities as part of trading assets remains part of business income, supporting the assessee's position.

The court also referenced the Madras High Court's decision in L. VE. Vairavan Chettiar v. CIT, where temporary suspension of a business did not equate to abandonment, aligning with the present case. Ultimately, the court concluded that the provisions of section 72(1) were satisfied, and there was no discontinuance of the company's business. The question was answered in the affirmative, favoring the assessee and against the Revenue, with no costs.