1985 (9) TMI 86 - HC - Income Tax

Summary

Issues:
1. Whether the receipt of Rs. 11,82,520 by the assessee was an ordinary trading receipt taxable under section 28 of the Income-tax Act for the assessment year 1973-74?
2. Whether the assessee was carrying on business during the relevant accounting year?

Analysis:

1. The judgment stemmed from a case where the Income-tax Appellate Tribunal directed to submit a statement of the case regarding the taxability of a receipt of Rs. 11,82,520 by the assessee for the assessment year 1973-74. The Tribunal partly allowed the appeal, holding that the receipt was an ordinary trading receipt taxable under section 28 of the Income-tax Act. The assessee contended that the amount was a capital receipt and not taxable. The High Court, after considering the facts, concluded that the amount received was indeed an ordinary trading receipt, and efforts made by the assessee were directed towards the recovery of the trading receipt, making it taxable under section 28.

2. The crucial issue was whether the assessee was carrying on business during the relevant accounting year. The assessee argued that the firm was dissolved in 1974, no fresh contract work was undertaken after 1964-65, and there was no business activity during the relevant period. However, the Tribunal found that the assessee was carrying on business during the relevant assessment year. The High Court upheld this finding, stating that it was a pure question of fact, and the Tribunal's decision was based on clear evidence. The Court distinguished precedents where the assessee had ceased business, emphasizing that in this case, the assessee was actively engaged in business activities, making the receipt taxable under section 28.

In conclusion, the High Court ruled in favor of the Revenue, affirming that the assessee was carrying on business during the relevant year, and the receipt of Rs. 11,82,520 was an ordinary trading receipt taxable under section 28 of the Income-tax Act for the assessment year 1973-74. The judgment highlighted the distinction between capital and trading receipts, emphasizing that the nature of the receipt remained unchanged despite delays in recovery efforts.