1982 (8) TMI 99 - AT - Income Tax

Summary

Issues:
1. Whether the assessee was carrying on business during the relevant accounting year to claim benefits of bad debts, depreciation, and carry forward of depreciation.

Analysis:
The main dispute in the appeal centered around whether the assessee was engaged in business activities during the relevant accounting year to avail benefits such as bad debts, depreciation, and carry forward of depreciation. The original business of generating and supplying electricity by the assessee was acquired by the State Government. The assessee received interest on the recoverable suspense from the State Electricity Board, which had taken over all units from the assessee. Initially, the assessee treated this interest as income from other sources but later claimed it as income from business in the revised return. However, the Income Tax Officer (ITO) opined that since the power supply business was entirely taken over by the State Electricity Board, any receipts like interest could not be considered business income due to the absence of ongoing business activities. The ITO disallowed various claims of the assessee, including depreciation and bad debts, stating that they had not become bad during the relevant period.

The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who upheld the disallowances, stating that apart from interest recovery, the assessee did not have any other business activities. The assessee then appealed to the Income Tax Appellate Tribunal (ITAT).

During the ITAT hearing, the assessee argued that it was not necessary to continue the original business to claim benefits like bad debts and depreciation. Citing legal precedents, the assessee contended that as long as some business activities were conducted under the same management and control, the benefits could be claimed. The assessee referred to judgments like CIT vs. Prithvi Insurance Co. Ltd. and B.R. Ltd. vs. V.P. Gupta, emphasizing the importance of common management for allowing losses. The assessee also argued that unabsorbed depreciation could be carried forward without the need for the assessee to actively conduct business in subsequent years.

On the revenue's behalf, reliance was placed on a Supreme Court judgment in CIT, Punjab vs. Lahore Electric Supply Co. Ltd., where it was held that the company did not continue its business after the Government acquired the electric supply undertaking. The revenue argued that mere intention to conduct business was irrelevant if no commercial activities were ongoing.

The ITAT carefully considered all arguments and circumstances of the case. It noted that the assessee had altered its Memorandum and Articles of Association to include money lending among its objectives. The ITAT observed that while money lending might not strictly be considered the primary business of the assessee, the intention to conduct some business activities was evident. The ITAT directed a fresh examination of the claim for bad debts, emphasizing that each debt should be evaluated on its merits rather than summarily disallowing the claim.

In conclusion, the ITAT allowed the assessee's appeal, highlighting that the intention to conduct business activities, even if dormant, supported the claims for depreciation and carry forward of depreciation. The ITAT also acknowledged the assessee's argument regarding the inclusion of interest from previous years in the current year's income, ruling in favor of the assessee on this issue.