1970 (11) TMI 36 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, it was necessary that the factory should have been used by the assessee during the previous year for the surplus of Rs. 10,16,443 being assessed under section 10(2)(vii) -In fact, this is the consistent view that the Supreme Court has taken right from Liquidators of Pursa Ltd. v. Commissioner of Income-tax, and we see no reason to take a different view of the matter. In our opinion, thisquestion stands completely concluded by the aforesaid decision in favor of assessee.

Summary

Issues:
1. Interpretation of section 10(2)(vii) of the Indian Income-tax Act, 1922 regarding the necessity of factory usage for assessing surplus as income.
2. Determination of whether a factory can be considered as used during a specific period even if not actively employed in business operations.

Analysis:

The case involved the assessment of a surplus resulting from the sale of a factory owned by the assessee company, which was not operational during the relevant previous year. The Income-tax Officer assessed the surplus as profit under section 10(2)(vii) of the Income-tax Act, 1922. The Appellate Assistant Commissioner, on appeal, ruled in favor of the assessee, concluding that the amount in question could not be taxed. The Income-tax Officer then appealed to the Appellate Tribunal, which upheld the decision of the Appellate Assistant Commissioner. The Tribunal considered the factory's non-operation during the previous year and the lack of business activity before assessing the surplus as income.

Regarding the first question of law, the High Court referred to the Supreme Court decision in Commissioner of Income-tax v. Moon Mills Ltd., stating that the consistent view taken by the Supreme Court supported the assessee's position. The Court found no reason to deviate from this established precedent and ruled in favor of the assessee on the first question. The Court emphasized that the Supreme Court's prior decisions provided clear guidance on this matter.

Addressing the second question, the Court rejected the department's reliance on Niranjan Lal Ram Chandra v. Commissioner of Income-tax. The Court found that the facts of the present case did not align with the circumstances in the cited case, emphasizing the lack of evidence supporting the department's position. The Court highlighted the necessity of preliminary arrangements for operating a sugar factory and noted the absence of such preparations during the relevant previous year. Based on the Tribunal's factual findings, the Court ruled in favor of the assessee on the second question.

In conclusion, the High Court returned the answers in favor of the assessee, citing the Supreme Court's precedent and the lack of factual support for the department's arguments. The assessee was awarded costs amounting to Rs. 250, and the questions were resolved in favor of the assessee based on the Court's analysis and interpretation of relevant legal principles.