1971 (10) TMI 21 - HC - Income Tax

Whether mere realisation of interest on outstandings and sale of spares and stores during the accounting period amounts to carrying on the business and whether set off of carried forward loss of earlier years would be available - Tribunal has found that the business of the assessee in steel castings and steel forgings had been brought to a close and the Tribunal further held that the assessee-company did not carry on business of castings and forgings in the year of account and there was also no evidence to show that the company carried on any other business. That being so the company was not entitled to deduction of any expenditure other than that allowed by the Tribunal. The assessee was also not entitled to set off of business loss of earlier years against the current income since the assessee did not carry on any business in that year

Issues Involved:

1. Entitlement to deduction of expenditure under the head "Business" or "Income from other sources."
2. Entitlement to carry forward and set off the business loss from previous years against the income of the assessment year 1967-68.

Issue-wise Detailed Analysis:

1. Entitlement to Deduction of Expenditure:

The applicant, a private limited company, ceased its business in steel forgings and castings and sold its machinery. The company reported income from interest and profit on the sale of stores and spare parts, while also incurring various expenses. The Income-tax Officer allowed only proportionate expenses related to the income under "Other sources." The assessee contended before the Tribunal that it was still carrying on business through the realization of outstanding dues and earning interest. The Tribunal allowed some expenses but rejected others, concluding that the company was not carrying on any business during the relevant year.

The court referred to the case of Commissioner of Income-tax v. Lahore Electric Supply Co. Ltd., where it was held that merely realizing outstanding dues does not constitute carrying on a business. The court found that the assessee made no purchases or expenditures related to business activities during the relevant year. The directors' report confirmed that the business had been discontinued, and the sale of machinery was part of the closure process. Thus, the court concluded that the assessee was not engaged in any business activities capable of producing taxable profit, and the expenses could not be deducted under the head "Business" or "Income from other sources."

2. Entitlement to Carry Forward and Set Off Business Loss:

The court examined whether the assessee could carry forward and set off the business loss from previous years against the income for the assessment year 1967-68. The Tribunal had found that the assessee's business in steel castings and forgings had been discontinued, and there was no evidence of any other business being carried on. The court referred to Commissioner of Income-tax v. Pfaff Sewing Machine Co. (India) Ltd., which stated that unabsorbed losses could be carried forward if the business continued during the relevant assessment year.

Since the assessee had discontinued its business and was only engaged in realizing assets from the sale of machinery, the court held that the loss could not be carried forward. The earning of interest and profit from the sale of stores and spare parts did not constitute income from another source of the assessee's business. Therefore, the court concluded that the assessee was not entitled to set off the loss against the income of the assessment year 1967-68.

Conclusion:

Both questions were answered in the negative. The assessee was not entitled to the deduction of the claimed expenses or to carry forward and set off the business loss from previous years. The revenue was awarded costs, with counsel fees assessed at Rs. 150.

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