1970 (9) TMI 31 - HC - Income Tax

Assessee is a company manufacturing, among other things, medicines. Before May, 1959, the assessee used also to manufacture serum. The assessee appears to have suffered loss of income from the production of serum for a considerable number of years as a result of which the assessee finally decided to stop the manufacture of serum with effect from May, 1959. As a consequence of this stoppage certain animals which were kept by the assessee for the manufacture of serum became actually useless to it for its business. The assessee, therefore, sold away these animals. By reason of this sale the company suffered a loss - company claimed deduction of the said sum u/s 10(2)(viii) of the Indian Income-tax Act, 1922 it could not be said that the animals had become useless on the closure of the assessee s business before the assessee was entitled to deduction of loss

Summary

Issues:
Claim for loss deduction under section 10(2)(viii) of the Indian Income-tax Act, 1922 for the sale of animals due to discontinuation of a specific business activity.

Analysis:
The case involved a company that ceased the manufacture of serum, resulting in a loss from the sale of animals previously used for serum production. The company claimed a deduction of the loss under section 10(2)(viii) of the Indian Income-tax Act, 1922. The key question was whether the loss was allowable under this provision. The court noted that the animals were used for the business, were not stock-in-trade, and had become permanently useless due to the discontinuation of the serum manufacturing activity. The court distinguished a previous case where animals were sold due to the closure of an entire business, highlighting that in this case, there was no closure of the company's business as a whole.

The court discussed the application of the ejusdem generis rule to interpret the phrase "permanently useless" in the statute. It explained that the rule applies when a general word follows specific words of the same nature, restricting the general word's meaning to the same category. However, in this case, the court rejected the application of the rule, emphasizing that "permanently useless" should be given its plain and ordinary meaning without unnecessary limitations. The court cited legal principles and precedents to support its interpretation, ultimately concluding that the loss suffered fell within the scope of section 10(2)(viii) of the Act.

The judgment affirmed that the loss incurred by the company met the requirements of the statutory provision, allowing for the deduction claimed. The court answered the referred question in the affirmative, holding the Commissioner liable for the costs of the reference. Both judges, ARUN K. MUKHERJEE and SABYASACHI MUKHERJEE, concurred with the decision.