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TMI Blog1990 (10) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... cted. The only receipt was the cash incentive received from the Government in respect of the export entitlement of the prior assessment years. The assessee had claimed expenditure shown in the Profit and Loss Account exceeding Rs. 75,000. In the absence of any business, the ITO was of the opinion that the assessee was not eligible for deduction of any expenditure. However, since there was receipt of cash incentives and the assessee must have incurred some expenditure in order to receive this amount, be allowed a deduction of 10% of the cash receipts. He brought to tax Rs. 84,250. In the prior assessment year, the loss of the assessee had been computed at Rs. 57,426. The benefit of carry forward of this loss was not allowed because the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted therewith has to be admitted. In this connection, he referred to section 176(3A), which reads as follows :---- " 176(3A) Where any business is discontinued in any year, any sum received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance." 4. Since, under this section, an amount received would be deemed as the income of the recipient, it follows that the expenditure thereon would also be admissible. This is a legal fiction of continuation of business and that legal fiction must be given its full play. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d submitted, it is not necessary that there should be continuous business activity throughout the accounting year in order to establish that the business is in existence. There could be a lull in business also. There would be circumstances, which would show that the business continues although there may not be any overt activity of the business like purchase, sale, manufacture, etc. In all cases, where there was such a lull in business, there was material to show that the business as such had continued. In other words, there was nothing to show that there was discontinuance of business. The assessee had relied upon the decision in the case of Inderchand Hari Ram v. CIT [1953] 23 ITR 437 (All.). In that case, the assessee had stopped busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is evidence to show that the substratum of the business of the assessee continued during this period. So we should look into those materials which will disclose these. In the case of a Ltd. company, however, one should be cautious in appreciating the evidence on this point. The Ltd. company being a corporate body, it is necessary to incur some expenditure in order to maintain its corporate existence. The maintenance of the corporate existence by itself does not mean maintenance of business assets. A company could continue to exist without any business. So the evidence given by the assessee on this point has to be evaluated keeping this distinction in one's mind. 8. On the basis of the above, we have to hold that the expenditure incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be taxed in the year of receipt in the same way as it would have been included in the total income of the person who had carried on the business, had such income been received before its discontinuance. The expression there " the person who carried on the business " is to qualify the inclusion of this amount in the total income. As Shri Tandon correctly pointed out, there is a difference in the treatment of these receipts with the receipts under sections 41(1) and 41(2). Under those sections, there is a fiction that the business is continued. That fiction is lacking here. 11. The third element of Shri Sampat's argument is based on the receipt of the cash incentive. In this connection, he has referred to certain authorities in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs after the business was taken over, would not amount to carrying on of the business. That case would be applicable squarely to the facts of this case. Shri Sampat had pointed out that the case was distinguishable because therein there was a finding that the entire electricity undertaking was taken over by the Electricity Board. In our case, we have also a similar finding. The entire business of dealing in leather goods had stopped and there was no continuation of the business. Thereafter, the assessee had collected export incentives which is at par with the collection of the outstandings in Lahore Electric Supply Co. Ltd.'s case. 12. Under these circumstances, we are satisfied that the assessee had stopped business. They are, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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