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TMI Blog1992 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... ht in concluding that the assessee discontinued the business in the accounting year relevant to the assessment year 1968-69 and not 1967-68 ?" Question relevant only for the assessment year 1972-73 : "(4) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the unabsorbed depreciation could not be set-off against income under the head 'Other sources' derived during the accounting year relevant to the assessment year 1972-73 unless there was business income ?" It appears that two appeals being Income-tax Appeals Nos. 197 and 198/(Ahd.) of 1974-75, were preferred before the Income-tax Tribunal by the Revenue against the order of the Appellate Assistant Commissioner for the assessment years 1971-72 and 1972-73. The said appeals were allowed by the Tribunal and thereupon the assessee had filed Reference Applications Nos. 465 and 466/(Ahd.) of 1976-77, and on such reference applications the statement of case along with the questions of law are drawn up. The Tribunal has thus, in fact, referred the aforesaid questions by two references for assessment years 1971-72 and 1972-73. However, the registry of this court has numbered the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 1968-69, the assessee claimed loss of Rs. 2,73,295. It may be mentioned that the profit and loss account of the company shows expenses like interest, stock maintenance expenses, cloth-selling expenses, office administration, salary to watch and ward staff, etc. (III) It was the contention of the assessee that its business was closed down in the accounting year relevant to the assessment year 1967-68, but not in the accounting year relevant to the assessment year 1968-69. The Income-tax Officer, however, did not accept the contention of the assessee-company because, in his view, the assessee continued the business of selling the stock of finished products in the subsequent year and, therefore, he took the closure of the business as effective in the assessment year 1968-69. In reaching such a contention, the Income-tax Officer relied upon the provisions of section 41(2)/(5) of the Income-tax Act, 1961. (IV) Being aggrieved by the said order, the assessee preferred an appeal to the Appellate Assistant Commissioner who held that the business of the company was closed with effect from October 1, 1966, and that after March 31, 1967, that is the last day of the account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew to winding up the business. Before we proceed to decide the question as to whether the assessee is estopped from contending that it actually stopped the business in the assessment year 1967-68 in view of the fact that it has filed a return of income for the assessment year 1968-69 and has claimed business loss and set-off of income, we may proceed to discuss the facts on record. We may also proceed to mention cogent facts relied upon by the assessee to establish that in fact the business activities of the assessee had come to an end with effect from October 1, 1966. Mr. Shah, learned counsel for the assessee, has invited our attention to the resolution of the board of directors dated August 30, 1966, resolving to close down the mill company permanently. Pursuant to such resolution, the notice was affixed on the notice board of the company informing all concerned that the mill shall be closed with effect from September 30, 1966, and that it will not work from October 1, 1966. It is also not disputed that, pursuant to such closure, the electricity supply which was granted to the mill company was also discontinued from October 3, 1966, by the Ahmedabad Electricity Company. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion sale to facilitate the winding up or effective closure of the mill company. In this connection, reference can be made to the decision of the Supreme Court of India in the case of CIT v. West Coast Chemicals and Industries Ltd. [1962] 46 ITR 135. In the said decision, the assessee-company entered into an agreement for sale of the lands, buildings, plant and machinery of the match factory belonging to it, for Rs. 5,75,000 with view to close down the business. The purchaser made default in payment, and on August 9, 1953, a fresh agreement was entered into between the parties for the sale of the properties mentioned in the first agreement and also chemicals and papers used for the manufacture which had not been included in the first agreement. As the memorandum of association of the assessee-company allowed the assessee to manufacture and sell chemicals, and even after the sale, the company carried on manufacture on behalf of the purchaser, the Revenue sought to assess the profit derived from the sale of the chemicals and paper as profits from business. The assessee contended that it was a realisation sale and that the amount was, therefore, not liable to tax. In the aforesaid fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion sale or a winding up sale with a view to realise the capital assets of the assessee. Applying the aforesaid principles to the facts of the case before us, we shall have to decide firstly as to whether the manufacturing activity of the assessee continued after October 1, 1966, and as discussed hereinabove, we have found that, with effect from October 1, 1966, the manufacturing activity of the assessee has come to a grinding halt. Secondly, we shall have to decide as to whether the assessee was carrying on trading activity of selling finished goods by purchasing the same from the open market and selling it, in other words, whether the assessee was undertaking selling activity. There is no foundation or suggestion from the Revenue that the assessee was undertaking such activity, and that the selling of finished goods manufactured by someone else was not part and parcel of the business activity of the assessee. Thirdly, it is required to be examined as to whether the sale of already manufactured goods and balance stock of finished products remaining with the assessee subsequent to closure of manufacturing activity can be said to be part and parcel of trading activity or whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... For such course of reasoning, the Tribunal has derived support from the decision of the Bombay High Court in the case of CIT v. Army and Navy Stores Ltd. [1957] 31 ITR 959. Before the Bombay High Court, under section 10 of the Indian Finance Act, 1942, an option was given to the assessee who becomes liable to pay excess profits tax to make a deposit of 1/5th of the amount of the excess profits tax and, if he did so, he became entitled to be refunded 1/10th of the amount of the excess profits tax, or half of the said deposit, whichever is less. There was a proviso to this section that, in respect of any profits which were also liable to assessment to excess profits tax under the law in force, in the United Kingdom, it was unnecessary to make the deposit. The assessee-company which was incorporated in the United Kingdom and carrying on business in India, when called upon to make the deposit, represented to the income-tax authorities that its profits were liable to be assessed to excess profits tax in the United Kingdom and accordingly did not make the deposit. In August, 1952, the company received a refund under section 10 of the Finance Act, 1942, and in respect of the chargeable ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving changed its position to its prejudice by reason of this representation, the assessee-company cannot be permitted to deny the truth of that representation when the question arises of assessing its refund to tax under the proviso to section 11(11)." In our opinion, the aforesaid principles cannot be applied to the fact situation prevailing in the present case. Firstly, because the equivocal statements made in the return filed by the assessee-company through the official liquidator claiming the business loss cannot be regarded as an intentional deliberate admission by the assessee of the fact that the assessee was actually carrying on the business in the assessment year 1967-68. Secondly, it shall have to be mentioned that, in the return itself, there is evidence of the fact that the business of the assessee has been closed with effect from October 1, 1966. A clear assertion to that effect is made in the return itself and also it is pertinent to note that no depreciation is claimed which would be suggestive of the fact that in fact no business was carried on by the assessee company. Thirdly, based on such equivocal statement made by the official liquidator on behalf of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utes the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee. Applying the aforesaid analogy to the facts of the case before us, even if it is assumed that the business of the assessee was treated as continuation of business for the assessment year 1967-68, for the subsequent year, that is, 1968-69, the finding reached by the assessing authority would not be binding because for the purposes of income-tax, the preceding year shall have to be taken as a unit and the finding reached in one year shall not necessarily operate as binding for the subsequent year. Similarly, in the case of CIT v. V. MR. P. Firm, Muar [1965] 56 ITR 67, Justice K. Subba Rao, speaking for the Supreme Court, has observed that the doctrine of "approbate and reprobate" is only a species of estoppel ; it applies only to the conduct of parties. As in the case of estoppel, it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in tax law ; a particular income is either exigib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to go back on it at a subsequent stage of the same assessment. However, the representation made by him or the stand taken by him in an earlier assessment would not necessarily bind him in a subsequent assessment. The assessment is complete in itself and neither the assessee nor the Revenue should be directly bound by the stand taken by them in earlier assessments more particularly when the Revenue, as in the facts before us, has not acted to its prejudice or detriment. From the discussion of law on the aforesaid principles, it becomes clear that the Tribunal was not justified in applying the doctrine of estoppel so as to preclude the assessee from taking up the contention that it has in fact closed its business with effect from October 1, 1966, nor was the Tribunal justified in reading CIT v. Army and Navy Stores Ltd. [1957] 31 ITR 959 (Bom) as laying down the absolute proposition that even the inadvertent admission made in the return shall be binding on the assessee and the assessee was not permitted to explain his position more particularly that in the case before us, from the averments contained in the return as well as from the documentary evidence, the assessee was in posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion of closure of business. The Tribunal has failed to take into account various relevant factors while holding that the assessee has, in fact, continued his business activity after October 1, 1966. Such a finding having been rendered in disregard of the evidence on record cannot and should not debar us from answering the questions referred to us for our opinion in favour of the assessee and against the Revenue. The Tribunal has also referred to the decision of the Supreme Court in the case of West Coast Chemicals and Industries Ltd. [1962] 46 ITR 135, but has failed to consider the question as to whether the sales in the present case were either realisation sales or sales in the course of trading activities. In fact, applying the principles laid down by the Supreme Court in the aforesaid case, it was necessary for the Tribunal to decide as to whether the sales of finished products by the assessee were realisation sales or not and more particularly by keeping in mind the fact that the assessee was not dealing in purchase and sale of readymade cloth as such. Therefore, we are of the opinion that the Tribunal was not justified in reaching the findings it has reached. Therefore, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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