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TMI Blog1973 (5) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities of the assessee-company amounted to Rs. 26,00,000. Because of this the assessee-company stopped its manufacturing activity from December, 1953. This state of affairs continued till May 21, 1956, when one of the creditors of the company filed a winding-up petition in the High Court. M/s. Industrial Finance Corporation, who was one of the major creditors of the company, had in exercise of its powers under an English mortgage of the fixed assets of the company taken actual physical possession of the immovable properties hypothecated to them. Under section 153 of the Indian Companies Act, 1913, the High Court with the approval of the assessee-company and the creditors evolved a scheme whereunder the business assets of the assessee-company were let out to M/s. Fibres Dealers (Pvt.) Ltd., Calcutta, on Rs. 2,50,000 per year rent. The lease was for 10 years with an option of renewal for another ten years. The intention was that the various creditors will be paid out of the lease money. The management of the assessee-company was transferred to a board of trustees appointed by the High Court. The lease money realised by the assessee-company for the assessment years 1957-58 to 1959- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 24 of the Indian Income-tax Act, 1922, deals with set-off and carry-forward of losses. Under sub-section (1) where an assessee sustains a loss of profits or gains in any year under any of the heads mentioned in section 6, he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year. Sub-section (2) provides that where an assessee suffers a loss in any business and the loss cannot be wholly set off under sub-section (1), the unabsorbed loss shall be carried forward to the succeeding year and shall be set off against the income from the same business. Before the loss can be carried forward, two conditions must be fulfiled. Firstly, the income against which the loss has to be set off should be income from business and, secondly, the business must be the same in which the loss was suffered. Learned counsel for the assessee submitted that the plant and machinery of the factory were commercial assets and any income derived from the letting out of such an asset would be business income. In support, reliance was placed upon several decisions of the Supreme Court. In Commissioner of Excess Profits Tax v. Shri Laksh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing and it had no further trading or commercial activity. On these facts it was held by the Supreme Court that the letting out of the plant and the machinery by the assessee-firm to the company was not part of its business activity and hence it could not be held that the assessee-firm was carrying on any business. It will be seen here that the intention of the firm was to permanently discontinue its manufacturing business by giving it over to the company. The company was a distinct entity and was itself carrying on the business. This case has no application to a situation where the business activity is discontinued because of exigencies of the business, where the company finds it advantageous to do so temporarily without intending to permanently discontinue its business activity. When an assessee diverts the user of its business assets, the assets continue to retain the character of commercial assets. They do not become capital assets so that yield of income therefrom may lose the character of profits and gains of business. The decision of the Bombay High Court in Commissioner of Income-tax v. National Mills Co. Ltd. [1958] 34 ITR 155 (Bom) has material bearing on the point. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against losses of the company from the business of the manufacture of textiles brought forward from the preceding year under section 24(2) of the Income-tax Act. In the present case the lessee utilised the business assets of the assessee-company to carry on the same kind of business as was being carried on by the assessee, namely, manufacture of textiles. So it cannot be said that the business in which the losses occurred was not continued to be carried on in the assessment years in question within the meaning of clause (2) of section 24 of the Indian Income-tax Act, 1922. That being the position, the income from the lease was taxable under section 10 under the head " profits and gains of business. " For the revenue reliance was placed upon Seth Banarsi Das Gupta v. Commissioner of Income-tax [1977] 106 ITR 559 (All). In that case Seth Banarsi Das Gupta along with his five brothers formed a partnership and carried on a business of manufacturing sugar at its factory at Bijnor. In 1944, litigation started between the parties when one of them filed a suit. During the pendency of the litigation the factory remained under the management of a receiver appointed by the court. The rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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