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TMI Blog1997 (8) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... t off of the unabsorbed losses has been claimed on the income of the sale of scrap. The AO observed that after claiming set off of the unabsorbed business losses from income of sale of scrap the assessee-company has shown income at Nil and offered for taxation Rs. 50,610 as short-term capital gain on sale of machinery under s. 50 of the IT Act. The AO afforded an opportunity to the assessee-company to explain that when the unabsorbed business loss was for the business of manufacturing of the lifts and trading in electrical motors, how the same could have been allowed as set off from the income of the sale of scrap, which was a different business. The assessee-company vide its letter dt. 15th Feb., 1991 stated that the income from sale of scrap was the business income and, therefore, the set off of the unabsorbed loss of the business income from the scrap sale was permissible under the IT Act. It was also claimed that during the year, the assessee-company had sold their machinery and plant which was depreciable asset on which depreciation was claimed and allowed. Profit arisen on depreciable asset by selling the same at a price higher than the WDV is a profit taxable under s. 41(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment is that 'benefit of s. 72 can be claimed only when the business in respect of which loss has been occurred and which is ought to be carried forward and set off is carried on in the previous year, relevant to assessment year in which benefit to carry forward and set off is claimed." 3. We have to, therefore, decide whether in the case of our client, the business is carried on or not. 4. On this point, we reply on two judgments of Hon'ble Gujarat High Court, in the case of: (a) Bansidhar (P) Ltd. vs. CIT (1981) 20 CTR (Guj) 90 : (1981) 127 ITR 65 (Guj); and (b) CIT vs. Alembic Glass Indus. Ltd. (1976) 103 ITR 715 (Guj). 5. We also rely upon the judgment of Hon'ble Supreme Court in the case of: (a) Produce Exchange Corpn. Ltd. vs. CIT (1970) 77 ITR 739 (SC); (b) CIT vs. Prithvi Ins. Co. Ltd. (1967) 63 ITR 632 (SC); (c) Hooghly Trust (P) Ltd. vs. CIT (1969) 73 ITR 785 (SC); (d) B.R. Ltd. vs. U.P. Gupta, CIT 1978 CTR (SC) 82 : (1978) 113 ITR 647 (SC); and (e) Standard Refineries Distilleries Ltd. vs. CIT (1971) 79 ITR 589 (SC). In all these judgments, it has been held that the business is said to be carried on and continued, where there is co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted written arguments before the CIT(A) wherein it was stated that the assessee-company was carrying on business activities for last 32 years and during these years, it had been carrying on various activities such as assembling and selling of electrical motors, repairing work, etc. It was also stated that the scrap sold by the assessee was obtained from its main activity of assembling, repairs, etc. In these circumstances income earned from the sale of scrap was income from same business. The assessee while relying upon the judgment of Hon'ble Gujarat High Court in the case of Bansidhar (P) Ltd. vs. CIT, has submitted that the Board of directors was empowered in overall control of the business activities of the assessee-company and all the activities were being carried on from the same funds, there was complete interconnection, interlacing, interdependence and dovetailing of the different business activities carried on by the assessee. Therefore, the assessees' contention was that its case was covered by the decision of Hon'ble Gujarat High Court in the case of Bansidhar (P) Ltd. vs. CIT, rather than the decision of Madras High Court in the case of Tube Suppliers Ltd. relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s declared sale of scrap as income from business and the Revenue Department has accepted the same from year to year and hence it can be said that the assessee is also a dealer in scrap. The learned counsel emphasised that the income from sale of scrap was the 'same business' as manufacturing, assembling and selling of lifts, electric motors, moulding, assembling, etc. 10. The learned counsel for the assessee while reiterating the submissions made before the authorities below submitted that the assessee had rightly claimed brought forward business losses, as allowable deduction against business income, which included sale of scrap. His further contention was that both the authorities below have misapplied the decision of Madras High Court in the case of Tube Suppliers Ltd., which is contrary to the facts of the instant case. The learned counsel for the assessee also submitted that in the case of CIT vs. Veecumsees (1987) 63 CTR (Mad) 260 : (1987) 152 ITR 708 (Mad), the Hon'ble Madras High Court relied on the decision in the case of Tube Suppliers Ltd. and the said decision of Madras High Court in the case of CIT vs. Veecumsees has been reversed by the Hon'ble Supreme Court, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t (1996) 133 CTR (SC) 500 : (1996) 220 ITR 185 (SC) was not applicable in the facts and circumstances of the present case. He, therefore, submitted that the order of the CIT(A) should be upheld. 13. In rejoinder, the learned counsel for the assessee submitted that the scrap did not belong to this year only but it included unserviceable parts, machinery parts, etc. as it would be evident from the details furnished by him before the authorities below. 14. We have carefully considered the rival submissions and have also perused the material to which our attention was drawn during the course of hearing of the appeal. The assessee has also filed a paper-book running into pp. 1 to 37. Directors report and accounts for the year ended on 31st March, 1989 (33rd Annual Report) was also filed before us. The assessee-company carried on the following activities from asst. yrs. 1982-83 to 1989-90: A.Y. Scrap Rs. Lift Rs. Elec. Motor Rs. Casting Rs. Warper Beam Rs. Misc. Rs. Chemical Rs. Total sales Rs. 1982-83 1,53,868 -- -- -- -- -- -- 1,53,868 1983-84 11,743 47,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Revenue has not doubted the sale of scrap to the tune of Rs. 2,00,304. We find substance in the submissions of the learned counsel for the assessee that the assessee was not dealing in scrap or dealing in scrap was not its main business but it is evident from the records of the case that in past the Revenue has accepted the amount received from sale of scrap as assessee's income from business. It is also not the case of the Revenue that the assessee had purchased the scrap from outside parties. We also find considerable force in the assessee's contention that the scrap was its business asset, which was realised out of and in the course of regular business activities. The assessee-company has been carrying on the same business as it has been doing since asst. yr. 1983-84. It is also evident from details of sales, profits and loss as per balance sheet for asst. yrs. 1982-83 to 1989-90, the assessee-company has continued the same business of sale of electric motors, castings, warper beams, etc. The assessee has also filed the details regarding the goods sold and the copies of bills, totalling to Rs. 2,00,304 which are available at pp. 11 to 25 of assessee's paper-book. During the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffected the earlier business in jewellery and hence, there was no interconnection, interlacing or interdependence in between jewellery and cinema business. It is pertinent to note that the Hon'ble Madras High Court while deciding the case of Veecumsees relied on its earlier decision in the case of Tube Suppliers (P) Ltd. 21. The Hon'ble Madras High Court in the case of CIT vs. Kothari Sons held that managing agency business and commission agency business were the same business. In the said case managing agency business was closed due to abolition of the managing agency system. The Hon'ble High Court held that the losses incurred by managing agency business could be carried forward and set off against income from commission agency. It is pertinent to note that the Hon'ble Madras High Court while deciding the case of Kothari Sons has also considered their earlier decisions rendered in the cases of (i) Tube Suppliers Ltd. and (2) Veecumsees. 22. The learned counsel for the assessee while relying upon the decision of jurisdictional High Court in the case of Bansidhar (P) Ltd. vs. CIT has submitted that in the instant case also the board of directors was in overall control of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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