1957 (2) TMI 69 - HC - Income Tax

High Court directs re-evaluation of business nature under Excess Profits Tax Act

INDUSTRIAL DEVELOPMENT AND INVESTMENTS CO. LTD. Versus COMMISSIONER OF EXCESS PROFITS TAX, BOMBAY

The High Court found that the Tribunal erred in applying Section 8(3) of the Excess Profits Tax Act, directing a re-evaluation of the case to determine ... - Issues Involved:1. Application of Section 8(3) of the Excess Profits Tax Act, 1940.2. Entitlement to depreciation of capital based on the original costs of the assets to the assessee.Issue-Wise Detailed Analysis:1. Application of Section 8(3) of the Excess Profits Tax Act, 1940:The primary issue was whether the Tribunal misdirected itself in law by applying Section 8(3) of the Excess Profits Tax Act, 1940, for the purpose of computation of capital and calculation of depreciation allowance. The assessee contended that the business of Abdul Karim Silk Mills ended with the death of a partner, and thus, the business they acquired was a new business. Conversely, the Department argued that there was merely a change in the persons carrying on the business, and the nature and identity of the business remained the same.The Tribunal initially upheld the Department's view, stating that the business carried on by the assessee from 1st February 1944 was the same as that previously carried on by Haji Moosa Haji Abdul Karim & Others. The Tribunal emphasized that the continuity of the business, even with short breaks, did not affect its identity.However, the High Court found that the Tribunal had misdirected itself by not properly investigating whether the business sold by the receiver was a going concern or merely the assets of a discontinued business. The Tribunal failed to ascertain the nature of the business's stoppage and whether the receiver had the authority to carry on the business. The High Court emphasized that the Tribunal must determine if the business was physically stopped and the nature of such stoppage. The High Court concluded that the Tribunal's view that the business's identity alone was sufficient to establish succession was legally erroneous.2. Entitlement to Depreciation of Capital Based on the Original Costs of the Assets to the Assessee:This issue revolved around whether the assessee was entitled to depreciation of capital based on the original costs of the assets they purchased. The assessee argued that since it was a new business, it should be allowed to consider the purchase price of Rs. 6,25,000 for depreciation purposes. The Department contended that the assessee had succeeded to the business of Abdul Karim Silk Mills and, therefore, the purchase price should be ignored for depreciation computation under the Excess Profits Tax Act.The High Court noted that the Tribunal did not adequately address whether the business was continued or discontinued before the assessee acquired it. The Tribunal's failure to investigate the nature of the business sold by the receiver and whether the goodwill was included in the sale further complicated the matter. The High Court pointed out that the Tribunal's statement about the sale of goodwill was unclear and needed clarification.The High Court directed the Tribunal to submit a supplemental statement of the case, properly addressing whether there was a succession to the business or if it was a new business. The High Court held that the second question regarding depreciation could only be answered after the Tribunal provided a clear finding on the succession issue.Conclusion:The High Court concluded that the Tribunal misdirected itself in law concerning the application of Section 8(3) of the Excess Profits Tax Act and directed the Tribunal to re-evaluate the case, considering the nature and continuity of the business. The second question regarding depreciation was deferred until the Tribunal provided a supplemental statement addressing the succession issue. The High Court emphasized the need for the Tribunal to consider all relevant materials and evidence that were initially before it during the appeal.