Realisation sales after genuine business closure and carry-forward of unabsorbed depreciation remain available under the statutory fiction.

Genuine closure of a manufacturing business was found where board resolutions, public notice, disconnection of electricity and winding-up records showed cessation of activity; post-closure sales of finished stock were treated as realisation sales, not continuation of trading. The text also states that estoppel does not ordinarily bind a taxpayer across successive assessment years where the earlier return was equivocal and no irreversible representation or detriment to the Revenue was shown. It further explains that unabsorbed depreciation may be carried forward and set off under the statutory fiction even if no business income exists in the year of set-off, including against income from other sources.

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Issues: (i) Whether the assessee's manufacturing business had discontinued with effect from 1 October 1966, and whether the sale of finished stock thereafter was a realisation sale rather than a continuation of business; (ii) Whether the assessee was estopped from contending in a later assessment year that the business had already closed because it had claimed business loss in an earlier return; (iii) Whether unabsorbed depreciation could be carried forward and set off against income under the head 'Other sources' even though no business income existed in the year of set-off.

Issue (i): Whether the assessee's manufacturing business had discontinued with effect from 1 October 1966, and whether the sale of finished stock thereafter was a realisation sale rather than a continuation of business.

Analysis: The closing resolution of the board, the public notice of closure, discontinuance of electricity supply, the winding-up proceedings, and the surrounding records showed that the manufacturing activity had come to an end. The assessee did not continue a separate trading activity of purchasing and selling cloth in the market. The post-closure sales were confined to disposal of existing stock-in-trade and were made to realise assets and facilitate winding up. On these facts, the later sales were not part of an ongoing business.

Conclusion: The business had ceased from 1 October 1966, and the subsequent sales were realisation sales, not business trading receipts; this issue was answered in favour of the assessee.

Issue (ii): Whether the assessee was estopped from contending in a later assessment year that the business had already closed because it had claimed business loss in an earlier return.

Analysis: The doctrine of estoppel does not operate against the statute and does not ordinarily govern successive assessments. The earlier return filed by the official liquidator contained equivocal statements and also indicated closure of business. There was no deliberate admission by the assessee amounting to an irrevocable factual representation, nor was there shown any detriment suffered by the Revenue on that basis. The earlier stand in one assessment year could not conclusively bind the assessee in a later year.

Conclusion: The assessee was not precluded by estoppel from asserting closure of business in the later assessment year; this issue was answered in favour of the assessee.

Issue (iii): Whether unabsorbed depreciation could be carried forward and set off against income under the head 'Other sources' even though no business income existed in the year of set-off.

Analysis: The applicable legal fiction under the depreciation provision requires the unabsorbed amount to be treated as depreciation of the following year for the purpose of carry forward and adjustment. That benefit is not dependent upon the existence of business income in the year of set-off. The earlier binding view of the High Court held that the cessation of the business to which the depreciation related does not defeat the statutory carry-forward mechanism.

Conclusion: Unabsorbed depreciation was allowable to be set off against income under the head 'Other sources' notwithstanding the absence of business income; this issue was answered in favour of the assessee.

Final Conclusion: The questions referred were answered against the Revenue and in favour of the assessee, with the result that the closure of business was recognised and the depreciation set-off claim was upheld.

Ratio Decidendi: For tax purposes, realisation sales made after genuine closure of manufacturing activity do not amount to continuation of business, estoppel does not ordinarily apply across successive assessments to bind the assessee on an incorrect factual inference, and unabsorbed depreciation can be carried forward and set off under the statutory fiction even when the business has ceased and no business income exists in the year of set-off.

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