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Issues: (i) Whether any part of the sale proceeds of buildings and machinery, sold after cessation of business, was assessable as deemed profits under the second proviso to section 10(2)(vii) of the Income-tax Act, 1922; (ii) Whether there was material to sustain the Tribunal's estimate of the sale value of the buildings.
Issue (i): Whether any part of the sale proceeds of buildings and machinery, sold after cessation of business, was assessable as deemed profits under the second proviso to section 10(2)(vii) of the Income-tax Act, 1922.
Analysis: The amended proviso extended the deeming provision to sales made after cessation of business, but it did not create a fiction that the assessee was carrying on business in the year of sale. For the proviso to apply, the assets must have been used for the purposes of the assessee's business during some portion of the accounting year relevant to the sale. Where the business had already ceased in an anterior previous year, there was no factual business and no factual previous year for computing deemed profits under section 10.
Conclusion: The sale proceeds realised in 1955 were not assessable as income deemed to be profits of the assessee's business under the second proviso to section 10(2)(vii).
Issue (ii): Whether there was material to sustain the Tribunal's estimate of the sale value of the buildings.
Analysis: The valuation accepted by the Appellate Assistant Commissioner as genuine was supported by expert reports and there was no material to reject it or to substitute an estimate of replacement cost. The Tribunal had no evidentiary basis for fixing a higher sale value or for estimating profits on that footing.
Conclusion: There was no material to support the Tribunal's estimate, and the sale value of the buildings had to be taken at the figure accepted by the Appellate Assistant Commissioner.
Final Conclusion: The reference was answered in favour of the assessee, and no portion of the sale proceeds was taxable as deemed business profit under section 10(2)(vii).
Ratio Decidendi: The second proviso to section 10(2)(vii) applies only where the sold asset had been used for the assessee's business during the relevant accounting year and does not, by itself, deem a defunct assessee to have carried on business in the year of sale.
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