Post-closure business deduction and machinery sale loss allowed where assets were used in the year of account

Bombay HC held that the Tribunal's finding that the assessee's business had ceased on 28 August 1945 was a finding of fact supported by evidence and not open to interference in reference jurisdiction; allowance of some post-closure expenditure did not show that the business continued, as it was incurred for winding up and realising accrued income. The Court also held that loss on sale of machinery and a lorry after cessation remained deductible under section 10(2)(vii) because the provision required only prior business use in the relevant year of account and a sale at a loss measured by written down value, not that the sale occur while the business was ongoing. The deduction was therefore allowed.

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Issues: (i) Whether the Tribunal's finding that the assessee's business ceased on 28 August 1945 could be interfered with on the ground that some post-closure expenditure was allowed as deductible business expenditure; and (ii) whether loss arising on sale of machinery and a lorry after the business had ceased was deductible under section 10(2)(vii).

Issue (i): Whether the Tribunal's finding that the assessee's business ceased on 28 August 1945 could be interfered with on the ground that some post-closure expenditure was allowed as deductible business expenditure.

Analysis: The finding as to the date of cessation was supported by evidence and was therefore a finding of fact not open to reappreciation in reference jurisdiction. The allowance of expenditure after closure did not indicate that the business continued, because the amount was incurred for winding up the business and for realising income already earned from it. The principle applied was that interference is justified only where there is no evidence supporting the finding, not merely because some material may point the other way.

Conclusion: The finding that the business ceased on 28 August 1945 was upheld, and this issue was answered against the Revenue and in favour of the assessee.

Issue (ii): Whether loss arising on sale of machinery and a lorry after the business had ceased was deductible under section 10(2)(vii).

Analysis: Section 10(2)(vii) required only that the machinery or plant should have been used for the purposes of the business in the year of account, and that it should be sold at a loss measured by written down value. It did not require that the sale must occur while the business was still being carried on. The assets were admittedly used in the business during the relevant year of account and were sold in that year at a loss; the fact that the sale occurred during winding up did not defeat the statutory deduction.

Conclusion: The deduction under section 10(2)(vii) was allowable, and this issue was answered in favour of the assessee.

Final Conclusion: The reference was answered partly against the Revenue and the assessee succeeded on the allowance of the claimed deduction, with costs apportioned accordingly.

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