Continuing statutory liabilities can amount to carrying on business even after registration cancellation

Existing contractual liabilities continued by statutory deeming fiction after cancellation of registration, and the maintenance and discharge of those obligations still constituted carrying on business under the Income-tax Act. The company had issued fidelity guarantee bonds and, although no new contracts were entered into after cancellation, the pre-existing rights and liabilities under earlier bonds survived under the Insurance Act. Reinsurance did not displace the company or transfer the primary liability. On that basis, the limited activity connected with the outstanding bonds remained business activity during the relevant accounting periods, and the issue was answered in favour of the assessee.

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Issues: Whether the assessee-company was carrying on any business during any of the relevant accounting periods for the assessment years in question.

Analysis: Business is of wide amplitude, but it ordinarily requires the continued exercise of an activity. The assessee had originally issued fidelity guarantee bonds and, though no new contracts were entered into after cancellation of registration, the existing rights and liabilities on earlier contracts continued by force of the statutory scheme under the Insurance Act. The cancellation did not extinguish the obligations attached to the pre-existing bonds, and reinsurance did not substitute the assessee or transfer the primary liability. The activity connected with the existing bonds therefore remained an activity carried on under statutory control and constituted business within the meaning of the Income-tax Act.

Conclusion: The assessee-company was carrying on business during the relevant accounting periods, and the question was answered in favour of the assessee.

Ratio Decidendi: Where existing contractual liabilities continue by statutory deeming fiction after cancellation of registration, the maintenance and discharge of those obligations, even on a limited scale, may amount to carrying on business.

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