Business continuity and depreciation recoupment rules apply even when an undertaking is leased or transferred as a whole.

A company may still be treated as carrying on business during the relevant accounting year where lease terms tie rent to the actual working of the factory and the company continues to claim business losses, expenses, depreciation, and carry-forward relief on that footing. On that evidence, business activity was found to have continued through the hirer rather than being discontinued. The proviso to section 10(2)(vii) was also applied to a transfer of an undertaking as a whole, because its object is to recoup depreciation where building, machinery, or plant realises more than written-down value on sale, whether sold separately or as part of a composite transfer.

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Issues: (i) Whether the assessee company was carrying on business in the accounting year 1948-49; (ii) whether the proviso to section 10(2)(vii) applied when the undertaking was transferred as a whole.

Issue (i): Whether the assessee company was carrying on business in the accounting year 1948-49.

Analysis: The finding of business activity had to be tested only for evidentiary support. The lease terms showed that rent depended on the actual working of the factory, and the hirer was given use of the company's assets and facilities. The company itself also claimed business loss, expenses, depreciation, and carry forward of loss on the footing that business was being carried on. These circumstances supported the inference that the business was continued through the hirer rather than being discontinued.

Conclusion: The finding that the assessee company was carrying on business in the accounting year 1948-49 was justified.

Issue (ii): Whether the proviso to section 10(2)(vii) applied when the undertaking was transferred as a whole.

Analysis: The proviso was directed to cases where building, machinery, or plant realised more than written down value on sale. The language was not confined to separate sale of individual assets. The legislative object was to require recoupment of depreciation where the asset fetched an excess price, and that principle was equally attracted whether the whole undertaking or only part of it was sold.

Conclusion: The proviso applied even where the undertaking was sold as a whole.

Final Conclusion: The questions referred were answered in the affirmative, and the assessee was held liable for costs.

Ratio Decidendi: A company may be found to be carrying on business despite leasing out its undertaking if the surrounding circumstances and lease terms show continuation of business activity, and the proviso to section 10(2)(vii) applies to a sale of assets whether they are sold separately or as part of a transferred undertaking.

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