Business loss on asset sale remains deductible despite cessation before sale, if statutory conditions are met.

Under section 10(2)(vii) of the Income-tax Act, 1922, a loss on sale of machinery and a motor lorry remained deductible where the business had been carried on for part of the previous year, the assets had been used for the business, the sale took place during the accounting year, and the loss was written off in the books. The provision did not require the business to continue for the whole year or the assets to be used throughout the full accounting period. The Court distinguished the proviso dealing with profits and held that cessation of business before the sale did not defeat deduction of the loss.

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Issues: Whether a loss on sale of machinery and a motor lorry, incurred after the business had ceased during the accounting year but before the year ended, was deductible under section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: The allowance under section 10(2)(vii) depended on the business having been carried on in the relevant previous year, the assets having been used for the purposes of the business, the sale having taken place during the year of account, and the loss having been written off in the books. The Act did not require that the business must have continued for the whole year, nor that the assets must have been used throughout the entire accounting period. The Court distinguished the cases dealing with the second proviso to section 10(2)(vii), explaining that the proviso created a fiction for profits and had been amended to include sales after cessation, whereas the main clause dealing with loss had not been so amended. Accordingly, the governing principle was that a business loss incurred in the accounting year remained deductible even if the business had ceased before the sale of the assets.

Conclusion: The deduction was allowable; the assessee was entitled to claim the loss under section 10(2)(vii).

Final Conclusion: The appeal failed, and the assessee's claim to deduct the loss on sale of the machinery and lorry was upheld.

Ratio Decidendi: Where a business has been carried on for part of the previous year and the statutory conditions of sale during the accounting year and writing off in the books are satisfied, section 10(2)(vii) permits deduction of the loss even if the business had ceased before the sale.

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