Letting redundant plant is not a business under Excess Profits Tax Act, so Section 10A income amalgamation cannot apply.

Letting redundant plant and machinery after the taxpayer has ceased its manufacturing business does not constitute carrying on a "business" for purposes of the Excess Profits Tax Act; the court applied the ordinary distinction between temporary asset diversion during ongoing trade and letting of redundant assets to generate income, and concluded the latter is not business or an adventure in the nature of trade (issue i decided for the assessee). Because no applicable business existed, the statutory precondition for aggregating incomes under Section 10A was absent, so amalgamation of the other firms' incomes and inclusion of a partner's share under Section 10A could not be sustained (issues ii-iii decided for the assessee).

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Issues: (i) Whether the letting of plant and machinery by the assessee firm to the company amounted to carrying on a "business" within the meaning of Section 2(5) of the Excess Profits Tax Act; (ii) Whether, assuming Section 10A applied, there was evidence to justify amalgamating the income of Uppal & Co. and Ram Singh & Co. with that of the assessee firm under Section 10A; (iii) Whether the share of income of Dr. Surmukh Singh in Ram Singh & Co. could be included with the assessee firm's income under Section 10A.

Issue (i): Whether the letting of the plant and machinery by the assessee firm amounted to carrying on a business within the meaning of Section 2(5) of the Excess Profits Tax Act.

Analysis: The facts found were that after formation of the company the assessee firm ceased manufacturing and had no continuing trading activity; the company acquired leasehold rights and carried on the manufacturing business, hiring plant and machinery from the assessee firm which had become redundant. Precedent and ordinary common-sense principles distinguish temporary diversion of assets while business continues from letting of redundant assets when the business has closed. Sub-sections recognising letting out as other sources (not business) and authorities cited support that letting redundant plant to produce income, apart from ordinary business activity, does not necessarily constitute carrying on of a business or an adventure in the nature of trade.

Conclusion: Issue (i) answered in the negative - the letting of the plant and machinery did not amount to carrying on a business within Section 2(5) of the Excess Profits Tax Act (in favour of the assessee).

Issue (ii): Whether, on the facts, there was evidence to justify applying Section 10A to amalgamate the incomes of Uppal & Co. and Ram Singh & Co. with the assessee firm.

Analysis: Section 10A can operate only if there is an applicable business carried on by the assessee during the relevant periods. Because Issue (i) is answered against the revenue (no business existed in the assessee firm in the relevant periods), the precondition for invoking Section 10A is absent. The High Court ought to have considered the corollary legal question whether application of Section 10A to amalgamate incomes was correct where no business existed.

Conclusion: Issue (ii) answered in the negative - Section 10A could not validly be applied to amalgamate the incomes (in favour of the assessee).

Issue (iii): Whether the share of income of Dr. Surmukh Singh in Ram Singh & Co. could be included with the assessee firm's income under Section 10A.

Analysis: As a necessary corollary of the conclusion that Section 10A was inapplicable (no business of the assessee during relevant periods), inclusion of Dr. Surmukh Singh's share under Section 10A cannot be sustained. The question therefore falls with the negative answer to Issue (ii).

Conclusion: Issue (iii) answered in the negative (in favour of the assessee).

Final Conclusion: The letting of redundant plant and machinery by an entity that has ceased its business is not a business for purposes of the Excess Profits Tax Act; consequently the conditions for invoking Section 10A do not arise and amalgamation of incomes under that provision is not legally sustainable in the facts of this case.

Ratio Decidendi: Where a taxpayer has ceased to carry on the business to which assets belonged and lets those redundant assets to produce income, such letting is not business within Section 2(5) of the Excess Profits Tax Act; absence of an applicable business precludes invocation of Section 10A to amalgamate incomes.

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