Business profits earned before closure remain taxable, and acquisition compensation does not affect taxability of those profits.

Business profits arising during a part of the previous year remain taxable even if the business closes before year-end, because the charge to tax attaches to profits or gains earned during the relevant period and does not depend on continued operation through the whole accounting year. Income embedded in business receipts accrues or arises when received in the course of business, with the final tax liability worked out on the year's total results. The character of compensation paid for acquisition of the undertaking is irrelevant where the Revenue seeks only to tax pre-closure business profits. Accordingly, profits earned before closure were taxable in the company's hands.

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Issues: Whether profits earned by a business during part of the previous year are taxable even though the business was closed before the end of the accounting year; and whether the taxability of such profits depends upon the character of the compensation received on acquisition of the undertaking.

Analysis: The charge to tax under the business-income provision attaches to profits or gains arising from a business carried on during the relevant period, and there is nothing in the Act to require that the business must continue till the end of the previous year for profits earned earlier in the year to be taxed. Income embedded in business receipts accrues or arises when the receipts are received in the course of business, and the tax liability is worked out on the total results at the end of the year. The character of the compensation paid for acquisition of the undertaking was not relevant, because the revenue did not seek to tax the compensation but only the profits earned by the company before closure.

Conclusion: The profits earned during the period April 1, 1956 to September 30, 1956 were taxable in the hands of the company notwithstanding the later closure of the business, and the compensation argument did not defeat taxability. The answer was therefore in favour of the Revenue.

Ratio Decidendi: Business profits that accrue or are received during the accounting year are taxable when earned, and closure of the business before the year-end does not prevent tax from attaching to profits already embedded in receipts.

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