Taxability of sale proceeds on business closure affirmed where buses used in business met the statutory conditions.

Sale proceeds from buses used in the business were taxable under the second proviso to section 10(2)(vii) of the Income-tax Act, 1922 because the amended wording covered sales made during business continuity or after cessation. The amendment removed the earlier requirement that the machinery or plant be sold only while the business was still being carried on, including sales made as part of winding up or realisation. Since the business had been carried on during the relevant period and the buses had been used in that business, the statutory conditions were met and the proceeds were chargeable to tax.

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Issues: Whether the sale proceeds arising from the sale of buses used in the business, effected for the purpose of closing down the business, were taxable as profit under the second proviso to section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: The amended proviso expressly brought within its scope sales made "whether during the continuance of the business or after the cessation thereof". That amendment removed the earlier requirement that the machinery or plant must have been sold while the business was still being carried on and not as part of a winding up or realisation process. The remaining requirements were that the business had been carried on during the previous year or part of it and that the machinery or plant had been used in the business. On the facts found, those conditions were satisfied.

Conclusion: The sale proceeds were chargeable to tax under the second proviso to section 10(2)(vii), and the answer to the referred question was against the assessee and in favour of the Revenue.

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