Statutory deeming provision cannot be stretched to tax sale surplus when no business was carried on in the relevant year.

The surplus from the sale of plant and machinery of an ice factory was treated as not chargeable to income-tax as deemed income under section 10(2)(vii) of the Income-tax Act, 1922, because the business was not carried on during the previous year. The statutory fiction created by the second proviso to section 10(2)(vii), as amended in 1949, could not be extended to deem the assessee to have carried on business in the year of sale merely to tax the profit on disposal of the assets. The principle applied was that a deeming provision must remain within its legitimate scope, and the surplus was therefore not taxable.

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Issues: Whether the surplus arising from the sale of plant and machinery of an ice factory was chargeable to income-tax as deemed income under section 10(2)(vii) of the Income-tax Act, 1922.

Analysis: The Tribunal's finding that the business was not carried on during the previous year was accepted. The question was governed by the principle that, notwithstanding the second proviso to section 10(2)(vii) as amended in 1949, the statutory fiction could not be extended to treat the assessee as carrying on business in the year of sale so as to tax the profit from sale of the assets.

Conclusion: The surplus was not chargeable to income-tax under section 10(2)(vii), and the question was answered against the revenue.

Ratio Decidendi: A statutory deeming provision cannot be extended beyond its legitimate scope to a business activity in the year of sale for the purpose of taxing surplus on the sale of assets.

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