1967 (10) TMI 15 - HC - Income Tax

Court rules on exemption claim, denies property sale loss deduction, allows set off.

The court held in favor of the assessee on the exemption claim under section 25(3) of the Income-tax Act, allowing the deduction for the amount ... Assessee-company - claim for exemption u/s 25(3) Issues Involved:1. Claim for exemption under section 25(3) of the Income-tax Act.2. Allowability of loss on the sale of property in Shanghai as a revenue deduction.3. Deduction of the amount transferred to the superannuation fund.4. Claim of a sum transferred after the liquidation of the company.5. Set off of the loss suffered in 1948 against the profit of 1949-50.Detailed Analysis:1. Exemption under Section 25(3) of the Income-tax Act:The primary issue was whether the assessee-company was entitled to claim exemption under section 25(3) of the Act. The court analyzed the history of the assessee-company, which was incorporated to take over the business of E.D. Sassoon & Co. The business included banking, commission agency, and dealing in shares and securities. The court examined the continuity of the business activities from the firm to the company and found that the business was carried on as a going concern. Despite the Tribunal's findings, the court concluded that the entire business was the same before and after the takeover, thus entitling the assessee to the exemption under section 25(3). The court stated, 'the business was to be taken over 'as a going concern'.' The question was answered in the affirmative.2. Loss on Sale of Property in Shanghai:The court examined whether the loss on the sale of property in Shanghai was allowable as a revenue deduction. The property was purchased for Rs. 1,39,10,432 and sold at a loss due to political changes in China. The Tribunal had held that the loss was on capital account and not a business loss. The court agreed, stating that there was no evidence to show that the assessee had dealt in immovable properties as part of its business. The court observed, 'The purchase and sale in China, of the immovable properties cannot by any stretch of imagination be styled as a business venture.' The question was answered in the negative.3. Deduction for Superannuation Fund:The issue was whether the assessee-company could deduct Rs. 3,70,943 transferred to the superannuation fund against the income of the year. The court found that the liability under the superannuation fund rules arose only in the year of account due to the company's liquidation, which triggered the payment obligations. The court rejected the Tribunal's finding that the liability related to earlier years and could not be allowed as a revenue deduction. The court stated, 'The liability only arose in the year of account because the liquidation gave rise to a large number of claims of employees.' The question was answered in the affirmative.4. Sum Transferred After Liquidation:The court considered whether the assessee-company was entitled to claim Rs. 2,92,672 transferred after liquidation. This amount was standing to the credit of the 'lapse and forfeiture account' under the provident fund rules. The court found that the liability to pay this amount existed from day to day and was only paid upon liquidation. The court held that the amount should be allowed as a legitimate item of expenditure, stating, 'This amount, in our opinion, ought to have been allowed as a legitimate item of expenditure.' The question was answered in the affirmative.5. Set Off of Loss Against Profit:The final issue was whether the assessee-company could set off the loss of Rs. 3,28,825 suffered in 1948 against the profit of 1949-50. The court examined whether the various business activities constituted one business or separate businesses. The court found that the business activities were interconnected and formed part of one business. The court emphasized the continuity and unity of the business activities, stating, 'The entire business activity was carried on from one place of business.' The question was answered in the affirmative.Summary of Answers:1. Question No. 1: Answered in the affirmative.2. Question No. 2: Answered in the negative.3. Question No. 3: Answered in the affirmative.4. Question No. 4: Answered in the affirmative.5. Question No. 5: Answered in the affirmative.The assessee is entitled to costs from the Commissioner, and the additional questions posed by the assessee were deemed unnecessary to frame or answer.