Discontinued business and incidental receipts cannot support further deductions or carry forward of earlier business losses.

Where a manufacturing business had been discontinued and the assessee was only realising assets, incidental receipts such as interest on outstanding dues and sale proceeds of stores or spare parts did not constitute carrying on business, so no further business deduction was allowable beyond what had already been granted. On the same facts, carry forward and set-off of earlier business losses failed because the business in respect of which the loss arose had not continued in the relevant year; the assessee was therefore not entitled to set off the forgings and castings loss against later income.

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Issues: (i) Whether the assessee was entitled to deduction of expenditure other than that allowed by the Tribunal under the heads of business income or income from other sources. (ii) Whether the assessee was entitled to carry forward the loss in the business of forgings and castings from earlier years and set it off against income for the assessment year 1967-68.

Issue (i): Whether the assessee was entitled to deduction of expenditure other than that allowed by the Tribunal under the heads of business income or income from other sources.

Analysis: The assessee had discontinued its steel forgings and steel castings business, sold the pilot plant machinery, made no purchases during the relevant year, and had no business activity capable of producing taxable profits. Mere realisation of outstanding dues, receipt of interest thereon, or sale of stores and spare parts during the process of closure did not amount to carrying on business. Expenditure deductible as business expenditure must be incurred for a business in existence during the accounting year.

Conclusion: The assessee was not entitled to any further deduction beyond what the Tribunal had already allowed, and the answer was against the assessee.

Issue (ii): Whether the assessee was entitled to carry forward the loss in the business of forgings and castings from earlier years and set it off against income for the assessment year 1967-68.

Analysis: Carry forward of business loss requires that the business or transaction in respect of which the loss was computed must continue to be carried on in the relevant previous year. Since the assessee had closed its manufacturing business and was only engaged in realising assets, the condition for carry forward and set-off was not satisfied. Income from interest or incidental sale proceeds could not revive the discontinued business or support the claim.

Conclusion: The assessee was not entitled to carry forward and set off the earlier business loss, and the answer was against the assessee.

Final Conclusion: Both referred questions were answered against the assessee, and the revenue succeeded on the merits.

Ratio Decidendi: Where the business has in fact ceased and the assessee is only realising its assets, incidental receipts do not amount to carrying on business, and business losses cannot be carried forward unless the business continues in the relevant year.

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