AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (11) TMI 9
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....iately after the respondent acquired this business, the last war came to an end, and the respondent found it difficult to continue the business. It, therefore, closed its business in August, 1945. Between August 16, 1945, and February 14, 1946, sewing machines were sold at a loss of Rs. 41,998. The motor lorry was also sold on February 14, 1946, at a loss of Rs. 3,700. The respondent closed its account books on February 28, 1946, showing the two losses and writing them off. For the assessment year, 1946-47, the respondent claimed a deduction of Rs. 45,698 under section 10(2)(vii) of the Indian Income-tax Act. The Income-tax Officer disallowed this deduction, holding that the loss was of a capital nature, and that inasmuch as the business of the respondent was not carried on after August, 1945, section 10(2)(vii) was not applicable. This order of assessment was confirmed by the Appellate Assistant Commissioner, who also held that the loss represented capital loss, as the machines and the motor lorry were sold after the closure of the business. On appeal, the Appellate Tribunal, Bombay, also confirmed the order, holding that the sales of machines and the motor lorry were made in th....
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....or the High Court to have based its conclusion. Inasmuch as we were in agreement with the High Court on the question of the applicability of section 10(2)(vii), we also felt that no useful purpose would be served in examining the matter to find out whether the business had, in fact, closed on August 28, 1945, or had continued till the end of the account year. We are really concerned in this appeal with the interpretation of section 10(2)(vii) and its applicability to the facts of the case. It may be assumed for the purposes of this case that the business did, in fact, close down on August 28, 1945, even though some incomings and outgoings were taking place for the rest of the year and the books of account were not finally closed till February 28, 1946. The Commissioner contends that an allowance could only be claimed if the sale of machines, etc., took place when the business was being continued and not if the business had come to a close. The respondent, on the other hand, submits that section 10(2)(vii) would be applicable in a case where the business continued for a part of the account year, even though the sale of the machinery, plant, etc., took place after the closure of th....
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....and Amendment) Act, 1949. In both the cases, the business had admittedly closed down before the sales took place, and it was held, applying the proviso as it was before the amendment of 1949, that such receipts were not taxable. The amendment now renders these cases obsolete. Reliance is, however, placed on certain observations in these cases, and it is contended that the same reasoning must be applied to a case of loss as to a case of profits. We shall, therefore, refer briefly to them. In Liquidators of Pursa Limited v. Commissioner of Income-tax the year of assessment was 1945-46, which corresponded to the accounting year October 1, 1943. to September 30, 1944. Pursa Limited were manufacturers of sugar, and sold the business on August 9, 1943, including buildings, machinery and plant but excluding manufactured sugar worth about Rs. 6,00,000. This sugar was sold till June, 1944, but throughout the accounting period, the machinery, plant or buildings were not used. Pursa Limited went into voluntary liquidation on June 20, 1945. In the sale of the buildings, machinery and plant there was an excess, such as is described in the second proviso, and that amount of excess was sought....
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..... The proviso is in a language different from clause (vii), as a fiction is introduced and such " profits " are taxed to take back what had been given away for depreciation which did not really take place. But more of it later. The Express Newspapers Ltd. case is also distinguishable. In that case, the Free Press of India (Madras) Ltd. resolved on August 31, 1946, to transfer the right of printing and publishing its daily newspapers to Express Newspapers Ltd. They rented out their machinery, etc., to the new company, which took possession on September 1, 1946. The year of account ended on December 31, 1946. The Free Press went into voluntary liquidation on October 31, 1946, and on November 1, 1946, its building, machinery and plant were sold to the new company at a price which exceeded the written down value by Rs. 6,08,666 made up of Rs. 2,14,090 being the excess of the original cost price over the written down value, and Rs. 3,94,576 being the excess over the original cost price. One question, among others, was whether the second proviso to section 10(2)(vii) applied. The Madras High Court observed : "...... in the present case the sale of the machinery took place during the ....
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....y, means profit earned in the business. But if an allowance had been claimed as depreciation and had been allowed, and if the sale of the building, machinery or plant on which depreciation allowance was claimed in the past, shows that there was, in fact, no depreciation but an accretion in value, the law deems that a profit has been made. The fiction thus converts that which may not be strictly profit of the business in a narrow sense, into a profit for purposes of assessment. Formerly, it was a matter of doubt whether even this accretion could be deemed a profit when the business had closed down; but now, the Legislature has amended the law by saying that this fictional profit must be brought to tax irrespective of the fact that the sale took place "during the continuance of the business or after the cessation thereof." But it is to be noticed that no such amendment was made in clause (vii) to exclude loss over buildings, machinery or plant after the closure of the business. It is thus clear that the principles which govern the proviso cannot be used to govern the main clause, because profit and loss arise in different ways in business. The two rulings do not, therefore, apply to ....