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SUPREME COURT OF INDIA
9th February, 1954
MAHAJAN, C.J.I., S.R. DAS, GHULAM HASAN AND JAGANNADHA DAS, JJ.
Liquidators of Pursa Ltd., Appellant
Versus
Commr. of Income-tax, Bihar, Respondent.
Civil Appeal No. 33 of 1953.
Advocates appeared
Shri Sukumar Mitra, Senior Advocate (Shri S. N. Mukherjee, Advocate, with him), instructed by Shri B. N. Ghose, Agent for Appellant; Shri C. K. Daphtary, Solicitor General for India (Shri Porus A. Mehta, Advocate, with him), instructed by Shri G. H. Rajadhyaksha, Agent for Respondent.
Held: Although the High Court will not disturb or go behind the finding of fact of the Tribunal, it is now well settled that where it is competent for a Tribunal to make findings in fact which are excluded from review, the Appeal Court has always jurisdiction to intervene if it appears either that the Tribunal has misunderstood the statutory language because the proper construction of the statutory language is a matter of law or that the Tribunal has made a finding for which there is no evidence or which is inconsistent with the evidence and contradictory of it.
"It appears to us that the Tribunal misdirected itself in law as to the meaning and import of the relevant provisions of S. 10 of the Act. It completely overlooked the fact which is plainly in evidence on the record that the machinery and plant which were sold had not at all been used for the purposes of the business carried on in the accounting year and consequently the second proviso to S. 10(2) (vii) could have no application to the sale proceeds of such machinery and plant. In fact the entire decision of the Tribunal was vitiated by its failure to keep in view the true meaning and scope of section 10(2)(vii) and cannot, therefore, be supported." (per Das J.)-Section 10 (2) (vii), Proviso 2- Meaning of "any such machinery.
Held2: (1) Under S. 10 of the Income-tax Act, 1922, tax is payable by an assessee in respect of the profits or gains of any business, profession or vocation carried on by him. "Business" is defined by S. 2 (4) as "including any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture." The fundamental idea underlying each of these words is the continuous exercise of an activity and the same central idea is implicit in the words" carried on by him" occurring in S. 10 (1) and these critical words are an essential constituent
1. Affirming A.LR 1952 Cal. 148.
2. Reversing A.I.R. 1952 Pat. 106.
of that which is to produce the taxable income. Therefore it is clear that the is payable only in respect of the profits or gains of the business which is carried on by the assessee.
(2) Sub-section (2) permits allowances to be made before the taxable profits are ascertained. Proviso (2) to clause (vii) of that subsection makes the excess of sale proceeds over the written down value of any such machinery or plant to be deemed to be profits of the previous year in which the sale took place. Any such machinery or plant in the proviso clearly refers to the machinery or plant in respect of which the allowance is to be given under that clause. Although the word such was not used in the body of cl. (VII) the scheme of sub-section (2) which is apparent from the other clauses of allowance e.g., (iv), (v) and (vi), clearly indicates that the machinery or plant referred to in clause (vii) must be the same as those mentioned in the earlier clauses, i.e. such machinery or plant as were" used for the purpose of the business profession or vocation.
Indeed, the position has been made clear and placed beyond any doubt by the subsequent amendment of 1946 which added the word "such" in clause (vii). The words" used for the purposes of the business" obviously mean, used for the purpose of enabling the owner to carryon the business and, earn profits in the business.
In other words, the machinery or plant must be used for the purpose of that business which is actually carried on and the profits of which are assessable under S. 10 (1). The word "used" has been read in some of the pool cases in a wide sense so as to include a passive as well as active user. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is however clear that in order to attract the operation of cls. (v), (vi) and (vii) the machinery and plant must be such as were used in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at an any time during the accounting year no allowance can be claimed under cl. (vii) in respect of them and the second proviso also does not come into operation.1
Judgment
DAS, J. : The is an appeal by special leave from the judgment of the Patna High Court delivered on a Reference made by the Income-tax Appellate Tribunal under S. 68(1), Income Tax Act.
2. The Tribunal referred the following two questions for the opinion of the High Court :
(1) On the facts and in the circumstances of this case is the surplus of Rs. 13,05,144/- arising out of the sale of the plant and machinery of the sugar factory chargeable under S. 10(2) (vii)?
(2) Was the profit of Rs. 15,882/- on the sale of stores of the factory taxable under the Income-tax Act in the circumstances of this case?
The Reference came up for hearing before a Division Bench consisting of Shearer and Sarjoo Prasad, JJ., and after a prolonged hearing the learned Judges delivered separate judgments on 27-2-1951 giving divergent answers to the questions, Shearer, J. answering both the question in the negative and Sarjoo Prasad, J., giving an affirmative answer to both of them.
The matter thereupon was placed before a third Judge, Ramaswami, J., who after a fresh hearing delivered his judgment on 16-5-1951 agreeing with Sarjoo, Prasad, J, on the first question and with Shearer, J., on the second question. The result was that the High Court by a majority decision answered the first question in the affirmative, i.e., against the assessee and the second question in the negative, i.e. in favour of the assessee.
3. The assessee applied to the High Court for leave to appeal to this Court against the High Court decision on the first question. The High Court having declined to grant the necessary certificate the assessee applied for and obtained the special leave of this Court to prefer the present appeal. The department has not preferred any appeal against the High Court decision on the second question and nothing further need be said about the question.
4. The controversy arose in course of the proceedings for the assessment of Pursa Ltd. to income-tax for the assessment year 1945-1946, the relevant accounting year covering the period between 1-10-1943 to 30-9-1944.
Pursa Ltd. was a company incorporated in 1905 under the Indian Companies Act but all its shareholders and directors were residents in the United Kingdom. The business of the company was that of growers of sugarcane, manufacturers of sugar and dealers in sugar. It is common ground that the crushing season for the manufacture of sugar is from December to April of each year.
It appears that toward the end of 1942 an attempt was made to sell the entire business of the company but such attempt did not succeed. It appears from the case filed by the respondent in this appeal that in the middle of 1943 of Directors of the company commenced negotiations for the sale of the factory and other assets of the company with the ultimate object of winding up the company.
From the correspondence, affidavit and other materials placed before the Tribunal and referred to by Sarjoo Prasad, J, in his judgment it appears that on 9-8-1943 an inventory was prepared and a firm offer was received from Dalmia Jain & Company Ltd. for the purchase of the factory and stores as on that date. This offer was on 16-8-1943 communicated by cable to the directors in England. On 20-8-1943, the Directors asked the local managers in India to proceed with the matter in anticipation of the sanction of the shareholders which the Directors expected to obtain at an Extraordinary General Meeting to be held very shortly.
That meeting, however, was held on 8-10-1943, i. e. 8 days after the accounting year had started. At that meeting the firm offer of Dalmia Jain & Company Ltd. was accepted and a concluded agreement of sale came into existence. Thereafter instructions were given to the solicitor to draw up the necessary documents.
5. On 7-12-1943 a written memorandum of agreement was executed whereby the company agreed to sell and demise of Dalmia Jain & Company Ltd. free from all mortgages and charges at and for the price of Rupees twenty-eight
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