A company may cease to carry on its main business, but it may still carry on business if it continues to own and hold assets, pay interest on deposits, deal in investments, have no intention of going into liquidation, and consider purchasing a manufacturing concern.

Judgement

SARKAR, J.: The respondent is a company incorporated in 1912. The immediate object of the Company was to acquire from the People s Bank of India Ltd. the licence. it had obtained from the Government for the supply of electricity to Lahore city. The Company acquired that licence in 1913 and the necessary plants and machinery for the generation and supply of electricity. Between 1923 and 1939 it acquired licences for similar purposes in regard to various other places in different parts of India. All these licences were however either terminated or disposed of one by one and in 1942 the only licence which the Company possessed was that in respect of the city of Lahore. About the end of 1942 or beginning of 1943, the Government of the then Province of Punjab acquired the Company s undertaking in regard to the supply of electricity to the city of Lahore and on September 5, 1946, the Company delivered its aforesaid undertaking with all assets to the Government. It was agreed that the Company would pay to the Government half of the net profits of the Lahore electric supply undertaking arising between November 27, 1942 and September 5, 1946. On September 5, 1946, the Company received from the Government a part of the moneys payable to it in respect of the Lahore electric supply undertaking leaving a large amount due which was to be paid after the listing and valuation of its assets. Besides this sum the Company also possessed considerable assets not appertaining to the Lahore electric supply undertaking. All these funds were invested by the Company in Government and other securities and shares and the income from these investments appears to have been the sole income of the Company after September 5, 1946.

2. In its assessment to income-tax for the year 1948-1949 and 1949-1950 the Company claimed deduction of various amounts under S. 10 (2) (xv) of the Income-tax Act, 1922 on the basis that it had been carrying on business in the accounting years concerned and the expenses had been incurred solely for the purpose of that business. This contention was rejected by the Income-tax Officer. On Appeal by the Company to the Appellate Assistant Commissioner, certain deductions were allowed but that authority did not accept the contention that the Company was carrying on business so as to come within S. 10 of the Act. The Company then took the matter up in further appeal to the Income-tax Appellate Tribunal. The Tribunal accepted he Company s contention and granted it large deduction under S. 10 (2) (xv) of the Income-tax Act. The appellant Commissioner of Income-tax requested the Tribunal to state a case to the High Court but that request was rejected. The appellant Commissioner thereafter on August 20, 1958 obtained an order from the High Court of Punjab directing the Tribunal to refer the following two questions to the High Court for its opinion :

1. Whether on the facts and in the circumstances of the case the conclusion of the Appellate Tribunal that the assessee company had not ceased to carry on business during the relevant accounting period is, in law, correct.

2. If the answer to the first question be in the affirmative, whether all the expenses which the Tribunal has allowed are admissible under Section 10 (2) of the Income-tax Act?

3. Accordingly the Tribunal stated a case to the High Court in regard to these two questions. The High Court answered both the questions in the affirmative. Hence the present appeals by the Commissioner of Income-tax.

4. In this Court the learned Additional Solicitor General appearing for the appellant abandoned the second question. The only point, therefore, that arises for decision in this appeal is whether on the facts found it could be said that the Company had been carrying on business in the two accounting years.

5. As we have earlier stated, the Tribunal took the view that the Company had not ceased to carry on business. The Tribunal observed that the question would depend on what the intentions