# THE COMMISSIONER OF INCOME-TAX, BOMBAY CIRCLE II v. THE NATIONAL SYNDICATE, BOMBAY

- **Citation:** [1961] 2 S.C.R. 229
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Bench:** S. K. DAs, M. HrnAYATULL.AH, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-commissioner-of-income-tax-bombay-circle-ii-v-the-national-syndicate-bombay-2220
- **Pages:** 12

## Headnote

Income- ~·ax-Business carried out for a part of the year-Computation-If must be for the whole year-Indian Income-Tax Act,
1922 (II of 1922) s. 10(2)(vii).
The National Syndicate, a Bombay firm, acquired on January 'n, 1945· a tailoring business as a going concern for
Rs. 89,321 which included the consideration paid for sewing
machines and a motor lorry. Soon after the purchase the respondent found it difficult to continue the business, therefore it
closed its business in August, 1945. Between August 16, 1945.
and February 14, 1946, sewing machines and the motor lorry
were sold at a loss.
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 under s. l0(2)(vii) of the Indian Income Tax Act. The
Appellate Tribunal held that the sales of machines and the
motor lorry were made in the course of the winding up of the
~
asse·ssee's business after the business had been stopped and that,
therefore, the deduction could not be claimed under s. ro(2)(vii).
Respondent moved the High Court and obtained an order under
s. 66(2) of the Income-Tax Aet, and the following two questions
were referred:-
" (r) Whether the Tribunal was justified in law in holding
that the petitioner had carried on its business only till twentyeigth day of August, One Thousand Nine Hundred and Forty
F~?
.
(2) Whether on the facts and circumstances of the case, the
Income Tax Appellate Tribunal was justified in law in not
allowing the sum of Rs. 41,998 (Rupees forty-one thousand nine
hundred and ninety eight) on sale of machines and Rs. 3,700
"
(Rupees three thousand and seven hundred) on the sale of lorry
as a deduction from the total income of the applicant ?"
The High Court answered the first questiqn in the affirmative, and the second question in the negative.
The Commissioner of Income-tax questioned the finding of
..
the High Court and came up in appeal by special leave and con-
<
tended that an allowance could only be claimed if 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 submitted that s. io(2)(vii) would be applicable
... Y ove111ber
I.
230
SUPREME COURT REPORTS
[1961]
r960
in a case where the business continued for a part of the account
year, even though the sale of machinery, plant, etc. took place
The Commissione, after the closure of the business during the course of the account
of Jn,ome-tax. year.
Bombay Ci"le I I
Held, that if the profits or gains of a business for a partiv. .
cular year are to be taxed, they must be computed for the whole
Th~ l•lational
year taking into account losses incurred during the same year,
Synd"ate, Bombay provided that the business had been "carried on by the assessee" ; the building, machinery or plant had been " used for the
purpose of the business"; the sale etc. had taken place during
the year of account, and the Joss had been brought into the books
of the assessee and written off. There is no other condition to
be found expressly in the section or i~ the Act. It is nowhere
stated that the business of the assessee should have been carried
on for the whole year, or that the machinery or plant should
have been used for the whole of the accounting period. There are
no words which would show that, if the assessee worked only
for a part of the year and then sold out, the loss that he incurred was not a business loss, or that he must pay tax on the
small profit that he might have made, and bear the loss in addition.
The Liquidators of Pursa Limited v. Commissioner of IncomeTax, Bihar, [1954] S.C.R. 767, Commissioner of Income-tax v.
Express Newspapers Ltd. (1960) 40 I.T.R. 38, distinguished.
Indian Iron & Steel Co., Ltd. v. Commissioner of Incometax, Bengal, (1943) II I.T.R. 328, Commissioner of Income-tax v.
Shaw Wallace & Co., Ltd., (1932) L.R. 59 I.A. 206, referred to.
C:!vIL APPELLATE JURISDICTION:
C

## Text

2 S.C.R. SUPREME COURT REPORTS
229
THE COMMISSIONER OF INCOME-TAX,
BOMBAY CIRCLE II
v.
THE NATIONAL SYNDICATE, BOMBAY.
(S. K. DAs, M. HrnAYATULL.AH and J. C. SHAH, JJ.)
Income- ~·ax-Business carried out for a part of the year-Computation-If must be for the whole year-Indian Income-Tax Act,
1922 (II of 1922) s. 10(2)(vii).
The National Syndicate, a Bombay firm, acquired on January 'n, 1945· a tailoring business as a going concern for
Rs. 89,321 which included the consideration paid for sewing
machines and a motor lorry. Soon after the purchase the respondent found it difficult to continue the business, therefore it
closed its business in August, 1945. Between August 16, 1945.
and February 14, 1946, sewing machines and the motor lorry
were sold at a loss.
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 under s. l0(2)(vii) of the Indian Income Tax Act. The
Appellate Tribunal held that the sales of machines and the
motor lorry were made in the course of the winding up of the
~
asse·ssee's business after the business had been stopped and that,
therefore, the deduction could not be claimed under s. ro(2)(vii).
Respondent moved the High Court and obtained an order under
s. 66(2) of the Income-Tax Aet, and the following two questions
were referred:-
" (r) Whether the Tribunal was justified in law in holding
that the petitioner had carried on its business only till twentyeigth day of August, One Thousand Nine Hundred and Forty
F~?
.
(2) Whether on the facts and circumstances of the case, the
Income Tax Appellate Tribunal was justified in law in not
allowing the sum of Rs. 41,998 (Rupees forty-one thousand nine
hundred and ninety eight) on sale of machines and Rs. 3,700
"
(Rupees three thousand and seven hundred) on the sale of lorry
as a deduction from the total income of the applicant ?"
The High Court answered the first questiqn in the affirmative, and the second question in the negative.
The Commissioner of Income-tax questioned the finding of
..
the High Court and came up in appeal by special leave and con-
<
tended that an allowance could only be claimed if 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 submitted that s. io(2)(vii) would be applicable
... Y ove111ber
I.
230
SUPREME COURT REPORTS
[1961]
r960
in a case where the business continued for a part of the account
year, even though the sale of machinery, plant, etc. took place
The Commissione, after the closure of the business during the course of the account
of Jn,ome-tax. year.
Bombay Ci"le I I
Held, that if the profits or gains of a business for a partiv. .
cular year are to be taxed, they must be computed for the whole
Th~ l•lational
year taking into account losses incurred during the same year,
Synd"ate, Bombay provided that the business had been "carried on by the assessee" ; the building, machinery or plant had been " used for the
purpose of the business"; the sale etc. had taken place during
the year of account, and the Joss had been brought into the books
of the assessee and written off. There is no other condition to
be found expressly in the section or i~ the Act. It is nowhere
stated that the business of the assessee should have been carried
on for the whole year, or that the machinery or plant should
have been used for the whole of the accounting period. There are
no words which would show that, if the assessee worked only
for a part of the year and then sold out, the loss that he incurred was not a business loss, or that he must pay tax on the
small profit that he might have made, and bear the loss in addition.
The Liquidators of Pursa Limited v. Commissioner of IncomeTax, Bihar, [1954] S.C.R. 767, Commissioner of Income-tax v.
Express Newspapers Ltd. (1960) 40 I.T.R. 38, distinguished.
Indian Iron & Steel Co., Ltd. v. Commissioner of Incometax, Bengal, (1943) II I.T.R. 328, Commissioner of Income-tax v.
Shaw Wallace & Co., Ltd., (1932) L.R. 59 I.A. 206, referred to.
C:!vIL APPELLATE JURISDICTION:
Civil Appeal
1
No. 280 of 1959.
Hidayatullah ].
Appeal by special leave from the judgment and
order dated the 22nd August, 1956, of the former Bombay High Court in Income-tax Reference No. 17 of
1956.
.
R. Ganapa!hy Iyer and D. Gupta, for the Appellant.
Banal P. Mehta, S. N. Andley, J. B. Dadachanji,
Rameshwar Nath and P. L. Vohra, for the Respondent.
1960. November 1. The Judgment of the Court
was deliv!lred by
HIDAYATULLAH J.-The Commissioner of Incometax, Bombay Circle II, has filed this appeal. after
obtaining special leave, against the judgment of the
High Court of Bombay in an Income-tax reference
J
~f
...
f •
i -(
....;
2 S.C.R. SUPREME COURT REPORTS
231
under s. 66(2) of the Income-tax Act. The National
r96o
Syndicate, Bombay (referred to in this judgment as Tl c -. .
, .
f
ie
om.missioner
the respo~dent) was a. firm cons1stmg o three par~-
of Income-tax,
ners.
This firm acqmred on January 11, 1945, a ta1. Bombay Circle JI
loring business as a going concern from one Chambal
v.
Singh for Rs. 89,321/-. Included in this amount was
The National
the consideration paid for sewing machines (Rs. 72,000) Syndicate, Bombay
and a motor lorr~ (Rs. 8,000). The assessment con- · Hidayatullah 1.
cerns the year of account of the respondent, January
11, 1945 to February 28, 1946. The business of the
respondent was to prepare garments for Government
departments, and during the war years, this appears
to have been a profitable business.
Immediately
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 H, 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 s. 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 s. 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, thti
Appellate Tribunal, Bombay, also confirmed the order,
holding that the sales of machines and the motor
lorry were made in the course of the winding up of
the assessee's business after the business had been
stopped, and that, therefore, the deduction could not
be claimed under s. 10(2)(vii).
The respondent asked the Tribunal to refer the ·
·questions of law arising from its order, but the request
was refused. It then moved the High Court, and
232
SUPREME COURT REPORTS
(1961)
'960
obtained an order under s. 66(2) of the Income-tax
The Co::;;bioner Act, and the following two questions '"'.ere refe~red:
of Income-tax.
"(1) Whether the Tribunal was JUStified Ill law
Bombay Circle II in holding that the Petitioner had carried on its busiv.
ness only till twenty-eighth day of August one thou.
Th• National
sand nine hundred and forty-five?
Syndicate, Bombay
(2)
Whether on the facts and circumstances of
Hidayatnllah J. the case, the Income-tax Appellate Tribunal was justified in law in not allowing the sum of Rs. 41,998
(Rupees forty-one thousand nine hundred and ninety
eight) on sale of machines and Rs, 3,700 (Rupees three
thousand and seven hundred) on the S!!le of lorry as a
deduction from the total income of the applicant?"
The High Court answered the first question in the
affirmative, holding that there was evidence on which
the Tribunal could reach the conclusion that the business had, in fact, been continued only till August 28,
1945. On the second question, the High Court was
of the opinion that the business having been carried
on for at least a part of the account year, s. 10(2)(vii)
was applicable, and that, therefore, this allowance had
to be made under that clause. The High Court, therefore, answered the question in the negative.
The
High Court refused to grant a certificate to appeal to
this Court, but the Commissioner of Income-tax applied for, and obtained special leave, and this appeal
has been filed.
Before we deal with the question whether s. 10(2)
(vii) of the Indian Income-tax Act is applicable to
the facts of this case, we may mention that during
the course of the argument Mr. S. ·p, Mehta, counsel
for the respondent, sought to re-open the first question.
According to him, there was no evidence on which
the Tribunal or the High Court could reach the cone] usion that the business of the respondent had come
to a close in August 1945.
We, however, did not permit him .to raise this· contention, partly because, in
our opinion, such a contention could not be allowed
to be raised at this stage in an appeal by the Department and partly because, in our opinion, there were
adequate matel'ials for the High Court to have based
its conclusion. Inasmuch as we were in agreement
i
I
'
2 S.C.R. SUPREME COURT REPORTS
233
with the High Court on the question of the applicabi·
r960
lity of s. 10(2)(vii), we also felt that no useful purpose
- ..
"Id b
d ·
· ·
h
fi d
The Commissioner
wou
e serve I? exammm~ t e matter to
n
out of Income-tax,
whether the busmess had, m fact, closed on August Bombay Circle II
28, 1945 or had continued till the end of the account
v.
year.
The N atio·•.al
We are really concerned in this appeal with the Syndicate, Bombay
interpretation of s. 10(2)(vii~ and its applicability to
--
Hidayatullah j.
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 cont,ends
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
s. 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 the business during the
course of the account year.
Section 10(2)(vii) reads as follows :
"10(2). Such profits or gains shall be computed
after making the following allowances, namely:-
..................................................................
(vii) in respect of any such building, machinery
or plant which has been sold or discarded or demolished or destroyed, the amount by which the written
down value thereof exceeds the amount for which the
building, machinery or plant, as the case may be, is
actually sold or its scrap value :
Provided that such amount is actually written off
in the books of the assessee :".
The Commissioner ·emphasises the word " such " in
the clause, and states that this takes us back to cl. (iv)
where the words " used for the purposes of the business" occur. It is, therefore, contended that if the
business itself comes to an end before the sale takes
place, the sale is not during the continuance of the
30
234
SUPREME COURT REPORTS
[1961]
'960
business but is during the course of the winding up
Th
C
. .
of the business, and the condition precedent to the
e
onimissione1'
1.
.
.
of Income-tax, app rcat10n of s. 10 IS that the business must be
Bombay Circle II " carried on " by the person claiming the benefit of
v.
sub-s. (2). Reference in this context is made to the first
The National
sub-section of s. 10, where it is provided that the tax
Syndicate, Bombay shall be payable by an assessee under the head "ProHidayatullah J. fits and gains of business ...... " in respect of the profits
or gains of any business,1etc., 'carried on by him'." The
Department relies upon a. decision of this Court
reported in The Liquidators of Pursa Limited v. Commissioner of Income-tax, Bihar('). The respondent
also relies upon the same ruling, and contends that it
supports the case set up by it. The respondent also
relies on a. recent decision of the Madras High Court
in Commissioner of Income-tax v. Express Newspapers
Ltd. (').
These two cases were decided under the second proviso to s. l0(2)(vii) before its amendment in 1949. The
second proviso reads :
.
"Provided further that where the a.mount for
which any such building, machinery or plant is sold
whether during the continuance of the business or after
the cessation thereof, exceeds the written down value,
so much of the excess as does not exceed the
difference between the original cost and the written
down value shall be deemed to be profits of the previous year in which the sale took place."
The words underlined above were inserted by s. 11 of
the Taxation Laws (Extension to Merged States and
Amendment) Act, 1949.
In both the oases, the business had admittedly closed down before the sales took place, and it was held,
applying the proviso a.s it was before the amendment
of 1949, that such receipts were not taxable. The
amendment now renders these oases 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 ofloss as to a case of profits.
We shall, therefore, refer briefly to them.
In The Liquidators of Pursa Limited v. Commissioner of Income-tax, Bihar (1 ), the year of assessment
(I) [xg54] S.C.R. 767,
(•) (1g6o) 40 LT.R. 38.
•
2 S.C.R. SUPREME COURT REPORTS
235
was 1945-46, which corresponded to the accounting
I9 60
year, October 1, 1943 to September 30, 1944. Pursa 1.h c-· .
•
•
e
omniissioner
Limited were manufacturers of sugar, and sold the
of Income-tax
business on August 9, 1943, including buildings, Bombay Circle 'TI
machinery and plant but excluding manufactured
v.
sugar worth about Rs. 6,00,000. This sugar was sold
Th~ National
tiJl June, 1944; but throughout the accounting period, Syndicate, Bombay
the machinery, plant or buildings were not used. Hidayatullah J.
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
to be taxed. 'rhis was negatived by this Court on
two grounds. They were (a): " If the machinery and
plant have not at all been used at any time during
the accounting year no allowance can be claimed
under clause (vii) in respect of them and the second
proviso also does not come into oper.ation " ; and
(b) "that the intention of the company was to dis~
continue its business and the sale of the machinery
and plant was a step in the process of winding up of
its business. The sale of the machinery and plant
was not an operation in furtherance of the business
carried on by the Company but was a realisation of
its assets in the ptocess of gradual winding up of its
business which eventually culminated in the voluntary liquidation of the Company".
Counsel differ as to the ratio of the case. The
Commissioner contends that the ratio is that no sale,
whether at a loss, or at a profit can be said to fall
within, respectively, cl. (vii) or the second proviso, if
it takes place after the closure of business and during
the process of winding up, while the respondent contends that the real ratio was that during the account
year the machinery and plant were not at all used.
No doubt, this Court did give two reasons for its decision, but the primary consideration was the second
ratio quoted above. This is clear from the following
passage towards the end of the judgment:
" Even if the sale of the stock of sugar be regarded
as carrying on of business by the Company and not a
realisation of its assets with a view to winding up, the
'
236
SUPREME COURT REPORTS
[1961]
1 960
machinery or pfant not being used during the accThe Co::;;i,,ion<r ounting peri~d at a_ll and in any_ event not havi~g ~ad
of Income-tax. any connect10n with the carrymg on of that hm1ted
Bo;nbay Circle JI business during the accounting year, section 10(2)(vii)
v.
can have no application to the sale of any machinery
Th~ ~Vatiotial
or plant."
Syndicate, Bonibay
•
Learned counsel for the respondent rehes upon the
Hidayatullah J. passage last quoted, and urges that where the buildings, machinery or plant have been used for a pa.rt of
the accounting period, the ruling cannot apply, and
draws attention to the words " at a.II " used twice in
the judgment. He argues that if th'e machinery or
plant had been used for a part of the accounting year,
the result would have been different. It is not possible
,
to say how the case would have been decided in the
changed circumstances, but it is obvious that the case
is distinguishable on more than one ground. The
proviso is in a language different from cl. (vii), as a. /
fiction is introduced and such 'profits' are taxed to
take ha.ck what had been given a.way for depreciation which did not really take place. But more of it
later.
Express Newspapers Ltd. case (1 ) 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 pnblishing its daily newspapers to Express Newspapers Ltd. They rented out their machinery, etc., to the new Company, which took possession
I,,
on September I, 1946. The year of account ended on
December 31, 1946. The Free Press went into voluntary liquidation on October 31, 1946 and on November I, 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
s. IO (2)(vii) applied.
The Madras High Court observed:
·
(1) (1960) 40 I.T.R. 38.
2 S.C.R. SUPREME COURT REPORTS
237
" ...... in the present case the sale of the mac hi1960
nery took place during the year of account, and it Th c --..
e
omniissioner
was used by Free Press Company for at least a part of of Income-tax,
the year. This would be sufficient to attract liability. Bombay Circle II
The learneJ counsel for the assessee is on a firmer
v.
ground when he contended that the sale being made
1he National
in the process of winding up of the company section Syndicate, Bombay
10(2)(vii) will not apply. The second proviso to secHidayatullah 1.
tion 10(2)(vii) would be invoked only where the sale
was one made in the course of business carried on by
the predecessor. Where the. sale is a closing down
sale, that profit could not be brought to tax. In
Liquidators of Pursa Ltd. v. Commissioner of Incometax (1), the Supreme Court held that where in a case
the sale of machinery and plant was a step in the
process of winding up of its business, the intention of
the company having been to discontinue the business,
such sale was not an operation in furtherance of the
business carried on by the company, but was only·a
realisation of its assets in the process of gradual winding up of its business which eventually terminated in
the voluntary liquidation of the company, and provision of section 10(2)(vii) would not apply. In the
present case, the formation of the new company was
to take over the business of the old company. The
lease of the machinery, the transfer of the right to
carry on the b'usiness of publishing newspapers, and
the ultimate sale of the machinery were part of the
same scheme for winding up the Free Press Company.
The sale of machinery was undoubtedly a closing
down sale and the profit earned therein Muld not
come in· for assessment under section 10(2)(vii)."
These two cases deal with the second proviso to.
s. 10(2)(vii). Clause (vii) deals with loss and the
second proviso, with profits ; but the proviso is not
an exact counterpart of the clause. The proviso
enacts a. fiction which the main clause does not enact.
The reason for the introduction of the fiction in the
proviso appears to be this: Loss in business may
take place in various wa.ys. If the business requires
more to run it tha.n it produces, there is loss. Loss in
(1) (1954] s.c.R. 767·
238
SUPREME COURT REPORTS
[1961]
'960
business may also take place if the equipment with
T ' c--. .
which busiuess is done is lost, destroyed, or depre-
,.e
ommisstoner •
fli
.
of Income-tax
c1ates or su era m value. The law takes note of the
Bombay Circle 'n loss, and, provided it has been computed and brought
v.
into the books of the business and written off, it can
Th'. National
be claimed as a deduction. Profit in business, on the
Syndicate. Bombay other hand, primarily, means profit earned in the buaiHidayatullah J. ness.
But if an allowance had been claimed as depreciation and had been allowed, and if the so.le 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
dou ht 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 cl. (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 ma.in
clause, because profit or loss a.rise in different ways
in business. The two rulings do not, therefore, apply
to the facts here.
We must thus restrict ourselves to the scheme of
the Indian Income-tax Act and the clause in question.
T]le scheme of the Income-tax Act, as was pointed
out by Lord Porter in Indian Iron & Steel Go. Ltd. v.
Commissioner of Income-tax, Bengal (1), is that income.
tax is assessed and paid in the next succeeding year
upon the results of the year before. It is the income
of the previous year which is brought to tax in the
succeeding year, .which is called the year of assessment. For the purpose of assessment, the Indian
Income Tax Act divides the sources of income, profits
(1) [1943) n l.T.R. 3z8, 336.
2 S.C.R. SUPREME COURT REPORTS
239
and gains into six heads in s. 6.
The fourth head is
Ig6o
" Profits and gains of business, profession or voca-
. .
.
"
S
.
7 8 9 10 12 12A
d 12B 1 .d
The Commissione>
t10n .
ect1ons ' , '
'
'
an
ay own
f Income-tax
the rules of computation under the different heads. s:mbay Cfrcle ·II
Profits and gains of business are dealt with in s. 10.
v.
The first sub-section of that section provides:
The National
" The tax shall be payable by an assessee under Syndicate, Bombay
the head 'Profits and gains of business .... ' in respect Hidayatullah J.
of the profit or gains of any business ...... cal'!'ied on
by him."
In Commissioner of Income-tax v. Shaw Wallace &
Co., Ltd. (1), it was pointed out by the Judicial Committee that the words " carried on by him " were " an
essential constituent of that which is to produce the
taxable income ; it is to be the profit earned by a
process of production". It was further pointed out
that" business" had been defined in the Income-tax
Act to " include any trade, commerce or manufacture,
or any adventure or concern in the nature of trade,
commerce or manufacture", and that it involved" a
fundamental idea of the continuous exercise of au
activity." It was, however, pointed out that the
source was not necessarily one which was expected to
be continuously productive, but one whose object was
the production of a definite return, excluding anything in the nature of a mere windfall, and that
'capital' in most cases was hardly more than an
element in the process of production.
We agree with this analysis of the Income-tax Act,
and indeed, these observations were also applied in
the Pursa Limited case (9), to which we have already
referred. It thus follows that capital may, in the
process of production, depreciate, get used up or lost.
The Income-tax Act, while taxing income, profits or
gains, takes note of, !l.nd makes allowance for such
eventualities.
· If the profits or gains of a business for a particular
year a.re to be taxed, they must be computed for the
whole year taking into account losses incurred during.
the same year. Now, the first condition precedent
appears to be that the business must have been
(1) (1932) L.R. 59 I.A. 206.
(2) [1954] S.C.R. 76'/.
240
SlJPREMJ<.: COURT REPOR'l'S
[1961]
'960
" carried on by the asses see ". This is to be found in
Th
C -. .
the first sub-section of s. 10. The second· condition is
'
ommi.<sioner h
h b "Id·
h ·
l
Ii
of Income-tax
t at t e m mg, mac mery or pant must ·ave been
Bombay c;"'' 'n" used for the purposes of the business ". This is to
v.
be found in cl. (iv) of the second sub-section of s. 10.
The National
The third condition is that the sale etc. should have
Syndicate, Bombay taken place during the year of account: This follows
-
from the nature of the tax which is assessed and
Hidayatullah }. levied on the profits of the working of the previous
year. The fourth condition is that the loss should
have been brought into the books of the assessee and
written off.
This is provided by the first proviso.
There is no other condition to be found expressly in
t.he section or in the Act. It is now here stated that
the business of the assessee should have been carried
on for the whole year, or that the machinery or plant
should have been used for the whole of the accounting period. There are no words which would show
that, if the assessee works only for a part of the ymuand then sells out, the loss that he incurs is not a
bu.siness loss, or that he must pay tax on the small
profit that he might have made, and bear the loss in
addition. We have shown above that the case of
profit referred to in the second proviso stands on a
different footing altogether, since profit and loss arise
in different ways.
The law has thus treated the two
subjects differently, and the legislature has amended
the proviso but not the clause.
In view of what we have said above, we are of
opinion that the judgment of the High Court was
correct in all the circumstances of this case, and this
appeal must be dismissed with costs.
Appeal dismissed.