# z ,Wlt1' ef it:H"7" v. T lw St<h ef -· MW.hnj<a]

- **Citation:** [1954] 1 S.C.R. 768
- **Court:** Supreme Court of India
- **Decided:** 1951-05-16
- **Bench:** Mehr Chand Mahajan C.J, s. R. DAS, Ghulam Hasan, Jagannadhadas Jj
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/z-wlt1-ef-it-h-7-v-t-lw-st-h-ef-mw-hnj-a-340
- **Pages:** 12

## Headnote

Income-tax
Act (XI
of
1922)
s. 10(2) (vii)
proviso 2Any such machinery or. plant must have been used in the accountJ·ng
year-Section
66-Finding
of fact-When appeal court can
intervene.
The fundamental
idea
underlying
the
words used in
the
definition
of
"business" in s. 2( 4)
of the
Income-tax
Act
is
the continuous
exercise
of an activity
and the same central idea
is
implicit
in
the
w~r?s ."carried
on by him"
occurring in
s. 10( 1)
and
those
cr1ttcal
\Vords are an
essential
constituent
of that which is to be produce the taxable income, and therefore the
1954
z...,Wlt1' ef
it:H"7";-..
v.
T lw St<h ef -·
MW.hnj<a].
1954
p,......, 9·
768
SUPREME COURT REPORTS
[1954]
1954.
The f,iguiJai...s
of Pursa Limitld
tax is payable only in respect of the profits or gains of the business
which is carried on by the assessec.
That under
clause
(vii)
of s. 10(2)
the machinery
and
plant must be such as were used at least for a part of the accountv.
Commissiom
lncumHa'Jt~
Bihat.
6/
ing year.
As the machinery and plant of the sugar factory which
were sold had not at all been
used for
the purpose of
business
during
the
accounting
year,
the
second
proviso
to
s.
10
(2) (vii) could
have no application
and the assessees were
nut
liable.
Although the
High Court will not disturb or go behind a
finding of fact of the Tribunal, it is \vell settled that \Vhere it is
competent for
a
Tribun~1l to
tn::ike
findings
of fa~-r
\Vhich :.ire
excluded from revie\v,
the appeal court has
ahvays juris<lictioi. to
intervene if it appears either that the
1~ribunal has n1isunderstt.~od
the statutory
language because
the
proper construction of
the
statutory language is a 1natter
of la\v
or that
the
Tribunal has
made a finding for which there is no evidence or \Vhich is inconsistent with the evidence and contradictory of it.
Commissioner of lncomt·-tax Y. Sluufl FVallace and
ConiptJny
(L.R. 59 I.A. 206), and Conunissioncrs of l11la11d Revenue v. Fraser
{24 Tax Cases 498) referred to.
CIVIL
APPELLATE
JuR1smcTION :
Civil
Appeal
No. 33 of 1953.
Appeal by special
leave from the
Judgment and
Order dated the 16th May, 1951, of the High Court of
Judicature at Patna in Miscellaneous
Judicial Case
No. 126 of 1950, arising out of the Order dated the
17th
May,
1949,
of
the
Income-tax
Appellate
Tribunal, Calcutta Bench, Calcutta, in LT.A. No. 147
of 1948-49.
Sukumar Mitra (S. N. Mul(herjee, with him)
for
the appellant.
C. K. Daphtary,. Solicitor-General for India (Porus
A. Mehta, with him) for the respondent.
1954. February 9. The Judgment of the Court was
.delivered by
DAs J.-This 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 section 66(1) of the Indian Incometax Act.
The tribunal referred the ·following two questions
for the opinion of the High Court :
"
:S.C.R.
SUPREME COURT REPORTS
769
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 section 10 (2) (vii) ?
2. vVas 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
fudges
delivered separate judgments on the 27th February,
1951,
giving
diver.gent
answers to the questions,
·Shearer
J.
answering
both
the
questions 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 the
16th May, 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
ne

## Text

S.C.R.
SUPREME COURT REPORTS
767
"Any law of the
State enacted not more than
eighteen months before the commencement of this
Constitution may within three months from such commencement be
submitted
to the President for his
certification ; and thereupon, if the President by public notification so certifies, ,it shall not be called in
question in any court on the ground that it contravenes the provisions of clause (2) of this article or has
contravened
the provisions of sub-section (2) of section
299 of the Government of India Act, 1935."
It is not disputed that the Madras Act XXVI of
1948 does fulfil all the requirements mentioned above.
Consequently, it is not possible for us to allow the appellants
to
raise the contentions which the learned
counsel on their behalf wants to raise. The result is
that the appeals would stand dismissed, but in the
circumstances of this case we shall make no order as
to costs.
Appeals dismissed.
Agent for the appellants : S. Subramanian.
Agent for the respondents : R. H. Dhebar.
THE LIQUIDATORS OF PURSA LIMITED
v.
COMMISSIONER OF INCOME-TAX,
BIHAR.
[MEHR CHAND MAHAJAN C.J., s. R. DAS, GHULAM
HASAN and JAGANNADHADAS JJ. J
Income-tax
Act (XI
of
1922)
s. 10(2) (vii)
proviso 2Any such machinery or. plant must have been used in the accountJ·ng
year-Section
66-Finding
of fact-When appeal court can
intervene.
The fundamental
idea
underlying
the
words used in
the
definition
of
"business" in s. 2( 4)
of the
Income-tax
Act
is
the continuous
exercise
of an activity
and the same central idea
is
implicit
in
the
w~r?s ."carried
on by him"
occurring in
s. 10( 1)
and
those
cr1ttcal
\Vords are an
essential
constituent
of that which is to be produce the taxable income, and therefore the
1954
z...,Wlt1' ef
it:H"7";-..
v.
T lw St<h ef -·
MW.hnj<a].
1954
p,......, 9·
768
SUPREME COURT REPORTS
[1954]
1954.
The f,iguiJai...s
of Pursa Limitld
tax is payable only in respect of the profits or gains of the business
which is carried on by the assessec.
That under
clause
(vii)
of s. 10(2)
the machinery
and
plant must be such as were used at least for a part of the accountv.
Commissiom
lncumHa'Jt~
Bihat.
6/
ing year.
As the machinery and plant of the sugar factory which
were sold had not at all been
used for
the purpose of
business
during
the
accounting
year,
the
second
proviso
to
s.
10
(2) (vii) could
have no application
and the assessees were
nut
liable.
Although the
High Court will not disturb or go behind a
finding of fact of the Tribunal, it is \vell settled that \Vhere it is
competent for
a
Tribun~1l to
tn::ike
findings
of fa~-r
\Vhich :.ire
excluded from revie\v,
the appeal court has
ahvays juris<lictioi. to
intervene if it appears either that the
1~ribunal has n1isunderstt.~od
the statutory
language because
the
proper construction of
the
statutory language is a 1natter
of la\v
or that
the
Tribunal has
made a finding for which there is no evidence or \Vhich is inconsistent with the evidence and contradictory of it.
Commissioner of lncomt·-tax Y. Sluufl FVallace and
ConiptJny
(L.R. 59 I.A. 206), and Conunissioncrs of l11la11d Revenue v. Fraser
{24 Tax Cases 498) referred to.
CIVIL
APPELLATE
JuR1smcTION :
Civil
Appeal
No. 33 of 1953.
Appeal by special
leave from the
Judgment and
Order dated the 16th May, 1951, of the High Court of
Judicature at Patna in Miscellaneous
Judicial Case
No. 126 of 1950, arising out of the Order dated the
17th
May,
1949,
of
the
Income-tax
Appellate
Tribunal, Calcutta Bench, Calcutta, in LT.A. No. 147
of 1948-49.
Sukumar Mitra (S. N. Mul(herjee, with him)
for
the appellant.
C. K. Daphtary,. Solicitor-General for India (Porus
A. Mehta, with him) for the respondent.
1954. February 9. The Judgment of the Court was
.delivered by
DAs J.-This 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 section 66(1) of the Indian Incometax Act.
The tribunal referred the ·following two questions
for the opinion of the High Court :
"
:S.C.R.
SUPREME COURT REPORTS
769
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 section 10 (2) (vii) ?
2. vVas 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
fudges
delivered separate judgments on the 27th February,
1951,
giving
diver.gent
answers to the questions,
·Shearer
J.
answering
both
the
questions 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 the
16th May, 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.
The assessee applied to the High Court for leave to
appeal to this
court against the High Court's 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 ,\epartment has not
preferred any appeal against the High Court's decision
· on the second question
and nothing further need be
said about that question.
·
The controversy arose in course of the proceedings
for the assessment of Pursa Ltd., to income-tax for
·the assessment year 1945-46,
the
relevant accounting
·year covering the period between the 1st October,
1943,
to 30th September,
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
1954
The Liquidators
of Purso Limiled ·
v.
Commissiorin a/
lncomMax,· ·
Bihar.
Das].'
'9!14
Tw LiguidaJors
of Pur.ra Limited
v.
C.-.Usi<Jnn of
Income-tax,
Bihar.
Das"].
770
SUPREME COURT REPORTS
f1954J
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 towards 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 the 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 the 9th August, 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 the 16th
August,
1943, communicated by cable to the directors
in England. On the 20th August, 1943, the director$
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 the 8th October,
1943, i.e., 8 days after the accounting year had starterl.
At that meeting the firm offer of Dalmia Jain & Company Ltd. was accepterl
and
a concluded agreement
for sale
came
into existence.
Thereafter instructions
were given to the solicitors to draw up the necessary
documents.
On the 7th December, 1943, a written memorandum
of
agreement was
executed
whereby
the company
agreed to sell and demise to Dalmia Jain & Company
Ltd., free from all mortgages and charges at and for
the price of rupees twenty-eight lacs all the lands,
buildings, machinery and plant and all vats, reservoirs,
cisterns,
pumps,
machinery, engines, boilers, plant,
implements,
utensils,
tramways,
furniture,
stores,
articles and things as on the ninth day of August, one ·
thousand nine
hundred
and
forty-three
(subject
to ·
subsequent use and consumption in the ordinary course·
S.C.R.
SUPREME COURT REPORTS
771
of business)
used in connection with the said sugar
factory,
but excepting stocks of manufactured . sugar
and stocks of grain in godown on the ninth day of
August, one thousand nine hundred
and forty-three
and all stores and other articles bought or received by
the company after the date. Dalmia Jain & Company
Ltd., paid the sum of rupees twenty-eight lacs on the
same day and on the 10th December,
1943, they g6t
possession of the factory. On the date of the aforesaid
sale,
the company possessed sugar stock valued at
rupees six lacs which was excluded from the sale.
This stock of sugar the company continued to sell up
to June, 1944. It is said that the said stock of sugar
was excluded because at the time it was not possible
to know at what date such a sale · would be concluded
and the sugar produced in 1943 had to be sold by and
through the exclusive selling agents of the company
under a contract entered into with them. It is, however, not disputed that between the 9th August, 1943,
when the firm offer was obtained and the 10th December, 1943, when possession of the factory was made
over to Dalmia Jain & Company · Ltd., the company
never used the machinery and plant for the purpose of
manufacturing sugar or for any other purpose except
that of keeping them in trim and running order.
Indeed, throughout the accounting period the machinery and plant were not used by the company.
The company
went into voluntary
liquidation
on the 20th June, 1945. The reason for the delay in
putting the company into liquidation is said to have
been caused by considerable legal difficulties with regard
to the transfer of certain mok.arari lands belonging
to the company. The liquidators appointed by the
shareholders
of the company represented the company in
the matter of proceedings for assessment
of the company for the assessment year 1945-46.
In the course of these assessment proceedings the
Income-tax Officer on the 21st February, 1947, wrote
a letter to the liquidators asking for elucidation on
certain points.
Amongst other things, the Incometax Officer wanted to know the liquidators' objection
why the
company's
activities
during the previous
195•
The LiquMDlorr
qf .Pursa Limited
v.
Commissioner of
lncotn4-ttJX,
Bihar.
Das].
1954.
Thi Liquidat.Ws
of Pursa Limited
.;
COmmissiorur of
/'IJ(;Omf-lax,
Bihar.
Da•J.
772
SUPREME COURT REPORTS
[1954 r
year might not be treated as amounting to a realisation of assets on impending liquidation rather than
to the carrying on of business within the meaning of
the Income-tax Act. To this letter an answer was
sent by the liquidators on the 19th March, 1947, pointing out that the company had gone into liquidation
on the 20th June, 1945, and that in view of the date of
liquidation the liqnidators could not agree that the
company was not carrying on business during the
year
ended
30th
September,
1944,
and they further
pointed out that the various debits contained in the
sugar factory accounts were those incurred in carrying
on the company's
business.
By his
letter dated
the
17th May, 1947, the Income-tax Officer claimed that
large profits which had been made by the company
on the sale · of their machinery and plant were taxable under the second proviso to section 10 (2) (vii) of
the Income-tax Act and
called upon the liquidators
to retain sufficient funds and assets in their hands to
meet the heavy
tax liabilities that might eventually
arise and also
to warn the share!Jolders accordingly.
He also asked for certain information which, however,
the liquidators did not furnish. The liquidators, in
their letter in reply dated the 22nd May, 1947, did not
agree that the profits were taxable, for the profits to
which reference had
been
made were not
profits
arising from a business carried on by the company
but were profits arising from the company ceasing to
carry on business. The Income-tax Officer,
however,
by his order dated the 21st June, 1947, held that
the
profits
of
the
sale of machinery and plant
were liable to assessment nnder section 10 (2) (vii) of
the Act and added a sum of Rs. 13,05,144 to the
profits.
The Appellate Assistant Commissioner of Incoinetax having dismissed the liquidators' appeal on the
30th January, 1947, the liquidators went up on further
appeal to the Income-tax Appellate Tribunal. By its
order dated the
17th May,
1949, the tribunal dismissed
that appeal. Upon an application under
section 66 ( 1) of the Act the tribunal stated a case to the
High Court referring the two questions hereinbefore
...
S.C.R.
SUPREME COURT REPORTS
773
set out. The subsequent history of the matter has
already been mentioned and needs no reiteration.
The relevant portion of section
10 of the Incometax Act as amended by Act VI of 1939 was as
follows:-
"10 (1) The tax shall be payable by an assessee
under the head "Profits and gains of business, profession or vocation" in respect of the profits or gains of
any business, profession or vocation carried on by him.
(2) Sl)ch profits or gains shall be computed after
making the following allowances, namely :-
(i) ....................................... .
(ii) ....................................... .
(iii) ........ ································
(iv) in respect of insurance against risk of damage
or destruction of buildings, machinery, plaint, furniture, stocks or stores, used for the purposes of the
business, . profession or vocation, the amount of any
premium paid ;
( v) in ·respect of current repairs to such buildings, machinery, plant, or furniture, the amount paid
on account thereof ;
(vi) in respect of depreciation of such buildings,
machinery, plant, or furniture being the property of
the assessee, a sum equivalent to such percentage on
the original cost thereof to the assessee as may m
any case or class of cases be prescribed :
(vii) in respect
of any machinery or plant which
has been sold or discarded, the amount by which the
written down value of the machinery or plant exceeds
the amount for which the machinery or plant is
actually sold or its scrap value :
·
Provided that such amount 1s
actually written off
in the books of the assessee :
Provided further that where
the
. amount
for
which any such machinery or plant is sold exceeds
the written down value, the excess shall be deemed
to be profits of the previous year in which the sale
took place ; .....................................
· ........... .
. ;
,,,.
................................................
1954
The Liquidators-
-of Pu.rSa. L(rt)il1t/·
v.
<;:omm_Usioner of
lncomi-tai,
'
Bi~0;r.
DttsJ.
1954
T ht LiquidatOTs
..,f PllfJa Limited
v.
{]ommissioner of
lncome-tox,
Biliar.
Da•].
774
SUPREME COURT REPORTS
[1954]
It is necessary to bear in mind the
meaning and
import of the provisions of section 10 (2) (vii) in so
far as they apply to the present case .
Under section 10 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 section 2, sub-section ( 4) as "including
any trade, commerce or manufacture, or any adventure
or concern in
the nature of trade, commerce or
manufacture." As pointed out by the Judicial Committee in Shaw Wal/ace &
Co.' s case( 1)
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 section 10 (1) and those critical
words are an essential constituent of that which is to
produce the taxable
income. Therefore, it is
clear
that the tax is payable only in respect of the profits
or gains of the business which is carried on by the
assessee.
Sub-section
(2)
permits
allowances
to
be
made before the taxable profits are ascertained. Proviso (2) to clause (vii) of that sub-section on which
the
Income-tax
authorities
have
relied
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
dearly 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 clause
(vii), the scheme of sub-section (2) which is
apparent from the other clauses of allowances 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 purposes of
the business,
profession or
vacation."
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" obviouslv
[1] L. R. 59 J.A. 206" at P. 213.
.
..
.
:S:C.R.
SUPREME COURT REPORTS
775
mean used for the purpose of enabling the owner to
.carry on 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 section 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 clauses (v), (vi) and (vii) the machinery and plant
must be such as were used, in whatever sense that
word is takeh, at least for a part of the accounting
year. 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 operation.
In its statement of the case, after referring to its
.decision that the profits on the sale of machinery and
plant were assessable under section 10 (2) (vii), the
'tribunal proceeded to state :
"This decision was based on two considerations.
First, that as
admitted by the
applicant company
the company had been carrying on its business up to
the date
of
th,,
sale
of the
machinery,
nameiy,
'7th December, 1943. The tribunal was of the opinion
:that as the applicant company had not ceased to
·carry on its business till the date of the sale of the
machinery, it must be
held
that the sale of the
machinery was
a part of the
applicant company's
·carrying on of the business. The second reason for
the decision of the tribuna I was that the applicant
·company did not sell its sugar stocks amounting to
·over
Rs.
6,00,000
on
7th
December,
1943.
The
.applicant company's plea that the sugar stocks could
not be sold as the applicant company had sole agents
for the ·sa1e of sugar, was not accepted by the tribu-
·nal. The lncome-tax Appellate Tribunal found· that
:i;ugar continued to be sold for more than 6 months
1954
The Liquidators
of Pursa Limited
v.
CommiJsiofllf' of
Jncomt-tox,
Bihar.
Das].
1954
TM Liquid<Jtors
of Pur$a Limited
v.
Cammissioner of
Income-tax,
Bihar.
Das].
776
SUPREME COURT REPORTS
[1954]
after the sale
of
the
machinery
and
substantial
expenses
on
establishment
and
general
charges
continued to be incurred. From this the Income-tax
Appellate Tribunal concluded that the sugar stocks
had not been sold on 7th December, 1943, purposeiy
in order to sell these to the best advantage later on.
This, the Income-tax Appellate Tribunal held, showed
that the applicant company carried on business even
subsequent to the sale of machinery on 7th December,
1943."
Although the High Court will not disturb or gt>
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 alwavs jurisdiction tt>
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. [See
Lord Normand in Commissioners of Inland Revenue v.
Fraser( 1)]. It appears to us that the tribunal misdirected itself in law as to the meaning and import of
the
relevant
provisions
of section 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 section 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 tokeep in view the true meaning and scope of section Hr
(2) (vii) and cannot, therefore, be supported.
It further appears to us that in the statement of the
case the tribunal was not merely stating something
in the nature of a primary fact but was also drawing a
conclusion which is to a certain extent contrary to the
primary finding. As is stated clearly in the statement
of tl1e case, the decision of the tribunal was based on
(1) 24 Tax Cas. 498 at p. 501.
S.C.R.
Sl : EME COURT REPORTS
777
two considerations. The first consideration was founded
on
an admission
by
the
liquidators
that the
company had been carrying on its business up to the
date of the sale of the machinery on the 7th December, 1943. This admission is quite consistent with the
case that the company was only selling its stock of
sugar and not doing any business of manufacture of
sugar. Indeed, the manufacturing process does
not
begin until December of each year and the memorandum of agreement was made on the 7th December,
1943, and possession
was delivered
to the purchaser
on the 10th December, 1943. It is nobody's case and
it has not been found that the company had manufactured any sugar during the whole of the accounting
year. Therefore, this finding that the company carried
on its business up to the 7th December, 1943, certainly
does not indicate that the company was also carrying
on any business of growing sugarcane or manufacturing
sugar by the use of the machinery or plant in question. The second finding that the company carried on
business even after the sale of the machinery and the
plant clearly indicates that that business had nothing
to do with the machinery or plant. Both the findings,
therefore, are inconclusive. The matter, however, does
not rest there. It appears to us that the findings of
fact,
taken
liter~lly, cannot support the decision of
the tribunal. If,
as held
by the tribunal,
"the sale
of the. machinery was a part of the applicant company's carrying on of the business"
then the sale
must be regarded as an ordinary operation of such
business and consequently the profits arising out of
such ordinary business · operation would be assessable
under the provisions of section IO (I) and it would not
be necessary to have recourse to tl1e statutory fiction
created by the second proviso to clause (vii) under
which the excess of the sale proceeds over the written
down value is to be deemed to be profits of the business. If the profits on the sale of the machinery and
plant are to be made assessable under the second
proviso, as has been done by the tribunal, then it
must be conceded that these deemed profits were not
: in reality the profits of the business carried on by the
(2) 24 Tax Casc9498 at p. 501.
l 3-95 S. C. I-(59
1954
Thi Liquidators
of Pursa Limited
v.
CommiJsioner of
Income.Jax,
Bi/zar.
Das].
1954
·1~h, Liquidators
-0/ Pursa LimiJ1d
v.
Commissiorur of
Jncom1-lax~
Bihar.
Das].
778
SUPREME COURT REPORTS
[1954J
company and, therefore,
the sale transaction which
brought in these profits was not in fact part of the
company's business, which
conclusion again will be
inconsistent with the finding of fact if the business is
not understood as limited only to the selling of sugar.
For reasons stated above, it appears to us that
having misdirected itself in law as to the scope and
effect of the relevant portions of section 10 of the Act
the tribunal did not approach the facts from a proper
angle and, further, that its findings cannot, in the
circumstances of this case, be given such sanctity as
would exclude the same from review by the High
Court or
this
court. Turning to
the
facts
to be
gathered from the records it is quite clear that the
intention of the company was to discontinue its business and the sale of the machinery and plant was a
step in the process of the winding up of its
busine~s.
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
process of gradual winding up of its business which
eventually culminated in the voluntary
liquidation of
the company. Even if the sale of the stgck 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 machinery or plant not being used during
the accounting year at all and in any event not having
had any connection
with the carrying on
of that
limited business during the accounting year, section
10
(2) (vii) can have no application to the sale of any
such machinery or plant. In this
view of the matter,
the answer to the first question should be in the
negative and we answer accordingly.
The result is that this appeal is allowed and the
respondent shall pay the costs
of the appellants both
in this court and in the High Court.
Appeal allowed.
Agent for the appellant : B. N. Ghose.
Agent for the respondent : G. H. Rajadhyaksha.