JUDGMENT
RAMASWAMI and AHMAD, JJ. – In these cases the assessment relates to the year 1946-47, and the accounting year is the period 1352 Sambat corresponding to the period from 16th October, 1944, to 1st October, 1945. The assessee is a registered firm in the name of Messrs. Nathmal Sriniwas. The assessee had a business consisting of rice milling, commission agency and other activities but all the account were kept in one set of books. In the year of account the assessee sold his rice mills for a sum of Rs. 23,500. The machinery had been purchased for a sum of Rs. 25,000 and at the beginning of the assessment year the written down value of the machinery was Rs. 1,190. The Income-tax Officer, therefore, proceeded to make an assessment under section 10(2)(vii) of the Income-tax Act upon the difference between the written down value of the machinery and the actual sale price. The assessee took an appeal to the Appellate Assistant Commissioner but the appeal was dismissed. The assessee then appealed to the Appellate Tribunal and it was argued on his behalf that the rice milling business ceased to be carried on with effect from the beginning of the accounting year and as there was no rice milling business carried on under section 10(1), the assessee was not liable to be taxed under the section proviso to section 10(2)(vii) upon the different between the written down value and the sale price of the machinery. This argument was rejected by the Appellate Tribunal on the ground that the business of the assessee was recorded in one set of books and the manner of maintenance of the accounts appeared to indicate that all the varied activities of the assessee including rice milling should be regarded as one and indivisible unit of business. It was held by the appellate Tribunal, therefore, that even if part of the business activities stopped in the accounting year, the assessee was still liable to be taxed under section 10(2)(vii) of the Income-tax Act since his business continued in the year of account though in a much reduced form.
In these circumstances the Income-tax Appellate Tribunal has submitted the following question of law for the opinion of the High Court :
“Whether the excess of Rs. 22,310 realised on the sale of machinery over its written down value thereof is liable to tax under section 10(2)(vii) of the Indian Income-tax Act.”
On behalf of the assessee Mr. Dutt put forward the argument that the Appellate Tribunal has misconceived the scope and legal effect of section 10(2)(vii) of the Income-tax Act. The argument of the learned counsel was that in order to attract the operation of section 10(2)(vii) it was necessary that the assessee should have used the machinery and plant for at least a part of the accounting year. In the present case there is no finding of the Income-tax authorities that the rice mill was used for any part of the accounting year, and, therefore, the surplus realised by the assessee out of the sale of the machinery was not chargeable under section 10(2)(vii) of the Indian Income-tax. In support of his argument learned counsel relied upon the decision of the Supreme Court in Liquidators of Pursa Limited v. Commissioner of Income-tax, Bihar. It was held by the Supreme Court in that case that in order to attract the operation of section 10(2)(vii) of the Indian Income-tax Act the machinery and plant must be such as were used for a part of the accounting year, and if the machinery and plant have not at all been used at any time no allowance can be claimed under section 10(2)(vii) in respect of them and the second proviso to that clause also does not come into operation.
In our opinion, the present case falls exactly within the principle enunciated by the Supreme Court in this case. In the assessment order the statement of the Income-tax Officer is that “practically no business was done during the previous year and the receipts are on account of commission etc., which fell during the previous year.” When the matter came in appeal before the Income-tax Appellate Tribunal, it was argued on behalf of the assessee that the rice milling business ceased to be carried on from the beginning of the accounting year, and the profit or loss arising out of the sale of machinery should be held as not falling within the scope of section 10. It was held by the Tribunal that the manner in which the assessee has kept the account indicated that the varied activities of the assessee including commissioner agency should be taken as on and indivisible business and although the milling part of the business had discontinued in the accounting year the business of the assessee as such continued, though in a much reduced form, in the accounting year. It appeals to us that the Income-tax Appellate Tribunal accepted the case of the assessee that for the accounting year no milling business was carried on but nevertheless the assessee was liable to pay income-tax upon the excess sale proceeds of the machinery since it was carrying on the other business of commissioner agency. We must take it, therefore, that the finding of the Appellate Tribunal was that for no part of the accounting year did the assessee carry on the business of rice milling. To put it differently, the finding of the Appellate Income-tax Tribunal must be taken to mean that for no part of the accounting year the machinery of the rice mill was used. Upon this finding of fact, it is clear that the principle of the decision of the Supreme Court applies to this case and the amount of Rs. 22,310 which is the excess amount realised from the sale of machinery over its written down value.
It follows that the question referred to the High Court must be answered in favour of the assessee and against the Income-tax Department. The assessee is entitled to the costs of the reference. Hearing fee Rs. 250.
Reference answered in favour of the assessee.