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

CIVIL APPEAL No. 280/1959Supreme Court[1961] 2 S.C.R. 22901 November 1960Bench: 3 JudgesAuthor: S.K. DAS, M. HIDAYATULLAH, J.C. SHAH S.C.R. SUPREME COURT REPORTS12 pages
AI SummaryDismissed

What were the facts?

The assessee, The National Syndicate, Bombay, acquired a tailoring business on January 11, 1945, for Rs. 89,321, which included sewing machines and a motor lorry. Due to the end of the war, the business became difficult to continue, and it was closed in August 1945. Between August 16, 1945, and February 14, 1946, the sewing machines and motor lorry were sold at a loss of Rs. 41,998 and Rs. 3,700 respectively. The assessee closed its account books on February 28, 1946, reflecting these losses. For the assessment year 1946-47, the assessee claimed a deduction under Section 10(2)(vii) of the Indian Income-Tax Act, 1922. The Income-Tax Officer, Appellate Assistant Commissioner, and the Appellate Tribunal disallowed the deduction, holding that the sales occurred after the business closure and were capital losses. The assessee moved the High Court, which referred two questions to the Supreme Court.

What did the Supreme Court hold?

The Supreme Court held that if the profits or gains of a business for a particular year are to be taxed, they must be computed for the whole year, taking into account losses incurred during the same year, provided the business was 'carried on by the assessee', the building, machinery, or plant was 'used for the purpose of the business', the sale took place during the year of account, and the loss was brought into the books and written off. The Court found no other condition expressly stated in Section 10(2)(vii) or the Act, specifically stating that the business must have been carried on for the entire year or the machinery used for the whole accounting period. The Court reasoned that the law distinguishes between profit and loss arising from the sale of capital assets. While the proviso to Section 10(2)(vii) was amended to include profits arising after cessation of business, the main clause concerning losses was not similarly amended. Therefore, the principle governing profits after cessation could not be applied to losses. The Court affirmed the High Court's decision, stating that if an assessee works only for a part of the year and then sells out, the incurred loss is a business loss and should be allowed as a deduction. The appeal was dismissed.

What were the issues?

The Supreme Court was asked to decide two questions of law: 1. Whether the Tribunal was justified in law in holding that the petitioner had carried on its business only till August 28, 1945? 2. Whether, on the facts and circumstances, the Income-Tax Appellate Tribunal was justified in law in not allowing the sum of Rs. 41,998 on the sale of machines and Rs. 3,700 on the sale of the lorry as a deduction from the total income of the applicant under Section 10(2)(vii) of the Indian Income-Tax Act, 1922? The assessee contended that Section 10(2)(vii) would be applicable even if the business continued for only a part of the accounting year, and the sale of machinery, plant, etc., took place after the closure of the business during the course of the account year. The revenue contended 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.

Which sections of the Income-tax Act were involved?

Section 10(2)(vii),Section 66(2),Section 10,Section 6

AI-generated summary — verify with the full judgment below

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-Com- putation-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 Janu- ary '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 res- pondent 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

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 66(2)

All 55 judgments and leading authorities on Section 66(2) →

Recent GST High Court judgments

Search GST case law →