RAMANLAL AMARNATH AGENCY LIMITED Vs. COMMISSIONER OF INCOME TAX
LAWS(BOM)-1972-10-6
HIGH COURT OF BOMBAY
Decided on October 03,1972

RAMANLAL AMARNATH (AGENCY) LTD. Appellant
VERSUS
COMMISSIONER OF INCOME TAX Respondents

JUDGEMENT

KANTAWALA,J. - (1.) THIS is a reference under S. 66(1) of the Indian INCOME TAX ACT, 1922. The question that is referred for determination is : "Whether, on the facts and in the circumstances of the case, the amount of Rs. 7,318 could be included in the income of the assessee -company for the asst. year 1961 -62, under the provisions of s. 10(2A) or S. 12(5) ?"
(2.) THE assessee is a limited company, which has gone into voluntary liquidation on December 31, 1959. The assessee -company was the selling agent of the National Rayon Corporation Ltd. before the voluntary liquidation proceedings were commenced. The agency of the company came to an end some time in March, 1958. The assessment year is the year 1961 -62, and the corresponding previous year is the calendar year 1960. During the year the assessee -company had an income of Rs. 7,318 in the outstanding creditors' account and this amount was on account of expenses claimed in earlier years. The assessee -company had maintained its accounts on mercantile basis, and even though the amount in fact was not paid, yet as the liability was incurred, it was allowed as expenses incurred in the earlier years. In the year of account relevant to the asst. year 1961 -62, the amount was outstanding in the outstanding creditors' account. The ITO added the amount of Rs. 7,318 to the total income of the assessee having regard to the provisions of S. 10(2A) of the Act or in the alternative S. 12(5) of the Act. He took the view that in the earlier years, in view of the claim made by the assessee -company, the aggregate sum of Rs. 7,318 was allowed as expenses, but as nobody came forward to claim these expenses, the same were shown under the heading " Outstanding creditors". It was contended on behalf of the assessee before the ITO that the expenses were originally allowed under the head "Business income" under S. 10(2A) but the assessee -company ceased to carry on business as from March 30, 1958, that the liquidators did not have any business income and as such, the unclaimed liability which was a business expenditure allowed under S. 10 could not then be taxed under S. 10 as there was no business income during the year. However, the assessee - company wanted to claim that, as there was no business in the previous year, the virtual remission or unclaimed liability should not be assessed as income under S. 12(5). The ITO rejected the contention of the assessee -company and took the view that S. 10(2A) contained a deeming provision and the stipulation laid down therein ought to be carried out to its logical conclusion. Accordingly, the amount was liable to be assessed under s. 10(2A). In the alternative, he took the view that the provisions of S. 12(5) were also attracted. The order passed by the ITO was confirmed in appeal by the AAC. On an appeal by the assessee - company before the Tribunal, it was contended on its behalf that neither the provisions of S. 10 (2A) nor those of S. 12(5) were attracted, that the company had ceased to carry on the business as from March 30, 1958, that the liquidator has not carried on any business after the date of the winding -up and since the business in respect of which the expenditure was allowed came to a stop in 1958, and was not carried on during the year of account, neither S. 10 nor S. 10(2A) would apply. It was also urged that the provisions of S. 12(5) would not apply because the deductions allowed during the preceding years were under S. 10. The Tribunal took the view that the provisions of S. 12(5) were not attracted because the deductions in the first place were given in the preceding years under S. 10. It, however, rejected the contention of the assessee -company that the provisions of S. 10(2A) were not attracted. The Tribunal took the view that S. 10(2A) creates business profits by a fiction and that fiction presupposes that the business is carried on. Since the section deems certain amounts to be profits of business, profession or vocation, it must be presumed that business, profession or vocation was carried on during the year of account, or else, the fiction created by that section would be a superstructure without foundation. The Tribunal pointed out that in the latter part of the section itself it is provided that not only the amounts in question would be deemed to be profits and gains of business but they would be deemed to have accrued or arisen during the previous year. There could be no profit from business accruing during the previous year unless the business was carried on during that period. The deeming of accrual, therefore, necessarily pre -supposes deeming of business accruing during the year. The Tribunal was of the view that the amount was subject to tax in view of the provisions of S. 10(2A). Upon application by the assessee -company, the question has been referred to this Court for its determination. Having regard to the question referred to this Court, two questions arise for consideration, viz., whether the sum of Rs. 7,318 could be included in the income of the assessee -company for the asst. year 1961 -62, either under the provisions of S. 10(2A) or S. 12(5). Sec. 12(5) will not apply because the deductions in the first place in the earlier years were given under S. 10. Sec. 12(1) provides that tax shall be payable by an assessee under the head "income from other sources" in respect of income, profits and gains of every kind which may be included in its total income if not included under any of the preceding heads. Sub -s. (5) thereof provides that the provisions of sub - ss. (2A) and (4A) of S. 10 shall apply, so far as may be, in computing income, profits and gains of an assessee under this section as they apply in computing profits or gains of an assessee under that section. As in none of the earlier years, the sum aggregating to Rs. 7,318 was taxed under the head "other sources", the provisions of S. 12(5) will not be attracted.
(3.) QUESTION then arises whether the amount can be subjected to tax in view of the provisions of s. 10(2A). The argument on behalf of the assessee -company is that admittedly no business was carried on at any time in the previous year by the assessee -company. The amount of Rs. 7,318, even if remitted, cannot be treated as income or profit under S. 10(2A). It was urged that the question is directly covered by the decision of the Gujarat High Court and it is well -settled law that the High Court has consistently followed such a decision as far as possible in construing a statute which is an all India statute to have uniformity amongst the different High Courts. See Ambika Silk Mills Ltd. vs. CIT (1952) 22 ITR 58 (Bom).;


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