Decided on September 28,1970



Arun K.Mukherjea, J. - (1.) This reference arises out of the following facts and circumstances. The assessee is a company manufacturing, among other things, medicines. Before May, 1959, the assessee used also to manufacture serum. The assessee appears to have suffered loss of income from the production of serum for a considerable number of years as a result of which the assessee finally decided to stop the manufacture of serum with effect from May, 1959. As a consequence of this stoppage certain animals which were kept by the assessee for the manufacture of serum became actually useless to it for its business. The assessee, therefore, sold away these animals. By reason of this sale the company suffered a loss amounting to Rs. 9,929. The company claimed deduction of the said sum of Rs. 9,929 under Section 10(2)(viii) of the Indian Income-tax Act, 1922, for the assessment of its income for the assessment year 1960-61. The Income-tax Officer, however, disallowed this deduction. On appeal the Appellate Assistant Commissioner refused to interfere. On further appeal the Income-tax Appellate Tribunal confirmed this disallowance. The assessee-company then made an application under Section 66(1) of the Indian Income-tax Act, 1922, requiring the Tribunal to refer three questions of law to this High Court. The Tribunal made an order on that application by which the following question has been referred to us for our answer : "Whether, on the facts and in the circumstances of the case, the claim for loss of Rs. 9,929 was allowable as deduction under Section 10(2)(viii) of the Indian Income-tax Act, 1922?" The facts on which this reference has been made are undisputed. The assesses admittedly used to manufacture serum as part of its business in the manufacture of medicines, drugs and chemicals. It is also a fact that the assessee stopped the manufacture of serum permanently in May, 1959. The sale of the animals and the resulting loss of Rs; 9,929 are also admitted. There is absolutely no suggestion of any oblique or any dishonest motive on the part of the assessee. The only question is whether the loss suffered is an admissible deduction in terms of Section 10(2)(viii) of the said Act. The point is one which is not covered by any decision. Our attention was drawn to the case of In re Ganeshilal Bhattawala, [1938] 6 I.T.R. 489 (All.) in which the Allahabad High Court was called upon to consider whether if a dairy business of an assessee was closed down in 1930 and the live-stock left over were sold in 1932 at a loss of Rs. 414, the assessee can claim an allowance in respect of the loss in the assessment of his income from a brick-kiln and property for the year 1933-34. The Allahabad High Court held that this allowance was not admissible inasmuch as the animals had been sold not on account of their having become permanently useless but because the entire business had been closed down and inasmuch as the words "for the purposes of the business" in the same Clause referred to the business in respect of which a return has been called for and submitted. This decision is obviously one which can have no application to the facts of the case before us. The loss in question in the Allahabad case was not at all one in respect of the business for which return had been called for and submitted. The point that we have to decide in this reference is, therefore, one which is entirely of first impression."
(2.) Section 10(2)(viii) of the Indian Income-tax Act, 1922, provides that an allowance shall be made "in respect of animals which have been used for the purposes of the business, profession or vocation otherwise than as stock-in-trade and have died or become permanently useless for such purposes". Let us examine whether the facts of our case satisfy the requirements of this proviso. The animals had admittedly been used for the purposes of the business in connection with which the income-tax return was filed. The difficulty that faced the Allahabad High Court in Ganeshilal Bhattawala is, therefore, not in existence in this case. It is also admitted that the animals were not used as stock-in-trade. Further, it is unquestionably true that the animals had become permanently useless for the purposes of the assessee's business since that part of the business which related to the manufacture and sale of serum had been discontinued. The Income-tax Officer and the Tribunal found difficulty in applying section 10(2)(viii) because, in their opinion, the animals had become useless by reason of closure of the business for which they were employed and this, according to them, was not covered by the expression "permanently useless". In our opinion, this is not a correct view to take on those facts. There has been no closure of the business of the assessee. It is not as if manufacture and sale of serum was a separate business. The accounts of the assessee, so far as they appear from the assessment order, show clearly that it was one business which was run by the assessee and that the assessee had one continuous account for the entire business. Therefore, it cannot be said that the animals had become useless on the ground of closure of the assessee's business.
(3.) In this connection Mr. Dilip Sen, appearing for the Commissioner of Income-tax, drew our attention to the case of South Indian Industrials Ltd. v. Commissioner of Income-tax, [1935] 3 I.T.R. 11 (Mad.) [F.B.]. In that case the assessee used to carry on several businesses one of which was closed down. The question arose whether the loss arising in respect of such businesses as were closed down could be set off against income accruing from the running business. A Full Bench of the Madras High Court held that the assessee was not entitled to set off the loss of the businesses which have been wound up against the profits and gains of the more successful businesses, because, according to their Lordships, Section 10 deals only with businesses which are being carried on and not businesses which have ceased to be carried on. This decision is not, in my opinion, applicable to the facts of the instant case. For one thing, the five concerns in question in the Madras case were separate and distinct businesses of the assessee. Secondly, Section 10 only deals with businesses which are being carried on and not businesses which have ceased to be carried on. In the instant case before us, it appears clearly from the Tribunal's finding that they proceeded on the basis that the assessee had one business. And, further, there is no question here of setting off all the losses of business that has ceased to exist against income of an altogether different business. Therefore, the Madras case is of no help to us.;

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