V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated January 12, 1982, under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1977-78 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the disallowance of Rs. 85,008 made by the Income-tax Officer on account of the provision for payment of electricity charges to the Rajasthan State Electricity Board ?"
(2.) THE brief facts of the case are that the assessee, a partnership-firm, was carrying on the business of re-rolling of billets and spurn and manufacturing of iron rods, angles, plates, fish-plates, etc., at Bundi. During the year under consideration, i.e., ending on March 28, 1977, no manufacturing activities were carried on. THE assessee-firm had debited an amount of Rs. 48,888 to the profit and loss account. A provision was made in the books of account for payment of electric charges. During the course of the assessment, it was found that the assessee was making the payment of minimum charges of Rs. 4,804 per month to the Rajasthan State Electricity Board but the billing was actually done at the figure of Rs. 7,084 per month. THErefore, the assessee claimed that a sum of Rs. 85,008 should be allowed. It was pointed out that the assessee had shifted its factory from Bundi to Jaipur during the year under consideration and the process of shifting of the factory from Bundi to Jaipur is a part of the activity of carrying on the business and, therefore, the assessee is entitled to the minimum charges claimed. THE Income-tax Officer disallowed the claim on the ground that no manufacturing process was carried on and the factory at Bundi was closed. THEre was no actual payment and only a provision in the books of account has been made. In appeal before the Appellate Assistant Commissioner of Income-tax, it was contended that since the business was in existence and the shifting of the factory was also a part of the carrying on the business, therefore, minimum charges should have been allowed. The Appellate Assistant Commissioner dismissed the appeal and confirmed the order of the Income-tax Officer on the ground that the factory was not doing any manufacturing process at Bundi in the year under consideration and simply a provision regarding electricity charges was made in the books of account. In the second appeal before the Income-tax Appellate Tribunal, it was found that the copies of the bills have not been doubted. The Superintending Engineer, Commercial Circle, has written a letter to the Executive Engineer, Kota, on June 28, 1977, that the connection of the assessee may be transferred from Bundi to Jaipur, if the assessee makes payment of the earlier minimum electricity charges for which the facility of making the payment in instalments was also sought by the assessee. The Tribunal came to the conclusion that the business was not discontinued altogether and the electric connection at the Jaipur factory would not have been possible unless payment of the minimum charges was made. Relying on the decision in the case of Karsondas Ranchhoddass v. CIT [1972] 83 ITR 1 (Bom), the appeal was allowed and the disallowance was deleted, Mr. G.S. Bapna has contended that because there was no manufacturing activity in the year under consideration and the factory was under the process of shifting, the provision cannot be allowed. We have considered the matter. In accordance with the provisions of Section 37 of the Income-tax Act, any expenditure (not being expenditure of the nature described under Sections 32 to 36 and not being in the nature of capital expenditure or personal expenses) has to be allowed in computing the income chargeable under the head "Profit and gains of business or profession". The expenditure claimed is not in the nature described under Sections 32 to 36 nor can it be said to be capital expenditure or personal expenses of the assessee. In a case where the books are maintained on the mercantile basis an ascertained liability could also be an allowable deduction. The expenditure thus should be exclusively for the purpose of business. Even the fact that the new connection at Jaipur was released on making payment of the earlier dues of minimum charges in respect of the Bundi factory shows a direct link that the expenditure was in the nature of business expenditure. The Bombay High Court in the case of Karsondas Ranchhoddass [1972] 83 ITR 1 (Bom) has held that though the business of dealing in shares was not being carried on by the assessee in the year of account, still the loss could be allowed. There were two periods of activity before and after the interregnum or period of inactivity and it is almost conclusive that during the period of inactivity the assessee had not given up his intention to do further business. There may be a long period of inactivity and still the business may continue.
(3.) THE Madras High Court in L.VE. Vairavan Chettiar v. CIT [1969] 72 ITR 114 has held that where the assessee was maintaining the establishment and was waiting for improved market conditions in arecanuts and there was nothing to show that he completely abandoned or closed the business forever, the business must be deemed to be continuing. It was further observed that the company may not obtain or be able to execute a single business contract for months and yet it may be deemed to be to carry on its business, if during the period of lull and inactivity it is kept alive and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should work all the time. THEre may be long intervals of inactivity and the concern may still be a going concern, though it may for some time be quiet and dormant. THE mere fact that a businessman has not been able to obtain a contract and the business has for some time been in that sense dormant would not mean that it has ceased to exist, if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful. How long he shall remain in the hope and in what manner he must carry on his work to gain success is primarily his own concern. THE mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purpose of his business. Reliance was placed by learned counsel for the Revenue on the decision of the Madras High Court in the case of India Pistons Repco Ltd. v. CIT [1983] 143 ITR 424, where the expenditure incurred in dismantling the factory and re-establishing the same in a new place was held to be a capital expenditure. This decision is not applicable because the expenditure which is claimed is not with regard to shifting of the capital assets and is not a capital expenditure. From the facts as found by the Tribunal, it is evident that the assessee has claimed only Rs. 85,008 in respect of minimum charges payable to the Electricity Board for which it was billed. The said expenditure was not a capital expenditure and was for keeping the business alive, it was not a case of complete closure of business and the same unit Which was earlier working at Bundi was shifted to Jaipur. If any payment has been made when the factory is in the process of shifting from one place to another, in respect of minimum charges of electricity, it cannot be said that the said expenditure is either of capital nature or is personal expenses. The exclusion clause of Section 37 is not applicable and the expenditure has to be considered wholly and exclusively for business purposes. An expenditure which is for keeping the business alive is also an expenditure which can be considered wholly and exclusively for the purpose of business. The Income-tax Appellate Tribunal was, therefore, justified in coming to the conclusion that the amount of Rs. 85,008 on account of provision for payment of electricity charges to the Rajasthan State Electricity Board is eligible for deduction. ;