INDUSTRIAL DEVELOPMENT AND INVESTMENTS COMPANY LIMITED Vs. COMMISSIONER OF EXCESS PROFITS TAX

JUDGEMENT

(1.) ABDUL Karim Silk Mills were being run by the partnership and one of the partners of this firm died on the 13th January, 1943, and in an action in this Court a receiver was appointed of the partnership assets on the 19th November, 1943. This receiver sold the assets of those mills to the assessee company on the 22nd January, 1944. The contention of the assessee was that it was entitled to take into consideration the price paid by it for the purpose of determining depreciation under the Excess Profits Tax Act. This contention was negatived by the Department, the department taking the view that the case fell within section 8 (3) of the Excess Profits Tax Act. The contention of the Department was upheld by the Tribunal and the assessee has now come before us on this reference.

(2.) TURNING first to the section, section 8 (1) introduces a legal fiction that although there may be only a change in the persons carrying on a business, the business shall be deemed to have been discontinued and a new business to have been commenced. Therefore, notwithstanding a succession to a business, for the purposes of sub -section (1) the business will be looked upon as a new business and the old business, would be considered to have been discontinued. Sub -section (3) of section 8 does away with the fiction introduced in section 8 (1) and the fiction is done away with for the limited purposes mentioned in sub -section (3), and one of the purposes is the question of computation of depreciation. Therefore, if there is a succession to a business, then for the purpose of sub -section (3) that succession has got to be accepted and the consequences of that succession would follow, and one of the consequences would be that the successor would not be entitled to claim the consideration paid by him for the purchase of the business in computing depreciation under the Excess Profits Tax Act.

(3.) IN this case, unfortunately, a great deal of confusion has been caused by the manner in which the matter was dealt with before the Tribunal. We should have thought that when the Tribunal was considering the question of succession, it should have inquired into the nature of the business sold by the receiver. The question it should have applied its mind to was : Was the receiver selling a going business or was he selling the assets of a business which has come to an end and which had been discontinued ? It should have investigated into the powers of the receiver who was an officer to the Court and ascertained whether the receiver had the authority to carry on the business of which he was appointed receiver. But we find from the order of the Tribunal that these questions were not looked into at all, and perhaps there is an explanation for this because, as we shall presently point our, the view taken by the Tribunal was that once the identity of the two businesses was established it was not necessary for the Department to establish continuity. If that was the right view of the law, then undoubtedly one can understand the reason why no attention was given by the Tribunal to this aspect of the matter.