1. Pursuant to the direction given by us on the 25th of February, 1955, the Tribunal has submitted a supplementary statement of the case bearing on the question, 'whether on the facts and circumstances of the case the finding of the Tribunal that the assessee company was carrying on business in the accounting year 1948-49 was justified ?' The facts are stated in that judgment and they need not be repeated here.
2. Now, the reference, as far as it was made to call for a supplementary statement, was rendered necessary because the only circumstance that appeared on the record which had any bearing on the finding of fact by the Tribunal that the assessee company was carrying on the business, was that it had let out the whole of its undertaking during the year of account and the Supreme Court had held in Narain Swadeshi Weaving Mills v. Commissioner of Excess Profits Tax, that 'the mere fact that a company lets out the whole of its undertaking does not necessarily lead to the inference that the company was carrying on business in respect of that undertaking.' Turning to the supplementary statement of the case, we find that the Tribunal has drawn attention to various circumstances which led it to come to the conclusion that the assessee company was carrying on business. It is clear that we are not assessing the evidence on which the Tribunal came to its conclusion. All that we have got to consider is whether there was evidence to justify the finding.
3. Now, the circumstances relied upon by the Tribunal are, firstly, the terms of the lease itself. Unlike the lease in the Supreme Court case this is not a case where the undertaking has been let out on a monthly rental. The rent under this lease is fixed on the basis of the actual working of the factory and the rent received by the company depends upon the working of the company and the extent to which it is working. It is also pointed out that under this lease the hirer was entitled to the free use of bullocks, motor trucks, etc. Therefore on the terms of the lease itself it is possible to draw the inference that what the assessee company was doing was, instead of carrying on the business itself, it was carrying on the business through the hirer. The second circumstance relied upon by the Tribunal is the admissions made by the assessee himself. In the return filed by the company in respect of the year of account it has claimed as a business loss a sum of Rs. 27,555-10-5 and in the statement it has claimed various expenses which it had also claimed in the assessment for the previous expenses which it had also claimed in the assessment for the previous year when admittedly the company was carrying on the business. This claim was made on the basis of a business being carried on by the assessee company in the year of account. Mr. Palkhivala has suggested that these very expenses could have been claimed under section 12 of the Income-tax Act. The point to bear in mind is that the claim was made, not under section 12, but under section 10 in respect of the expenditure incurred in the course of carrying on the business. The assessee has also claimed depreciation again under section 10 and further the assessee has claimed to carry forward the loss of the previous year to the year of account. This also can only be done provided the business was being carried on in the year of account. Therefore, in our opinion, there are sufficient circumstances and facts to justify the finding of the Tribunal that the assessee company was carrying on business in the accounting year 1948-49.
4. The second point urged by Mr. Palkhivala is that under the relevant proviso to section 10 (2) (vii), if the undertaking is sold as a whole, then the proviso has no application. There is no warrant whatever for this contention. The proviso refers to any such building, machinery or plant being sold, and whether the building, machinery or plant is sold separately and individually or sold together and the whole of the undertaking is transferred, the position is identical under the proviso. The object of the Legislature in enacting the proviso is clear that if any building, machinery or plant realises a price on sale which is more than the written down value, then to the extent that depreciation has been claimed and allowed to the company, the company should make good that depreciation. If that is the principle underlying this proviso, we see no reason why the application of that principle should be limited to a case where a part of the undertaking is sold and not the whole.
5. The result is that we must answer the question in the supplementary statement of the case in the affirmative and also the main question raised in the reference in the affirmative.
6. The assessee must pay the costs.
7. Questions answered in the affirmative.