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Whittle Anderson Ltd. Vs. Commissioner of Income-tax, Bombay City I - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 11 of 1963
Judge
Reported in[1971]79ITR613(Bom)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantWhittle Anderson Ltd.
RespondentCommissioner of Income-tax, Bombay City I
Appellant AdvocateR.J. Kolah, Adv.
Respondent AdvocateG.N. Joshi, Adv.
Excerpt:
direct taxation - depreciation - section 10 (2) (vii) of income tax act, 1922 - assessee discontinued business - machinery (spinning machinery) sold - profit on sale of machinery calculated taking depreciation on machinery into consideration - whether depreciation to be taken into consideration - question to be answered whether machinery was in use in relevant year so as to attract second proviso to section 10 (2) (vii) - assessee contended machinery used only in cotton season - contention not tenable - machine to be regarded in use for purpose of second proviso - depreciation to be taken into consideration while calculating profit on sale of machinery. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company,.....kotval, c.j.1. the sole question referred for our decision is : 'whether, on the facts and in the circumstances of the case, the finding of the tribunal that the machinery was 'used' so as to attract the operation of the second proviso to section 10(2) (vii) of the 1922 act is right in law ?' 2. we are concerned in this reference with the assessment year 1958-59, corresponding to the previous account year august 1, 1956, to july 31, 1957. the question arises under the following circumstances : the assessee, whittle anderson ltd., now in voluntary liquidation, were engaged in the business of running ginning and pressing factories at viramgam in gujarat and other places. the assessee owned two presses at the ginning and pressing trade is a seasonal trade. it is carried on only during the.....
Judgment:

Kotval, C.J.

1. The sole question referred for our decision is :

'Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the machinery was 'used' so as to attract the operation of the second proviso to section 10(2) (vii) of the 1922 Act is right in law ?'

2. We are concerned in this reference with the assessment year 1958-59, corresponding to the previous account year August 1, 1956, to July 31, 1957. The question arises under the following circumstances :

The assessee, Whittle Anderson Ltd., now in voluntary liquidation, were engaged in the business of running ginning and pressing factories at Viramgam in Gujarat and other places. The assessee owned two presses at the ginning and pressing trade is a seasonal trade. It is carried on only during the time that the cotton season is on. It is not in dispute that in the present case the cotton season was from March till the end of May, or, as has been stated in the statement of the case, till the beginning of June. There were other factories in Viramgam doing similar business, and they entered into a pooling agreement with the assessee. The two other presses belonged to the Viramgam Vepar Uttejak Ginning Co. The pooling agreement is dated 8th February, 1950, and the above four presses were directly involved in that agreement.

3. The principal provisions of the pooling agreement were as follows : The association between these four presses was for the period of 11 years, that is to say, till 20th October, 1960, and clause (2) provided : '..... Hence none of us shall be at liberty to go out of the association during the said period'. Clause (3) indicated that of the four presses, two belonged to the assessee, Whittle Anderson Ltd., one to the Viramgam Vepar Uttejak Ginning Company Ltd. and one to Messrs. Keshavlal Lalloobhai Naraindas Cotton Pressing Co. The Clause (3) Provided :

'All of us are to keep our respective presses in such a good and working condition as would give satisfaction to the merchants and customers approaching (us) for the pressing and baling of cotton bales until the expiry of the period of this association.'

Clause (4) provided for the distribution of the profits between the four presses and it provided that the net profit available for distributions shall be distributed amongst the four partners in the following proportions mentioned in dokadas (cents) :- Messrs. Whittle Anderson Ltd. 48 dokadas, Viramgam Vepar Uttejak Ginning company Ltd. 27 dokadas. Keshavlal Lalloobhai Naraindas Cotton Pressing Company 25 dokadas, and Messrs. Clause (8) of the agreement is important in the context of the arguments that had taken place before us and the relevant part of clause (8) was as follows :

'All the owners of all the presses that have joined this association shall pay into the 'pool' of this association rents of all buildings appertaining to their respective presses such as officer presses, balls for stocking cotton, residential premises and their compounds and the rent of the compound-lands fetching rent of any kind. But the press owned by Whittle Anderson Ltd. and known as the Gujarat Cotton Press is not included in this association. Hence, it shall not be considered for any of the proportionate distributions of the association. Moreover, the condition that the amount of rent shall be paid into the 'pool' does not apply to that press. But Whittle Anderson Ltd. or its assignees or Transferees are not to work that press in Viramgam until the expiry of the period of this association. Further, the possession (and) management of the said press shall not be given to any one in any manner for the purpose of working it in Viramgam. Even if Whittle Anderson Ltd. sells or mortgages the said press to any one or transfers its rights and interest therein to any one in they other manner, the mortgage, purchaser or the transferee shall not be entitled to work the said press in Viramgam as long as the period of the association lasts. If Whittle Anderson Ltd. wants to sell that press it can do so on condition that the press will have to be removed outside the limits of Viramgam. If other presses are sold, mortgaged or given on licence to any one, then the said transferees shall deal with the presses of the association subject to all the rules and regulations and terms set out in this document and those that may be passed at the meeting of the association.'

4. On 28th July, 1956, G. D. Shah, a director of the company, wrote to the Income-tax Officer at Ahmedabad, that the company was giving notice under section 25(2) of the Income-tax Act that the business of Cotton Ginning and Pressing Factory hitherto carried on by Whittle Anderson Ltd. at Viramgam and elsewhere had been discontinued with effect from 15th July, 1956. The company also claimed relief under the provisions of the third and fourth sub-sections to section 25 because they alleged that they had been assessee to income-tax under the provisions of the Indian Income-tax Act of 1918. It appears that this claim of the assessee failed because it was held that provision of the law was not attracted in that case, but it may be stated here that in those proceedings on decision was given as to the continuance or discontinuance of the business as claimed by the assessee in their letter dated 28th July, 1956. This was the position at the end of the accounting year ending 31st July 1957, so far as a assessee is concerned.

5. Then transpired further events which culminated in the sale of the entire properties of the assessee-company. On 25th August, 1956, the solicitors of an intending purchaser, Prakash & Co., made an offer for the purchase of the presses belonging to the assessee-company along with the land that buildings standing thereon for the sum of Rs. 7,51,000. The terms of the offer are set out in a letter dated 17th September, 1956, addressed by their attorneys, Messrs. Thakurdas and Madgaonkar (annexure 'B'). The schedule annexed to that letter shows that the entire land, building and machinery were comprised in the offer.

6. We have already referred to the stipulations in clause (8) of the pooling agreement and one of the stipulations was that if any members of the pool decided to sell, mortgage or otherwise transfer any of the presses included under the agreement, the transferees should be deal with the association subject to all the terms and conditions, rules and regulations of the pooling agreement. Pursuant to this clause the solicitors on behalf of the purchaser, Messrs. Prakash & Co., set down in their letter (vide clause (8) of the letter) a term agreeing that the factory No. 3 belonging to the assessee, namely, the Gujarat Cotton Press, shall be purchased by them 'subject to the said pooling agreement, copy of which has already been supplied....' On 29th October, 1956, the company, however, passed a resolution to voluntarily wind up the company and appoint liquidators. The liquidators through heir solicitors accepted the offer made on behalf of Messrs. Prakash & Co., on October 29, 1956. Pursuant to the agreement possession of the factories was handed over to the purchaser, Prakash & Co., on 1st February, 1957.

7. The factories have in the course of their use in the business of the assessee-company earned depreciation in the past year. In consequence of the sale of the presses and their machinery for the sum of Rs. 7,51,000 it was ascertained that the price realised was in excess of the different between the cost and the written down value of the assets of the company. The surplus thus found by the Income-tax Officer was Rs. 2,70,797 and the Income-tax Officer dealt with it under the provisions of the second proviso to section 19(2) (vii) of the Indian Income-tax Act, 1922, and decided to tax it. The assessee objected upon several grounds, the principal ground being that the assessee-company had discontinued its business on 15th July, 1956, and they had intimated to the Income-tax Officer the fact of discontinuance by their letter of 28th July, 1956, giving notice under section 25(2) of the Act. The assessee had also claimed to set off the loss sustained against this item of Rs. 2,70,797 proposed to be taxed in their hands as their profit under the provisions of section 10(2A) but that question on longer services, for the Tribunal on appeal has decided that question in favour of the assessee.

8. The findings of the authorities as well as of the Tribunal have been concurrent throughout. They have held that, upon the facts and circumstances, they were unable to accept the contention of the assessee that they had closed down or discontinued their business on 15th July, 1956. They have also held that the assessee continued to use the machinery within the meaning of that word in section 10(2) (vii) and in the second proviso thereof and that, therefore, they could not escape from the provisions of the second proviso to section 10(2) (vii). These were substantially the two questions which counsel for the assessee claimed to argue before us. He also raised two other questions, namely, that there were in addition to the factories or presses, which were the subject of the pooling agreement, other factories, four in number, according to the assessee, which were not included in the pooling agreement, and the question is whether the provisions of section 10(2) (vii), second proviso, could possibly apply to those factories. The Tribunal declined to refer that question because it held that the question did to arise from the Tribunal's order.

9. Another point was also raised by counsel on behalf of the assessee. He wanted to challenge the correctness of the figure of profit of Rs. 2,70,797 and whether it had been correctly worked out. The Tribunal declined to raise any question on that point because it held that before the Tribunal the figures had all been accepted and we not in dispute.

Now the principal question which counsel wanted to argue before us, and indeed for a considerable time did argue, is the question No. 1 which he claimed ought to have been farmed as sated in paragraph 9 of the statement of the case :

'Whether, on the facts and in the circumstances of the case, the second proviso to section 10(2) (vii) of the Indian Income-tax Act, 1922, was applicable to the receipts on the sale of the assessee-company's buildings, machinery and plant ?'

10. On behalf of the department objection was taken to the assessee being allowed to raise this question because it was urged that it is not the subject of the reference before us and assessee cannot be allowed to raise it unless a question was referred.

Before we decide that point, it is necessary to refer to the relevant provision of the law and to certain decisions. The relevant provisions of section 10 are as follows :

'10. (1) The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits of gains of any business, profession or vocation carried on by him.

(2) Such profits or gains shall be computed after making the following allowances, namely :.....

(vii) in respect of any such building, machinery or plant which has been sold or discarded or demolished or destroyed, the amount by which the written down value thereof exceeds the amount for which the building, machinery or plant, as the case may be, is actually sold or its scrap value :.....

Provided further that where the amount for which any such building, machinery or plant is sold, whether during the continuance of the business or after the cessation thereof, exceeds the written down value, so much of the excess as does not exceed the different between the original cost and the written down value shall be deemed to be profits of previous year in which the sale took place.'

11. The clause speaks of 'such building, machinery or plant' and in order to find our as to what the word 'such' refers one has to read backwards to clause (vi) of section 10(2) which is 'in respect of insurance against risk of damage or destruction of Buildings, machinery, plant, furniture, stocks or stores, used for the purposes of the business, profession or vocation....' Therefore 'such building, machinery or plant' in clause (vii) means building, machinery or plant 'used for the purposes of the business, profession or vocation'.

12. The words in the proviso 'whether during the continuance of the business or after the cessation thereof' were added only in 1949 by section 11 of the Taxation Laws (Extension to Merged States and Amendment) Act, 1949 (67 of 1949). The clause both prior to and subsequent to the 1949 amendment had come up for construction before court in several cases and the Supreme Courts has in a recent decision pronounced upon it and analysed it and so it will be unnecessary to say anything more on the earlier analysis. In Commissioner of Income-tax v. Ajax Products Ltd. the Supreme Court analysed the proviso to section 10(2) (vii) and pointed our that the provision required that three conditions should be fulfilled before the assessee could be taxed pursuant to this provision : (1) that during the entire previous year or a part thereof, the business should have been carried on by the assessee; (2) that the building, machinery or plant should have been used in the business; and (3) that the building, machinery or for the purpose of closing it down or winding it up.

13. In the case to which we have just referred reliance was place on behalf of the department on the words inserted by the amendment 'whether during the continuance of the business or after the cessation thereof' and it was urged that this amendment showed that the balancing payment contemplate by clause (vii) of section 10(2) had to be made irrespective of whether the business continued or did not continue and that, therefore, whenever the assets of the assessee are sold if a surplus remains, the surplus is taxable. The Supreme Court negatived the contention by observing that the amendment only removed one of the three conditions which were laid down by the proviso for the liability of the excess or surplus of the amount total and that was the third condition indicated above, namely, that the building, machinery or plant should have been sold when the business was being carried on and not for the purpose of closing it down or winding it up. The words introduced by the amendment are attracted in the present case and, therefore, the third condition need on longer be considered. Thus, upon the authority of the Ajax Products Ltd.'s case, so far as the present case in concerned, only two conditions remain to be considered under the proviso, namely, (1) whether in the present case the assessee carried on business during the entire previous year or a part thereof, and (2) whether the machinery in the instant case was used in the business during the whole or any part of the previous year.

14. We have stated this position as it emerges from a consideration of the law, only in order to show what is the true nature of the question which has been actually raised for decision. The question posed merely raises the issue whether the machinery was 'used' so as to attract the operation of the second proviso to section 10(2) (vii) of the 1922 Act. As such, the question is limited only to the second of the three ingredients to which reference has been made above in the judgment of the Supreme Court. The question does not comprise within its ambit the first requirement as stated in the decision of the Supreme Court, namely, whether the business was being carried on during the whole or part of the previous year. Counsel urged that the question was also implicit in the language of the question referred and he relied upon its concluding words 'so as to attract the operation of the second proviso to section 10(2)(vii) of the 1922 Act, is right in law.' No doubt reference has been made to the second proviso to section 10(2) (vii) and whether the operation of that proviso is attracted in the case but it is in the context of the user of the machinery as contemplated in the proviso to section 10(2) (vii) and not divorced from the question of user or use.

15. Reading the question fairly, it seems to us that it was only confirmed to the question whether the machinery was used in the business in the course of the previous year or not. That point has been posed and nothing more and not whether the business was being carried on in the previous year or any party thereof. In other words, the question is based only upon the decision of the Tribunal in paragraph 14 of its order and not upon the point decision in paragraph 13 and the preceding paragraph. We must hold, therefore, that so far as the question referred is concerned, it only raises the issue whether the assessee's machinery was used in the assessee's business during the previous year or any part of it and does not raise the question whether the business of the assessee was being carried on or not during the previous year or any part of it. upon this view we do not think that we can permit within this reference the question to be raised whether the business was being carried on during the relevant previous year or, as the assessee would have it, whether it was closed down or discounted on 15th July, 1956.

16. But then it was urged that the main decision of the Tribunal in its order under reference was pertaining to this question, namely, whether the business was continued in the relevant previous year for the assessment year in question, an that therefore, it is impossible that the main question which the assessee had raised before the Tribunal could have been given up and the minor question as to whether the machinery had been used as was decided in paragraph 14 of the order alone could have been raised.

17. That undoubtedly appears strange conduct on the part of the assessee. The fact remain that the assessee was alive to the fact that the question had not been raised by the Tribunal when it made out its statement of the case and, therefore, the assessee in express terms asked that the question should be referred. This is clear from paragraph 9 of the statement of the case and especially having regard to the first question mentioned in that paragraph which the assessee wanted to be referred, whether on the facts and in the circumstances of the case, the second proviso to the section 10(2)(vii) of the Indian Income-tax Act, 1922, was applicable to the receipts on the sale of the assessee-company's building, machinery and plant. The question is couched in wide terms and would include the question whether the business continued in the relevant previous year - but is not the question referred. The very fact that the assessee posed this question as a question which it required the Tribunal to refer to this court shows that the assessee itself did not consider that in the actual question which has been referred this question was also implicit or implied.

18. The Tribunal unfortunately does not been to have given any decision in the sense that it has not stated any reason why this question whether the business was continued or not or was closed on 15th July 1956, did or did not arise. However, in paragraph 11 of the statement of the case the Tribunal has stated that : 'The only question of law that arises out of the Tribunal's order is as follows :' That certainly amounts to a decision that the question No. 1 in paragraph 9 of that order did not arise, though we would certain have preferred it that the Tribunal should have given reasons for its decision.

19. However, after the Tribunal stated its case to this court and that was as far back as 12th October, 1962, it does not appear that the assessee did anything about it. The assessee has not even taken out a notice of motion or asked this court that the question should be farmed or that the Tribunal should be called upon to farm the question and a statement of the case called for. In view of this acquiescence by the assessee in the order of reference and the statement of the case we do not see what can do today to help the assessee.

20. What is worse is that the assessee has taken out a notice motion applying to this court to call upon the Tribunal to state another question, namely, the question (to which we have already referred), whether the four other factories of the assessee did not form part of the pooling agreement and whether the proviso to section 10(2) (vii) would apply to those factories. Though the assessee has asked this court to frame another question, we are somewhat surprised that the assessee did not make a request to frame what is now argued as the principal question. Though, to begin with, until counsel for the department objected, we did hear arguments on the merits of the question for a considerable time, on the whole we think that, having regard to the above facts and circumstances, we cannot permit the assessee to raise he question, whether on the facts and in the circumstances of the case, the business was continued during the previous year or any part of it or whether it was closed down, as the assessee contends, on 15th July, 1956, or the wider question posed in paragraph 9 of the statement of the case : 'Whether, on the facts and in the circumstances of the case, the second proviso to section 10(2) (vii) of the Indian Income-tax Act, 1922, was applicable to the receipts on the sale of the assessee-company's buildings, machinery and plant ?'

21. Then we turn to the second question posed in paragraph 9 of the statement of the case, namely, whether the second proviso to section 10(2) (vii) was applicable in respect of the sale proceeds from the four factories which did not form part of the pooling agreement. In this respect the assessee had also taken out a notice of motion dated 15th February, 1963. Here again, we do not see how we can assist the assessee, for a perusal of the entire order of the Tribunal does not show that this question was at all raised or agitated before that Tribunal. We cannot consider a question which does not arise upon the order of the Tribunal, however, much it may be pertinent, as counsel urged. In this respect, therefore, we are in agreement with the order of the Tribunal in paragraph 10 of the statement of the case ruling out question No. 2 mentioned in paragraph 9 thereof because 'it does not arise out of the Tribunal's order.'

22. While we have said this, so far as a independent and separate question is sought to be raised, we may say that the question actually referred must be read in its true perspective and in the light of the facts and circumstances of the case and, so reading it, it is clear that at no stage was the controversy raised or decided upon that the second proviso to section 10(2) also applied to the surplus that may have been received by the assessee in respect of the factories outside the pooling agreement. We will make this clear after having considered the question referred.

23. There was also some argument sought to be raised before us as regards the true computation of the profits and as regards the figures found. Here unfortunately once again the assessee does not seem to have raised this controversy before the Tribunal at all. On the other hand, as the Tribunal has itself observed in paragraph 12 of its order, the assessee accepted the figures quoted by the Tribunal. This is what the Tribunal has stated in paragraph 7, 'the figures as such are not in dispute', and there has been no challenge to that statement at the time of reference', and there has been no challenge to that statement at the time of reference. Therefore, it must be accepted that the assessee did not challenge that figures before the Tribunal and if it did not challenge the figures before the Tribunal, then no question as to the working out of the profits of Rs. 2,70,957 can now be raised. For these reasons we are unable to accept for our consideration any other question that the one which has been referred and that question, as we have said, only pertains to the issue as to whether the machinery was used in the business of the assessee during the previous year for the present assessment year so as to attract the application of the second proviso to section 10(2) (vii).

24. The word 'use' or 'user' does not appear in clause (vii) or the second proviso but as we have said clause (vii) refers to 'such building machinery or plant' an in order to find out what building, machinery or plant is referred to by the word 'such' one has to go back to clause (iv) of section 10(2) wherein the words 'buildings, machinery, plant' have been qualified by the expression 'used for the purposes of the business, profession or vocation'. Therefore, even for the applicability of the second proviso to clause (vii) of section 10(2), the machinery in the instant case must be shown to have been used by the assessee in the business which it was carrying on in the previous year.

25. Now the expression 'use or used' has several times received interpretation at the hands not only of this court and of other High Court but Commissioner of Income-tax v. Viswanath Bhaskar Sathe, in a case which was very similar to the present case, this court, with reference to the provisions of section 10(2) (vi) of the Indian Income-tax Act, said that the word 'used' in that section should be understood in a wide sense so as to embrace passive as well as active user. They pointed out that when machinery is kept ready for use at any moment in a particular factory under an express agreement from which taxable profits are earned, the machinery can be said to be used for the proposes of the business which earned the profits, although it was not actually worked, and that depreciation allowance granted by section 10(2) (vi) could be given in respect of such Machinery. No doubt, that was said in connection with clause (vi) of section 10(2), but the Supreme Court has pointed out that all these clauses are in pari materia and the expression used in either of them would apply to the order : see the Liquidators of Pursa Ltd. v. Commissioner of Income-tax.

26. In Viswanath Bhaskar Sathe's case, the facts were similar to the present case. The assessee owned a ginning factory and was a member of a pool with the owners of other ginning factories. During the assessment year in question in that case the assessee's factory had not been actually employed in the work of ginning in accordance with the pooling agreement, though he had received a share of the profits. That was because the assessee was under the agreement bound at his own expense to keep his gains and other working plant and machinery in good repair and condition and working order even when his factory was not working, so that it may be ready for actual use at any moment. It was held that, under these circumstances, the assessee was entitled to the allowance under section 10(2) (vi). At page 625, Chief Justice Beaumont, as he then was, observed as follows :

'I agree with the view expressed by the Commissioner of Income-tax, and in the cases to which he refers, that 'used' denotes actual user, and not merely being capable of being used. But that does not dispose of the question whether, when machinery is kept ready for use at any moment in a particular factory under an express contract from which taxable profits are earned, the machinery can be said to be used for the purposes of the business which earns the profits, although it is not actually work. To may mind, it is so used. The business from which the profit were derived was that of ginning factories, and the contribution of the assessee to that business was the obligation to keep his machinery ready for actual used at any moment. It is, no doubt, true, as the learned Advocate-General says, that it is possible to give the word 'used' a more limited meaning and hold that it includes only the actual work of the machinery, and it is urged that it is that working which occasions depreciation. But I think that the word 'used' in this section may be given a wider meaning and embraces passive as well as active user.... It seems to me that the ultimate test is, whether, without the particular user of the machinery relied upon, the profit sought to be taxed could have been made......'

27. The learned Chief Justice distinguished the earlier decision of the then court of the Judicial Commissioner at Nagpur in Bhikaji Venkatesh v. Commissioner of Income-tax, which took a contrary view. So far as this court is concerned, upon this view the contention raised on behalf of the assessee that the business stopped on 15th July, 1956, certainly cannot be upheld, for the pooling agreement was still in full force and operation and at the most it can be said that it became ineffective as against the liquidator by the liquidator only took charge of the company on 29th October, 1956, when the resolution for voluntary winding up was passed but by then the account year with which we are concerned had expired. The machinery continued to be used under the agreement in the sense that the machinery was clearly kept ready for use by the assessee-company pursuant to the pooling agreement.

28. The decision of this court was followed by the Patna High Court in commissioner of Income-tax v. Dalmia Cement Ltd. Here again the same principle was applied. The Patna decision directly relied upon the decision of this Court in Viswanath Sathe's case.

29. We are aware that the decision in Viswanath Sathe's case, has been dissented from in the Niranjan Lal Ram Chandra v. Commissioner of Income-tax, by the Allahabad High Court, but the dissent was not directed to the actual decision in the case but to the ground upon Chief Justice Beaumont distinguished the earlier decision in Bhikaji Venkatesh's case. Now no doubt Chief Justice Beaumont gave it as a reason in Viswanath Sathe's case, that Bhikaji Venkatesh's case, was distinguishable on the ground that 'it does not appear from the report of that case that there was any covenant to maintain the machinery in questioning reserve ready for actual use during the year of assessment'. We have gone through Bhikaji Venkatesh's case and we can see no reason why that remark of the learned Chief Justice was incorrect. There does not appear from the decision in Bhikaji Venkatesh's case that there was any covenant in that case with reference to the use to which the machinery in question in that case should be put or even that it was stipulate in that case that the machinery should be kept ready in reserve for actual use as in Viswanath Sathe's case.

30. In Liquidators of Pursa Ltd.'s case referring to this expression in section 10(2) (vi), 'used for the purposes of the business', the Supreme Court ruled that it meant 'used for the purposes of enabling the owner to carry on the business and earn profits in the business'. Now profit can be earned and business can be carried on as much by using one's machinery as by allowing it to remain used pursuant to an agreement so long as the his business. That is precisely the result of the pooling agreement in the present case. The partners in the pooling agreement were each owners of the ginning presses. The assessee owned two such presses and a glance at clause (5) shows that these four presses were divided into two groups and each group was to work alternately each year during the season. One group was to work and the other group, in the meanwhile, was to keep its presses idle, but tough the presses were idle and not in use, the stipulation was that they were to keep the presses 'in good and working condition' (vide clause (3)). In clause (8) one press belonging to the assessee, namely, the Gujarat Cotton Press, was not included in the pooling arrangement and was not entitled to proportionate distribution of the profits of the association. Nonetheless the condition attaching to this press was that it was to be kept idle, and, in the event of its transfer or assignment, the transferee was to deal with the association subject to the terms of the agreement.

31. It was urged that the user must be considered in the context of the business of the assessee and, so far as clause (3) is concerned, the stipulation therein only applied during the time of the season which was from March to May, and this stipulation did to govern the business of the assessee. It does not appear that the stipulation as to keeping the press idle but in good and working condition necessarily applied only to the period during which the season was on, namely, March to May, but, in conceivable circumstances, the agreement stipulated that those presses subject to the pooling arrangement which were idle could be used during the entire year at any time under certain circumstances. This is clear form the provisions of clauses (5) and (6) of the agreement. Clause (5) contemplates a case where if in any year the cotton crop exceeded expectations or if circumstances arose where large number of bales were required to be pressed, then such press or press out of the group which was idle could be called upon to work as maybe decided at a meeting of the association. This stipulation was not mere relegated to the cotton season from March to May, but the same terms continued to apply during the rest of the period of the year also. We do not think, therefore, that we can accept that contention.

32. The agreement clearly provided that, although two out of the four presses which were directly in the pooling arrangement were to remain idle while the two presses worked, it is clear that the owners of those presses which were idle had to keep them ready for use at any time and the contingency for their use could also, upon the terms of the agreement, arise at any time and having regard to the definition of the word 'used' as indicated in the authorities to which we have referred, it is clear that even these presses which remained under force idleness were in used during the entire period of the year.

33. Upon the provisions of the agreement it is clear the fifth press, namely, the Gujarat Cotton Press, was not included in the pooling arrangement and did not partake in the profits arising out of the pooling agreement and the question which we have to answer, therefore, is answered in the light of these facts which are patent upon the terms of the agreement itself. The question of user can only have reference to the four presses which were directly included the pooling arrangement.

34. In the result, we answer the question referred in the affirmative, except as regards the Gujarat Cotton Press referred to in clause (8) of the pooling agreement. The assessee to pay the costs of the Commissioner of this reference and also of the notice of motion.


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