1. This is a reference at the instance of the assessee under s. 256(1) of the I. T. Act, 1961, and the following questions has been referred to us :
'Whether, on the facts and in the circumstances of the case, the assessee was carrying on any business during the accounting year ended March 31, 1963, relevant to the assessment year 1963-64 within the meaning of section 28 of the Income-tax Act, 196 ?'
2. The assessee is a firm constituted of two partners both of which are joint stock companies, viz., (1) S. B. Joshi & Co. (P.) Ltd., and (2) Mangaldas N. Verma (P.) Ltd. The partnership between these two entities was specifically formed for the purpose of executing a contract for construction of an aqueduct across the river Parvati in Chambal Hydel and Irrigation Project in the State of Madhya Bharat. The business of the firm had actually commenced on November 1, 1954, though the partnership deed is one dated January 29, 1955. The partnership deed is annex.'A' to the statement of case, but cls. 1 and 20 thereof appear to be material and the same read as follows :
'1. The business of the partnership shall be :
(a) To execute and carry out construction of the aforesaid aqueduct across the river Parvati as a joint venture.
(b) To do all business not inconsistent with he aims and objects of Messrs. S. B. Joshi & Co. Ltd. and M/s. Mangaldas N. Varma Ltd., as may from time to time be mutually agreed.
20. The partnership shall continue in the first instance till the completion of the said adequate work or any other work or works that may be taken later on by mutual agreement and the period extended by mutual consent.'
3. It is the admitted position that no work other than the execution of the contract for the aqueduct was undertaken by the partnership. This construction was completed by March/April, 1961. The assessee's accounting year is the financial year and thus the construction work that the assessee-firm had undertaken was completed in the accounting year ending March 31, 1962, relevant to the assessment year 1962-63. As per the profit and loss account of the said year, there was a net profit of Rs. 46,952 which was equally dividend between the two partners in accordance with the terms of the partnership deed. The profit and loss account for the said year carried the following foot note :
'The work was completed in April, 1961. No final bill has yet been prepared by the P. W. D. The form has put up claims amounting to over Rs. 16 lakhs with the P. W. D. authorities on account of extra work, difference in rate of material supplied and other incidental matters. However, no adjustment has been made therefor in the accounts as they are not yet settled.'
4. For the assessment year 1963-64, the accounting year is the year ended March 31, 1963. Certain stock of material brought over from the preceding year was sold and the proceeds aggregating to Rs. 16,163 realised. No further stock remained to be sold at the end of the year. There were some miscellaneous receipts, and some expenses incurred on establishment, etc. There was a further debit of Rs. 25,630, being interest payable to the partners on their capital contribution. After taking all these items into consideration the profit and loss account showed a net loss of Rs. 23,290 which was duly debited to the partners' accounts in equal shares. The profit and loss account for this year also carried the same note as for the earlier year.
5. For the above assessment year, i.e., 1963-64, the assessee filed a return of income as per which there was a loss in business duly adjusted for income-tax purposes of Rs. 16,143. The ITO, however, held that there was no loss to be determined for income-tax purposes for the said year as the assessees had ceased to carry on any business from the end of the preceding year.
6. The assessee carried the matter in appeal to the AAC. Before the AAC, it was contended that it was not correct to say that the business activities of the firm had come to an end when the construction work was completed. It was urged that a number of bills had been submitted to the Madhya Pradesh Government which were pending sanction and the activity to get such bills settled itself formed a business activity. The AAC, however, did not accept this contention and agreed with the ITO that after the completion of the construction work the firm did not carry on any business in the year under appeal. He, accordingly, dismissed the appeal.
7. The assessee then filed a second appeal to the Tribunal. A two-fold contention was urged before the Tribunal by the chartered accountant who appeared on behalf of the assessee. It was submitted in the first instance that the business activities of the assessee engaged in the constructional contract did not cease the moment the work as such was completed, but continued until the sale, disposal or realisation of the remaining constructional material and stores, and that such disposal or realisation was part of the business of the assessee. It was submitted in the second instance that so long as the bills submitted had not been settled and the charges were being negotiated the business activities of the assessee could not be said to have ceased. The Tribunal, however, did not accept either of these contentions. The sale of surplus stores, in the view of the Tribunal, was merely in the course of winding up and not in the process of carrying on a business. The Tribunal has observed that this contention was not pressed further before it. As far as the second submission was concerned, reliance was placed on behalf of the assessee on the assessee's forwarding letter dated December 5, 1962. A portion of the said letter has been extracted in para 9 of the order of the Tribunal disposing of the appeal. This portion of the letter reads :
'It is about two years back since the above work was completed but it is very unfortunate that you have not prepared our final bills so far, in spite of our repeated requests. We have prepared the final bill based on the measurements recorded jointly with the department and are submitting herewith the same to you. You will please see that a sum of Rs. 20,42,597.69 is still due to us including the extra items. The bill is prepared strictly in accordance with the terms of our contract agreement and the major points are as under........'
8. The further portions of the letter have been set out later on indicating the basis of the further claim made by the assessee. The Tribunal considered this letter and held that what it showed was that the assessee had a claim against the Government for payment of a larger sum than had been stipulated under the contract as originally accepted. the claim was said to have arisen on account of change in the design and several additions to the original items of the contract. In the view of the Tribunal, however, the mere fact that the assessee had made such a claim would not result in acceptance of the submission that it was carrying on any business during the accounting year. The Tribunal emphasised that the business of the assessee was nothing more than the execution of a contract which execution had been completed earlier. The Tribunal was unable to accept the submission that the business of a construction contractor would continue till the amount payable to him was finally settled.
9. Before us learned counsel for the assessee submitted that as a matter of fact it was in the accounting year ending March 31, 1969, that the assessee had received the amount of Rs. 5 lakhs which was the amount settled against the assessee's claim made in the letter, a portion of which has been extracted earlier. He urged that the assessee had been taxed on this receipt as a receipt from business and submitted that if that was so, it must he held that the assessee was carrying on business right up to the date of the receipt of the amount.
10. The Tribunal has arrived at its conclusion based upon the nature of the work undertaken by the assessee, the provisions in the deed of partnership, and the fact that the actual work of construction was over at the latest by April, 1961, as the assessee has admitted. It has taken the view further that merely because an additional amount was being claimed and this claim was being negotiated and settled, it would not result in the conclusion that the business of the assessee was being still carried on. It appears to us that the view taken by the Tribunal is correct, particularly in view of the provisions of the partnership deed of which two clauses have been extracted earlier. The fact that the amount was realised three or four years subsequently and has been taxed would seem to make no difference to the conclusion to be arrived at for the assessment year in question, which conclusion appears to us to be the correct one and justified on the facts and circumstances of the case.
11. The Tribunal placed reliance for its conclusion on Sherwani Bros. Co. Ltd. v. CIT : 23ITR51(All) . It was submitted at the Bar that the facts in that case were stronger against the assessee than the facts in our case. To a certain extent, there is force in this argument. However, as we have expressed earlier, even if this decision be not taken into consideration, the conclusion of the Tribunal appears to be correct. At any rate, it is not such a conclusion which calls for interference or revision on the facts and the material available before the Tribunal. In the result, the question is answered in the negative and against the assessee.
12. The assessee to pay the costs of the reference.