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Motors India Private Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberCivil Miscellaneous Case No. 162 of 1976
Judge
Reported in[1979]116ITR877(MP)
ActsIncome Tax Act, 1961 - Sections 256(2)
AppellantMotors India Private Ltd.
RespondentCommissioner of Income-tax
Appellant AdvocateG.M. Chaphekar, Adv.
Respondent AdvocateA.M. Mathur, Adv.
Excerpt:
- .....that the fact that there was no sale of spare parts and new cars or trucks during the assessment years in question did not mean that the assessee had ceased to carry on the business in question but that there was a lull in the business and the assessee was actually trying to secure some automobile franchise. the aac, however, held that the assessee had sold all the assets of the business and had also given up the premises where the assessee used to carry on business and, therefore, the assessee must be held to have discontinued the business in respect of which the loss, which was sought to be set off against, was incurred. on further appeal, the tribunal upheld the order passed by the aac and dismissed the appeal.3. on an application moved by the assessee under section 256(1) of the.....
Judgment:

Sohani, J.

1. This is an application under Section 256(2) of the I.T. Act, 1961, hereinafter called 'the Act', for directing the Tribunal to refer the following questions of law to this court for its opinion:

'1. Whether, on the facts and circumstances of this case, can it be held that the company has wound up its business and its business activities came to an end in the assessment year 1964-65, and the loss of the earlier years cannot be set off and carried forward against the income of assessment years 1964-65 and 1965-66 ?

2. Whether, on the facts and circumstances of the case, can the unabsorbed loss of earlier assessment years be carried forward and set off in the assessment years 1964-65 and 1965-66 under Section 72 or Section 41(5)?'

2. The material facts giving rise to this reference briefly are as follows : The applicant-assessee is a private limited company having its registered office at Indore. The application relates to the assessment years 1964-65 and 1965-66, for which the accounting years ended respectively on 30th November, 1963, and 30th November, 1964. The assessee carried on the business of selling Land Rover Jeeps, Rover Gars, etc., which were manufactured abroad but franchise for dealing in those vehicles was withdrawn and stocks of cars and trucks and spare parts were sold by theassessee in the accounting period ending on 30th November, 1972, without leaving any closing stock. On these facts, the ITO held that the business, for which the loss was computed in the assessment year 1963-64, was not carried on by the assessee in the previous years relevant to the assessment years 1964-65 and 1965-66. The ITO, therefore, disallowed the claim of the assessee to set off previous losses carried forward against the income of the assessee assessed for the assessment years 1964-65 and 1965-66. The assessee preferred an appeal before the AAC of Income-tax and contended that the fact that there was no sale of spare parts and new cars or trucks during the assessment years in question did not mean that the assessee had ceased to carry on the business in question but that there was a lull in the business and the assessee was actually trying to secure some automobile franchise. The AAC, however, held that the assessee had sold all the assets of the business and had also given up the premises where the assessee used to carry on business and, therefore, the assessee must be held to have discontinued the business in respect of which the loss, which was sought to be set off against, was incurred. On further appeal, the Tribunal upheld the order passed by the AAC and dismissed the appeal.

3. On an application moved by the assessee under Section 256(1) of the Act before the Tribunal for making a reference, the Tribunal observed that the finding of the Tribunal regarding discontinuance of the business did not give rise to any question of law and hence the application filed by the assessee under Section 256(1) of the Act was rejected. The assessee has, therefore, made the present application.

4. Having heard learned counsel for the parties, we have come to the conclusion that this application deserves to be rejected. The Tribunal has found that the stocks of cars and trucks and spare parts were finally disposed of by the assessee in the accounting period ending on 30th November, 1962. The Tribunal also found that the premises, where the registered office of the assessee was located, were let out by the assessee to another concern. With regard to the plea put forward on behalf of the assessee to substantiate its contention that there was no closure of business by placing on record that the assessee had earned commission income of Rs. 22,500, the Tribunal observed that from the assessment records it was proved that it was not commission income earned from the sale of vehicles as was claimed by the assessee, but that the said income was received on account of commission charges in property transactions. The Tribunal observed in this behalf as follows:

'We have considered the submissions made and the authorities cited before us. It is indeed a question of fact as to when a business ceased to be carried on and has to be determined by looking into the facts andcircumstances of each case. Thus there is no question of applicability of any legal authorities on the narrow question of the determination of the facts of the case under consideration. On our enquiry from the assessee's counsel it is found out that the franchise for Dodge cars ceased in the accounting period 1960-61. We have seen the balance-sheet for the accounting period ended 30th November, 1962, and it is clear, therefore, that the stocks of cars and trucks and spare parts were finally disposed of in that accounting period and the closing stock of cars, trucks and spare parts became nil. We also find that the dealing in spare parts was an ancillary activity to the main business of dealing in cars and trucks and it came to an end when the stocks were exhausted. In regard to the commission income, there is no such income earned right from the assessment year 1964-65 from the activity of selling vehicles belonging to others. The amount of commission of Rs. 22,500 disclosed in the accounting period ended on 30th November, 1964, was from brokerage of sub-letting of property belonging to Universal Motors,'

5. The Tribunal also found that the business premises were given up by the assessee and all the employees were removed from service. In view of all these facts, the Tribunal found that the assessee had ceased to carry on the business in question and that it was not a case of lull or temporary cessation of business. In this view of the matter, the Tribunal dismissed the appeal. The finding arrived at by the Tribunal, that the assessee had ceased to carry on the business in question during the relevant previous years is, therefore, a finding of fact based on the material on record. Learned counsel for the applicant contended, relying on Setabganj Sugar Mills Ltd. v. CIT : [1961]41ITR272(SC) , that the question as to whether the assessee ceased to carry on a particular business in the relevant previous year is a question of law. The decision in Setabganj Sugar Mills Ltd. v. CIT : [1961]41ITR272(SC) , however, does not support the proposition put forward by learned counsel for the applicant. In the decision in Setabganj Sugar Mills Ltd. v. CIT : [1961]41ITR272(SC) , the question for consideration was whether different ventures carried on by the assessee formed the same business. It was in that connection that the Supreme Court observed that the inference as to whether the different ventures constituted the same business or not was a mixed question of law and fact. In the instant case, learned counsel for the applicant has not been able to point out that the circumstances of the case necessitated application of any legal principle to the set of facts found by the Tribunal for coming to the conclusion that the assessee had ceased to carry on a particular business in a relevant year. In our opinion, the Tribunal has rightly observed that the question as to whether the assessee has ceased to carry on any business is a question of fact and not a question of law or a mixed question of fact and law.

6. For the above reasons, we are unable to say that any question of law arises out of the order of the Tribunal and that the order of the Tribunal is in any way incorrect within the meaning of Section 256(2) of the Act. Theapplication is accordingly rejected. In the circumstances of the case,parties shall bear their own costs of this application.


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