KHOSLA C.J. - This is a reference under section 66 of the Indian Income-tax Act, and the following question has been referred for our opinion :
'Whether on the facts and circumstances of this case the expenditure of Rs. 4,855 on hire charges, Rs. 1,110 as repair charges and Rs. 1,871 as legal charges are allowable under section 10(2)(v) and section 10(2)(xv) of the Indian Income-tax Act ?'
The facts briefly are that the assessee in this case carried on the business of film distribution. He also started the business of film exhibition and made returns in respect of a number of years. It appears that sometime in 1947-48 his machinery was stolen, and so, for three years, the business of film exhibition was not carried on, because apparently he was unable to do. For those three years, therefore, he made no returns and showed no activity of his business so far as the business of film exhibition was concerned. Subsequently, the machinery was recovered and the owner of the machinery brought a suit against him for its recovery and a decree was passed against the assessee. The machinery was returned to the owner. Altaf Hussain, but the assessee had also to pay hire charges amounting to Rs. 4,855 and repair charges amounting to Rs. 1,110. He had also incurred certain legal charges defending the suit against him. In previous years the hire charges and repair charges had been claimed by him by way of exemption under section 10(2)(v) of the Indian Income-tax Act, and for the accounting year, which are mentioned in the question referred to us, were exempt from income-tax under sections 10(2)(v) and 10(2)(xv) of the Indian Income-tax Act.
The case for the department is that the business of film distribution was completely distinct from the business of film exhibition and the latter business stopped. The assessee could not claim any expenses or repair charges in respect of this branch of his business during the years when the business was not being carried on. On the other hand, the case of the assessee is that the two businesses were so closely allied that they ought to be treated as one business. He was forced to stop his business temporarily and the expenses incurred by him on account of hire charges and repair charges, therefore, constitute expenses which he can adequately and properly claim under section 10(2)(v) and 10(2)(xv) of the Indian Income-tax Act. This claim of the assessee was upheld by the Income-tax Appellant Tribunal, and on the petition of the department the above question was referred to us for our opinion.
On behalf of the department Mr. Hardayal Hardy has drawn our attention to a number of cases, the first of which is Liquidators of Pursa Ltd. v. Commissioner of Income-tax, which is a decision by the Supreme Court. This was a case of a sugar company. There, the company decided to stop its business and began to negotiate the sale of the machinery. The business was wound up and the machinery was sold. The purchaser took possession of it. Certain stocks of sugar were, however, left to the company and they continued to be sold. The sale proceeds of the sugar and the sale proceeds of the machinery were alleged by the Supreme Court that since the business had ceased finally, these amounts could not be treated as profits from business and subject to income-tax. In that case the learned Judges of the Supreme Court pointed that there was intention to discontinue the business and the sale of the machinery was not an operation of business and, therefore, the income derived from the sale could not be treated us and has no analogy whatsoever to it. Another case cited before us in Machinery . v. Commissioner of Income-tax, which is a decision by the Bombay High Court. In this case assessee installed wholly new machinery in the accounting year. He did not, however, start his business until after the expiry of the accounting year, and because the machinery had been purchased during the accounting year, the assessee claimed depreciation in respect of it under section 10(2)(vi). The Bombay High Court held that, as no business had been done during the accounting year, depreciation could not be claimed. It has also been urged by Mr. Hardy that the two businesses of exhibiting and distributing films are distinct and separate. In my view, however, these two businesses are so closely allied that they cannot be treated as separate for the purposes of the income derived from them.
I do not consider them as one business, but it seems to me that in the peculiar circumstances of this case the two businesses must be treated together and the expenses incurred on hire charges, repair charges and legal charges are allowable to the assessee under section 10(2)(v) and 10(2)(xv), because there was no intention to discontinue the business when the machinery was stolen and also because the hire charges were being paid by him during the previous years also. There seems to me to have been a continually despite the fact that the actual exhibition of films had been stopped owing to the theft of the machinery.
For these reasons, I would answer the question referred to me in the affirmative and allow the assessee his costs which we assess at Rs. 250.
FALSHAW J. - I agree.
Question answered in the affirmative.