Alfred Henry Lionel Leach, C.J.
1. The assessee was a partner in a firm carrying On a money-lending business at Penang under the style of O. RM. OM. and as such had an interest in the business of a sub-partnership trading under the style of OM.PS. The business of the sub-partnership was also carried on at Penang. The firm of O. RM. OM. was dissolved on the nth January, 1939 and between that date and the 26th March, 1939, the assets of the business were realised. After the nth January, 1939, no business was transacted, beyond that involved in the realisation of the assets. One of the assets was sold to a stranger; all the other assets were sold to members of the firm. The winding up of the O. RM. OM. partnership meant, of course, the winding up of the subsidiary partnership as well.
2. This reference relates to the year of account which ended on the' 13th April 1939- The assessee claims that in assessing his income as a partner in these businesses an aggregate sum of 1,38,349 should be treated as representing trading loss This figure is arrived at by deducting the sums realised in the course of the winding up from the values of the assets as shown in the books of account
3. By an order dated 24th the August, 1942, this Court directed the Commissioner of Income-tax to state a case on the following question.
Is the loss claimed by the assessece in this case of a capital nature or kis it a loss deductible in the year of account?
4. The question was stated in this way as the Court understood that the case of the. Income tax authorities was that the loss should be treated as beoing of a capital nature.
5. It is quite clear that the alleged loss cannot for purposes of tax be treated as a trading loss in the year of account, because the firm ceased to carry on business on the 11th January, 1939 and all realisations took place after that date. Section 10(1) of the Income-tax Act states that the tax shall be payable by an assessce under the head profits and gains of business, profession or vocation ' in respect of the profits or gains of a business 'carried on' by him The importance of the words 'carried on' was pointed out by the privy Council in Income tax Commissioner, Bengal, v. Shaw, Wallace and Co. . Their Lordships also pointed out that the English cases did not help here in the interpretation of the Indian Act which was not in pari materia. But this does not preclude the Court from referring to English cases when deciding whether a loss incurred in the course of of the liquidation of a business can be regarded as a trading loss In Wilson Box (Foreign Rights) Ltd (In liquidation) v. Brice (H.M. Inspector of Taxes) (1936) 20 Tax Cases 736. it was held that profit made. in the winding up of a Company was not assessable to income-tax. The profit was not made in carrying on the business of the Company but in its liquidation.
6. Lawrence, J said that the liquidator of a Company might realise the assets of the Company without carrying on the business of the Company in such a way as to attract income-tax. On the other hand the liquidator might realise the assets in such a way as to involve the carrying on of a trade, the profits of which whuld be assessable to income-tax. This decision was upheld by the Corrt of Appeal.
7. If a profit made in the course of the liquidation of a business does not represent taxable income, it must follow that a loss suffered in realisation is not a deductable loss. Of cours just as in the case of a Companey the business of a dissolved partnership may be carried on in order to facilitate the winding up of the partnership and if a profit is made it will be taxable as such Likewise a loss will be a dedudctible loss. But in this case the business was not 'carried on.' It stopped completely on the 1th January, 1939, ajter which the partners contented themselves with taking steps to realise the assets. As the loss incurred was not incurred either in or for the carrying on of the business of the partnership it is not deductible under sention no The reference will be answered in this sense.
8. The Commessioner of Income tax is entitled to his costs which we fix at Rs. 250 V.P.S.