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i.S. and C. Machado Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 180 of 1965 (Reference No. 92 of 1965)
Judge
Reported in[1970]75ITR38(Mad)
ActsIncome Tax Act, 1922 - Sections 10(1)
Appellanti.S. and C. Machado
RespondentCommissioner of Income-tax
Appellant AdvocateK. Srinivasan, ;D.S. Meenakshisundaram and ;K.C. Rajappa, Advs.
Respondent AdvocateV. Balasubrahmanyan and ;J. Jayaraman, Advs.
Cases ReferredL. M. Chhabda & Sons v. Commissioner of Income
Excerpt:
- - agency business, as the route agency business was stopped as early as 1947. the revenue as well as the tribunal have concurrently taken the view that the two businesses carried on by the assessee and one of which was discontinued in 1947 had nothing to do with, each other and there was no, inter-dependehce between them, so that the expenditure of rs......the assessee sought to set off this sum as expenditure but against the profits of the s. v. o. c. agency business, as the route agency business was stopped as early as 1947. the revenue as well as the tribunal have concurrently taken the view that the two businesses carried on by the assessee and one of which was discontinued in 1947 had nothing to do with, each other and there was no, inter-dependehce between them, so that the expenditure of rs. 31,820 referable to the agency business was not one incurred in respect of any agency business carried on during the assessment year, and that the expenditure incurred could not be deducted from or taken into account in ascertaining the profits of the other business. the question before us is :' whether, on the facts, and. in the circumstances.....
Judgment:

Veeraswami, J.

1. This reference relates to the assessment year 1953-1954. The assessee was a partnership in that year, the terms of it reducedto a writing dated September 22; 1944. It had two items of business, oneS.V.O.C. agency under the firm name Tihnevelly I. S. & C. Machado, Tinneveily, and, the other in country craft route agency. It appears that the firm was entrusted with a consignment of rice for transport from Trivandrum to Tuticorin. But the country craft carrying the rice struck against a submerged rock and sank. This led to a claim by the assessee and counter claim by the Government which eventually resulted in a decree against the assessee which had to pay a sum of Rs. 31,820 in discharge of it. This sum was paid during the assessment year. The assessee sought to set off this sum as expenditure but against the profits of the S. V. O. C. agency business, as the route agency business was stopped as early as 1947. The revenue as well as the Tribunal have concurrently taken the view that the two businesses carried on by the assessee and one of which was discontinued in 1947 had nothing to do with, each other and there was no, inter-dependehce between them, so that the expenditure of RS. 31,820 referable to the agency business was not one incurred in respect of any agency business carried on during the assessment year, and that the expenditure incurred could not be deducted from or taken into account in ascertaining the profits of the other business. The question before us is :

' Whether, on the facts, and. in the circumstances of the case, the assessee-firm is not entitled to the deduction of the sum of Rs. 31,820 as an admissible expenditure, outgoing or loss in the computation of its businessincome under, Section 10 of the Indian Income-tax Act, 1922, for the assessment year 1953-54 '

2. If instead of the assessee being a firm it were an individual, it is not in dispute that the decision of the Tribunal would be unexceptiopable. In fact, it is covered by L. M. Chhabda & Sons v. Commissioner of Income-tax, : [1967]65ITR638(SC) . There the Supreme Court stated :

' For income of a business to be taxable under Section 10 of the Act it is one of the conditions that the assessee must carry on the business in the relevant year of account. If the business is discontinued before the, commencement of the accounting year, the income attributable to that business received in the year cannot be taxed under Section 10, because the source of income had ceased to exist. If the income of a business is not taxable under Section 10 as income of a particular year because the business was nqt carried on in that year, the assessee can obviously not seek to debit the expenditure incurred for carrying on that business, against his other income, for the outgoings are chargeable only against the income of business which was carried on in the previous year. It follows that if an assessee carries on several distinct and independent businesses, and one of such businesses is closed before the previous year, he cannot claim allowance under Section 10 of the Act of an outgoing attributable to the business which is closed against the income of his other businesses in that year.'

3. But Mr. Srinivasan contends that the fact that the assessee in this reference was a firm makes a difference. But he is not able to bring out any difference except to say that the assessee is the same and the head of business is the same which may include several businesses. We do not think that makes any difference. The principle is this. Though the head may be one, namely, business, where its components are different as in the case of several businesses run, each of a distinct nature, each has got to be taken as a separate unit for purposes of ascertainment of profits. Expenditure under Section 10(1) is allowed not as a deduction or as allowance but as the component inherent in the process of ascertaining the profits, namely, arriving at the net result of credits and debits referable to a particular independent activity of business. The expenditure should partake of the very source of profit, namely, the particular business activity and it is taken into account as an outgoing in ascertaining the profits. The aggregation of the profits derived from several independent business activities can make no difference to this particular phenomenon involved in the process of ascertaining the profits from each business activity.

4. On that view we answer the question against the assessee with costs Counsel's fee Rs. 250.


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