Commissioner of Income Tax vs Anita Jain

These three Appeals have been filed by the CIT(A), Delhi-XI u/s 260A of the Income Tax Act, 1961 (''IT Act'' for short), for the assessment years 1999-2000, 2000-01 and 2001-02. With regard to the assessee''s claim for expenses for assessment year 1999-2000, 75 per cent thereof had been disallowed primarily on the ground that although the assessee was doing export business up to the year 1998, business had closed down in the three subject assessment years. The assessee had disclosed that over a period of 14 years foreign exchange to the tune of Rupees 61.07 crores had been earned which entitled the assessee to Past Performance Quota (PPQ) on which there was a earning of Rupees 1,05,716 for its transfer which was duly offered for taxation. It had also been brought out that for assessment years 2002-03, 2003-04 and 2004-05 a large turnover could be achieved only on account of continued business.

The ITAT has concluded on facts that the assessee was maintaining her office, retaining staff and was engaged in the business of export and, therefore, it was not a case where she had closed down the business. The ITAT was of the view that the vacation in June, 1998 of the lease premises could not logically lead to the conclusion that the business had been closed down and that the sale of PPQ was very much a business activity. Similarly, selling of stock could not lead to this inference. The ITAT has also noted that the expenditure in these years has substantially reduced since there was a lull in the business. Rather than a closure of business, the ITAT was of the opinion that it was a case of dormancy of business activity. Furthermore, the ITAT noted that allowance of 25 per cent of the expenses, as well as allowance of depreciation, is indicative only of continued business.

Ms. Bansal, learned Counsel for the revenue, has drawn our attention to the observation in The Commissioner of Income Tax, Punjab Vs. The Lahore Electric Supply Co., to the effect that the "mere fact that the company had not gone into liquidation would not establish that it had the intention to do business". This submission loses sight of the observations made at page 5 which clearly indicate that the Court came to the conclusion that the assessee had closed business because it had not ''established an intention to resume it''. Such is not the circumstance obtaining in the present case. This case has been applied in Commissioner of Income Tax Vs. Vellore Electric Corporation Ltd., where it has been pithily noted that maintenance and establishment is the indication of intention to resume business. In Karsondas Ranchhoddass (Legal Heir of Ranchhoddas Jethabhai - deceased) Vs. Commissioner of Income Tax, Bombay, it was noted that there were two periods of activity before and after the interregnum or period of inactivity which was indicative that the business was nevertheless continued. We are in complete agreement with the view taken by the ITAT that the present case is an example of a lull in business and not cessation in business. Therefore, no substantial question of law arises for consideration.

The other issue which has been raised before us pertains to Section 22 of the Income Tax Act with regard to premises No. 523-524, World Trade Centre, Barakhamba Road, New Delhi. The ITAT notes that these premises were used by M/s. Varma Industries as well as the assessee and, therefore, there was no justification in estimating the notional rental value. The ITAT has observed that the Assessing Officer had made no investigation as to the portion of the premises (if any) that had been used by the other firm, namely, M/s. Varma Industries, of which the assessee was also a partner; as also that the Department had allowed the expenditure in earlier years. The ITAT held that as long as assessee was carrying out her business from the said premises the expenses incurred cannot be disallowed merely because the assessee permitted Varma Industries to carry on the business from the said premises. We are in agreement with the ITAT that the additions made on this account had been correctly deleted. In this regard, we are fortified by the observations that a partnership has no existence independent of its business, as enunciated in Commissioner of Income Tax Vs. H.S. SINGHAL and SONS, after a thorough analysis of the precedents.

No substantial question of law arises for consideration.