Commissioner of Income Tax vs Saraswati Sugar Syndicate Ltd.

The Income Tax Appellate Tribunal, Delhi Bench, referred the following two questions of law u/s 66(2) of the Indian Income Tax Act, 1922:

"1. Whether, on the facts and in the circumstances of the case, it was necessary that the factory should have been used by the assessee during the previous year for the surplus of Rs. 10,16,443 being assessed u/s 10(2)(vii) ?

If the answer to question No. 1 is in the affirmative, whether the factory could be considered to have been used during the period September 1, 1954, to September 28, 1954, even though not actually employed in crushing, because the factory was seasonal and the crushing season had not yet commenced ?"

The assessment year, with which we are concerned, is 1956-57, the relevant previous year being from September 1, 1954, to August 31, 1955. The assessee, Saraswati Sugar Syndicate Ltd., Yamunanagar (hereinafter referred to as "the company"), is a limited liability company. It owned two sugar factories, one at Yamunanagar and the other at Neoli. The Neoli factory was not running during the previous year. It was sold by the company on 28th September, 1954, The sale resulted in a surplus of Rs. 10,16,443 being the excess of sale price over the written down value. This excess was assessed by the Income Tax Officer u/s 10(2)(vii), second proviso, of the Act, as profit. In arriving at the written down value of the assets sold, the depreciation for the previous year was not taken into account, as such depreciation had not been allowed in respect of that year, the reason being that the factory had not worked during that year. The assessee was dissatisfied with the order of the Income Tax Officer and moved the Appellate Assistant Commissioner in appeal. The Appellate Assistant Commissioner came to the conclusion that the amount in question could not be assessed to tax. Consequently, he deleted this amount from the income of the assessee. Against the order of the Appellate Assistant Commissioner, the Income Tax Officer preferred an appeal to the Appellate Tribunal. The Tribunal also affirmed the decision of the Appellate Assistant Commissioner and rejected the appeal. The Tribunal mainly based itself on the decision of this court in ROHTAK AND HISSAR DISTRICTS ELECTRICITY SUPPLY CO. LTD. Vs. COMMISSIONER OF Income Tax, SIMLA., for its conclusion that the surplus which had been treated as income was not income. The Tribunal found that during the previous year no business had been carried on in this factory and that the working season had not commenced when the factory was sold. It also held that depreciation is normally allowed in the case of seasonal factories for the whole year. The contention of the departmental representative that the factory should be deemed to have carried on business, being a seasonal factory, was rejected. According to the Tribunal, the factory must have done some business or had been running either for the whole year or even for a part of the year before the difference between the sale-price and the written down value could be treated as income. It may be mentioned that two facts were highlighted by the Tribunal, (1) that even before the previous year the company had disbanded all the staff working at Neoli and (2) that the vendee had taken possession of the factory as early as July 1, 1954, i.e., before the relevant previous year even though the registration of the sale-deed was completed in the previous year on September 28, 1954. At the instance of the department, the aforesaid two questions were referred for our opinion.

So far as the first question of law is concerned, it must be answered in favour of the assessee in view of the Supreme Court decision in Commissioner of Income Tax (Central), Calcutta Vs. Moon Mills Ltd., In fact, this is the consistent view that the Supreme Court has taken right from The Liquidators of Pursa Limited Vs. Commissioner of Income Tax, Bihar, and we see no reason to take a different view of the matter. In our opinion, the first question stands completely concluded by the aforesaid decision.

The learned counsel for the department then relied on NIRANJAN LAL RAM CHANDRA Vs. COMMISSIONER OF Income Tax, LUCKNOW., for the contention that the second question must be answered in favour of the department. We have gone through that decision and find that it has not the remotest applicability to the facts of the present case. On the facts found, there can be no question of assuming a state of affairs which did not exist. The analogy on which the learned judges in Niranjan Lal Ram Chandra''s case proceeded has no bearing so far as the facts of the present case are concerned. It is well known that in order to work a sugar factory, lot of preliminary arrangements are to be made. There is no evidence that any such preliminary arrangements were made during the previous year. In the face of the clear finding of fact recorded by the Tribunal, the second question must be answered against the department, and in favour of the assessee.

For the reasons recorded above, we return the answers as already indicated. The assessee will have its costs which are assessed at Rs. 250.

Questions answered in favour of the assessee.