COMMISSIONER OF INCOME TAX Vs. KHOSLA INDAIR LTD

JUDGEMENT

(1.) Vide its order dated 25th August, 2003, the Income Tax Appellate Tribunal dismissed the appeal preferred by the Joint Commissioner of Income Tax, Range-II, New Delhi, holding that the income of the assessee had to be treated as income under the head 'business' and not 'other sources'. It also held that there was no cessation of business, and at best it would only be a lull or a temporary cessation, and affirmed the order passed by the Commissioner of Income Tax (Appeals). While relying upon the judgment of this Court in the case of Indraprastha Steel Industries Ltd. v. Income-Tax Appellate Tribunal, New Delhi, 1973 (Vol. 88) Income Tax Reports 138, it was argued that the set of carry forward losses of earlier years was not available to the assessee in the present case as there was cessation of business and also that mere realisation of some income on account of interest, could not be treated as income from business. On this premise, the challenge is raised to the the correctness of the order of the Tribunal, which according to the appellant has fallen in error of law giving rise to the question of law for consideration of this Court as framed in paragraph 2 of the present appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act').

(2.) Before we proceed to discuss the merit or otherwise of these contentions raised before us, reference to the basic facts would be necessary. The assessee had filed return of the income declaring net loss of Rs. 69,385/- on 1st November, 1996. Apart from these losses being of current year, the assessee also claimed brought forward losses of Rs. 1,47,04,081/-, unabsorbed depreciation of Rs. 1,24,09,462/- and investment allowance of Rs. 95,572/-. The return was processed initially under Section 143(l)(a) of the Act whereafter it was selected for scrutiny and notices under Section 143(2) of the Act was issued on 17th September, 1997, in response to which the representative of the assessee had attended the proceedings. The Assessing Officer formed an opinion that there was no organized course of activities because assessee sold all its assets during the year and only some spare parts continuing from earlier years were sold during the relevant year. Receipts by way of service charges received by the assessee-company could not be said to be a distant and new activity. Referring to various judgments which were cited before the Assessing Officer, the Assessing Officer disallowed expenditure and while holding that the assessee was carrying no business, declined the allowance on account of depreciation and finally the assessee was assessed at income of Rs. 67,26,820/- vide order dated 9th November, 1998. This order was challenged by the assessee before the Commissioner of Income Tax (Appeals), who vide his order dated 11th February, 1999 partly allowed the appeal of the assessee and held as under:

(3.) It may be useful to notice here that the Commissioner of Income Tax passed a detailed judgment while relying upon the judgment of the Supreme Court in the case of CIT v. Virmani Industries Pvt. Ltd.,.. In its detailed discussion, the Commissioner of Income Tax (Appeals) specifically noticed that during the relevant assessment year, the appellant had earned Rs. 58,000/- on account of service charges and it had earned service income of Rs. 3.45 lacs which includes erection and commissioning charges for the services rendered to MAX GB and NTPC in respect of compressors supplied by outside parties. The assessee had contended before the authorities that activity of providing various services in connection with installation, erection and commissioning of compressors, maintenance thereof, and the activity of manufacturing and sale of compressors constitute one and the same business. The Appellant was not merely a manufacturer. Even in the earlier years it was specified in the statement of computation of total income from 1.4.1995 to 31.3.1996 i.e. the assessment year 1996-97. It had shown profit and loss account of Rs. 1,99,143/- and it claimed deductions and investment allowances. It was upon noticing all these facts releyant to the material produced before the authorities that the Commissioner had partly allowed the appeal of the assessee. Being dissatisfied with the order of the Commissioner of Income Tax (Appeals), an appeal was preferred by the Department before the Income Tax Appellate Tribunal. As already noticed, the Tribunal had dismissed the appeal by holding as under: