TUBE SUPPLIERS LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following three questions of law have been referred to this court by the Income-tax Appellate Tribunal, Madras, at the instance of the assessee, M/s. Tube Suppliers Limited, Madras :

(2.) THE assessee-company carries on business in refractory works to manufacture fire bricks. It also carried on business in lamp factory and collapsible tubes. THE ITO took the view that the business relating to lamp works and collapsible tubes did not exist in the assessment year 1970-71 and, therefore, the business losses of the earlier years relating to those businesses cannot be allowed to be set off against the income from the business in refractory works for the assessment year 1970-71. On appeal, the AAC agreed with the ITO that the business losses of earlier years relating to lamp works cannot be carried forward and set off against the income determined for the assessment year 1970-71. However, with regard to the business relating to collapsible tubes, the AAC held that as the assessee sold finished goods worth Rs. 5,610 to Wavin India Limited, relating to the business of collapsible tubes division, that business must be taken to exist in the assessment year 1970-71, and that as such the business losses of the earler years 1964- 65 to 1967-68, relating to collapsible tubes business, should be set off against the income from the business in refractory works determined for the assessment years 1970-71 and 1971-72.

(3.) FOR appreciating the questions referred to us, it is necessary to refer to the facts of the case in some detail. In the year of account relevant to the assessment years 1970-71 and 1971-72, the assessee company carried on business in refractory works to manufacture fire bricks besides dealing in pipes and fittings. Previously it also carried on business in lamp factory, hereinafter referred to as the second undertaking, and in collapsible tubes, hereinafter referred to as the third undertaking. FOR the assessment years 1970-71 and 1971-72, the losses of earlier years, namely, 1964-65 to 1967-68 amounting to Rs. 4,47,779 consisting of business loss of Rs. 2,49,581 and unabsorbed depreciation of Rs. 1,98,198, were not allowed to be adjusted as against the income from refractory works by the ITO on the ground that those losses related to the business of lamps and collapsible tubes which were non-existent during the assessment years. When the matter was taken in appeal by the assessee, the AAC called for a report from the ITO as to when exactly the business of lamp works and collapsible tubes was the stopped by the assessee, and the ITO sent a report to the following effect. From the annual report for the year ended July 31, 1964, it is seen that the production in lamp factor was stopped in February, 1964, and the collapsible tube factory was closed on April 8, 1965, that the company decided to sell the plant of the two units in the best interests of the company as the company felt it would be uneconomical to operate the said plants. The annual report for the year ended July 31, 1967, indicated that the assets of the collapsible tubes factory were not used from December, 1965, and those of the lamp works were not used from October 1963. Though the decision to sell the machinery of both the units to M/s. Poysha Industrial Company Limited, Bombay, was taken by the company on December 2, 1966, yet the sale could not actually be finalised and the assets were not delivered to the Bombay Company, as the Government's approval for the sale was not received till January, 1968. Therefore, the assessee should be taken to have ceased to carry on business in lamps as well as collapsible tubes before 1967. Even assuming that the assessee has made sales of certain left over items of assets during the previous year relating to the business of collapsible tubes in the previous year, that may not by itself be taken to mean that the said business had been continued to be carried on.