COMMISSIONER OF INCOME TAX Vs. KAYARTS

JUDGEMENT

(1.) THE question that has been referred for our determination at the instance of the Revenue is as under :

(2.) FOR this assessment year the relevant accounting period consists of only eight months from 1st April, 1952 to 30th Nov., 1952. The assessee firm consists of two partners, one Kamini Kaushal, a film actress, and one P. N. Arora, a film producer. Under the agreement of partnership dt. 3rd May, 1951, the firm was constituted with a view to produce only one talkie picture called "Poonam". The picture was to be produced under the banner of "Kayarts". Each of the partners was entitled to 50% share in the profits of the business and, in addition, Kamini Kaushal was to receive a sum of Rs. 25,000. The production of the picture which was later on named "Poonam" commenced in June, 1951. It was completed and released in November, 1952. According to the books of the assessee there was a total loss in the business of Rs. 1,32,719. The assessee firm did not file any return claiming loss as the firm was not registered and, accordingly, neither the firm could get the benefit of loss nor even the partners of the firm. The assessment proceedings were commenced under s. 34 of the Indian IT Act, 1922. Notice was issued for both the asst. yrs. 1952 53 and 1953 54. For the first assessment year the assessee firm filed a return showing nil income and for the second assessment year it filed a return showing a loss of Rs. 3,268. Both these returns were filed on the same day, i.e., on 29th Oct., 1958. Thereafter, the assessee firm revised its return for the asst. yr. 1953 54 showing a loss of Rs. 1,07,594. This return was filed on 31st March,1959. It also revised the return for the asst. year 1952 53 showing a loss of Rs. 42,338. This return was filed on 4th Jan., 1960. For the asst. year 1952 53, the ITO did not make any order and made an endorsement to the following effect :

(3.) MR . Joshi submitted that undoubtedly at one time the view held was that in case of single venture in the nature of trade, the question of assessing profits arises only when the venture comes to an end, but he submitted that in a later decision the Supreme Court has taken a contrary view. His submission relying upon this decision of the Supreme Court was that it was not correct to say that the profits of the adventure could be determined only at the time of the completion of the entire venture. For income tax purposes each year was a self contained unit and in the case of a trading adventure, for computing the true profits of the year the value of the stock in trade at the beginning and at the end of the accounting year had to be taken into account. He, therefore, submitted that having regard to this later view taken by the Supreme Court the Tribunal was not justified in accepting the contention of the assessee and in allowing a deduction in respect of the expenses of Rs. 42,338.