DAVID SASSOON AND CO LTD Vs. STATE

JUDGEMENT

(1.) THIS is a reference made by the Commissioner of Income-' tax under Section 66 (2) of the Indian Income-tax Act. The assessee company were assessed for the financial year 1937-38 in respect of their income for the " previous year", which expired on December 31, 1936. During that year they made on the whole a substantial profit, but in respect of the working of the Union Mills, which formed part of their business during the previous year, they incurred a loss of Rs. 77,236. On January 1, 1937, the Union Mills were assigned to a company called the New Union Mills Ltd. , which was a new company formed for working the mills. The Income-tax Officer refused to allow the assessees to set off their loss of Rs. 77,236, under Section 24 of the Income-tax Act, because he held that by virtue of Section 26 (2) of the Act the asselssees were not assessable in respect of the Union Mills. In point of fact the assessees were not liable for any tax in any event, because they had accumulations of depreciation arising under Section 10 (2) (vi), prov. (b) which wiped out the tax which would otherwise have been payable. The question is whether or not this loss of Rs. 77,236 can be deducted from the accumulation of depreciation.

(2.) NOW the question to my mind turns on the construction of Section 26 (2) of the Act, which provides- Where, at the time of making an assessment under Section 23, it is found that the person carrying on any business, profession or vocation has been succeeded in such capacity by another person, the assessment shall be made on such person succeeding, as if he had been carrying on the business, profession or vocation throughout the previous year, and if he had received the whole of the profits for that year.

(3.) HOWEVER, Mr. Justice Mukherjea undoubtedly based his judgment on the view that Section 26 (2) does not apply where there are no profits for the year on which the assessment is based. He thought, as I understand him, that applying the Section to such a case would lead to great hardship where, as in the present case, the predecessor has made substantial profits under other heads against which but for the assignment he could have set off the loss in respect of the business assigned. He thought it unreasonable to suppose that the Legislature could have intended to deprive the assignor of that right. But as against such considerations one must set the case, which might very easily arise, because a going concern often acquires a derelict business, of a successor who has made large profits in respect of other heads and has incurred loss, partly actual and partly notional in respect of the particular business acquired. In such a case, if he is not the assessee under Section 26 (2), he must lose the benefit, which he would otherwise have possessed, of setting off his loss against profits under Section 24