COMMISSIONER OF INCOME TAX Vs. BHAGWATI REROLLING MILLS

JUDGEMENT

(1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated January 12, 1982, under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment year 1977-78 :

(2.) THE brief facts of the case are that the assessee, a partnership-firm, was carrying on the business of re-rolling of billets and spurn and manufacturing of iron rods, angles, plates, fish-plates, etc., at Bundi. During the year under consideration, i.e., ending on March 28, 1977, no manufacturing activities were carried on. THE assessee-firm had debited an amount of Rs. 48,888 to the profit and loss account. A provision was made in the books of account for payment of electric charges. During the course of the assessment, it was found that the assessee was making the payment of minimum charges of Rs. 4,804 per month to the Rajasthan State Electricity Board but the billing was actually done at the figure of Rs. 7,084 per month. THErefore, the assessee claimed that a sum of Rs. 85,008 should be allowed. It was pointed out that the assessee had shifted its factory from Bundi to Jaipur during the year under consideration and the process of shifting of the factory from Bundi to Jaipur is a part of the activity of carrying on the business and, therefore, the assessee is entitled to the minimum charges claimed. THE Income-tax Officer disallowed the claim on the ground that no manufacturing process was carried on and the factory at Bundi was closed. THEre was no actual payment and only a provision in the books of account has been made.

(3.) THE Madras High Court in L.VE. Vairavan Chettiar v. CIT [1969] 72 ITR 114 has held that where the assessee was maintaining the establishment and was waiting for improved market conditions in arecanuts and there was nothing to show that he completely abandoned or closed the business forever, the business must be deemed to be continuing. It was further observed that the company may not obtain or be able to execute a single business contract for months and yet it may be deemed to be to carry on its business, if during the period of lull and inactivity it is kept alive and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should work all the time. THEre may be long intervals of inactivity and the concern may still be a going concern, though it may for some time be quiet and dormant. THE mere fact that a businessman has not been able to obtain a contract and the business has for some time been in that sense dormant would not mean that it has ceased to exist, if the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful. How long he shall remain in the hope and in what manner he must carry on his work to gain success is primarily his own concern. THE mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purpose of his business.