Case: Liquidators of Pursa Limited Vs. Commissioner of Income Tax, Bihar

business even subsequent to the sale of machinery on 7th December, 1943." 7. Although the High Court will not disturb or go behind the finding of fact of the tribunal, it is now well settled that where it is competent for a tribunal to make findings in fact which are excluded from review, the appeal court has always jurisdiction to intervene if it appears either that the tribunal has misunderstood the statutory language - because the proper construction of the statutory language is a matter of law - or that the tribunal has made a finding for which there is no evidence or which is consistent with the evidence and contradictory of it. [See Lord Normand in Commissioners of Inland Revenue v. Fraser (24 Tax Tax. 498 at p. 501.)]. It appears to us that the tribunal misdirected itself in law as to the meaning and import of the relevant provisions of section 10 of the Act. It completely overlooked the fact which is plainly in evidence on the record that the machinery and plant which were sold had not at all been used for the purpose of the business carried on in the accounting year and consequently the second proviso to section 10(2)(vii) could have no application to the sale proceeds of such machinery and plant. In fact the entire decision of the tribunal was vitiated by its failure to keep in view the true meaning and scope of section 10(2)(vii) and cannot, therefore, be supported.It further appears to us that in the statement of the case the tribunal was not merely stating something in the nature of a primary fact but was also drawing a conclusion which is to a certain extent contrary to the primary finding. As is stated clearly in the statement of the case, the decision of the tribunal was based on two considerations. The first consideration was founded on an admission by the liquidators that the company had been carrying on its business up to the date of the sale of the machinery on the 7th December, 1943. This admission is quite consistent with the case that the company was only selling its stock of sugar and not doing any business of manufacture of sugar. Indeed, the manufacturing process does not begin until December of each year and the memorandum of agreement was made on the 7th December, 1943, and possession was delivered to the purchaser on the 10th December 1943. It is nobodys case and it has not been found that the company had manufactured any sugar during the whole of the accounting year. Therefore, this finding that the company carried on its business up to the 7th December, 1943, certainly does not indicate that the company was also carrying on any business of growing sugarcane or manufacturing sugar by the use of the machinery or plant in question. The second finding that the company carried on business even after the sale of the machinery and the plant clearly indicates that business had nothing to do with the machinery or plant. Both the findings, therefore, are inconclusive. The matter, however, does not rest there. It appears to us that the findings of fact, taken literally, cannot support the decision of the tribunal. If, as held by the tribunal, "the sale of the machinery was a part of the applicant companys carrying on of the business" then the sale must be regarded as an ordinary operation of such business and consequently the profits arising out of such ordinary business operation would be assessable under the provisions of section 10(1) and it would not be necessary to have recourse to the statutory fiction created by the second proviso to clause (vii) under which the excess of the sale proceeds over the written down value is to be deemed to be profit of the business. If the profits on the sale of the machinery and plant are to be made assessable under the second proviso, as has been done by the tribunal, then it must be conceded that these deemed profits were not in reality the profits of the business carried on by the company and, therefore, the sale transaction which brought in these profits was not in fact part of the companys business, which conclusion again will be inconsistent with the finding of fact if the business is not understood as limited only to the selling of sugar.For reasons stated above, it appears to us that having misdirected itself in law as to the scope and effect of the relevant portions of sections 10 of the Act the tribunal did not approach the facts from a proper angle and, further, that its findings cannot, in the circumstances of this case, be given such sanctity as would exclude the same from review by the High Court or this court. Turning to the facts to be gathered from the records it is quite clear that the intention of the company was to discontinue its business and the sale of the machinery and plant was a step in the process of the winding up of its business. The sale of the machinery and plant was not an operation in furtherance of the business carried on by the company but was a realisation of its assets in the process of gradual winding up of its business which eventually culminated in the voluntary liquidation of the company. Even if the sale of the stock of sugar be regarded as carrying on of business by the company and not a realisation of its assets with a view to winding up, the machinery or plant not being used during the accounting year at all and in any event not having had any connection with the carrying on of that limited business during the accounting year, section 10(2)(vii) can have no application to the sale of any such machinery or plant. In this view of the matter, the answer to the first question should be in the negative and we answer accordingly. 8.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Therefore, it is clear that the tax is payable only in respect of the profits or gains of the business which is carried on by the assessee. Sub-section (2) permits allowances to be made before the taxable profits are ascertained. It is not necessary, for the purposes of the present appeal, to express any opinion on that point on which the High Courts have expressed different views. It is, however, clear that in order to attract the operation of clauses (v), (vi) and (vii) the machinery and plant must be such as were used, in whatever sense that word is taken, at least for a part of the accounting year. If the machinery and plant have not at all been used at any time during the accounting year no allowance can be claimed under clause (vii) in respect of them and the second proviso also does not come into operation. It appears to us that the tribunal misdirected itself in law as to the meaning and import of the relevant provisions of section 10 of the Act. It completely overlooked the fact which is plainly in evidence on the record that the machinery and plant which were sold had not at all been used for the purpose of the business carried on in the accounting year and consequently the second proviso to section 10(2)(vii) could have no application to the sale proceeds of such machinery and plant. In fact the entire decision of the tribunal was vitiated by its failure to keep in view the true meaning and scope of section 10(2)(vii) and cannot, therefore, be supported.It further appears to us that in the statement of the case the tribunal was not merely stating something in the nature of a primary fact but was also drawing a conclusion which is to a certain extent contrary to the primary finding. As is stated clearly in the statement of the case, the decision of the tribunal was based on two considerations. The first consideration was founded on an admission by the liquidators that the company had been carrying on its business up to the date of the sale of the machinery on the 7th December, 1943. This admission is quite consistent with the case that the company was only selling its stock of sugar and not doing any business of manufacture of sugar. Indeed, the manufacturing process does not begin until December of each year and the memorandum of agreement was made on the 7th December, 1943, and possession was delivered to the purchaser on the 10th December 1943. It is nobodys case and it has not been found that the company had manufactured any sugar during the whole of the accounting year. Therefore, this finding that the company carried on its business up to the 7th December, 1943, certainly does not indicate that the company was also carrying on any business of growing sugarcane or manufacturing sugar by the use of the machinery or plant in question. The second finding that the company carried on business even after the sale of the machinery and the plant clearly indicates that business had nothing to do with the machinery or plant. Both the findings, therefore, are inconclusive. The matter, however, does not rest there. It appears to us that the findings of fact, taken literally, cannot support the decision of the tribunal. If, as held by the tribunal, "the sale of the machinery was a part of the applicant companys carrying on of the business" then the sale must be regarded as an ordinary operation of such business and consequently the profits arising out of such ordinary business operation would be assessable under the provisions of section 10(1) and it would not be necessary to have recourse to the statutory fiction created by the second proviso to clause (vii) under which the excess of the sale proceeds over the written down value is to be deemed to be profit of the business. If the profits on the sale of the machinery and plant are to be made assessable under the second proviso, as has been done by the tribunal, then it must be conceded that these deemed profits were not in reality the profits of the business carried on by the company and, therefore, the sale transaction which brought in these profits was not in fact part of the companys business, which conclusion again will be inconsistent with the finding of fact if the business is not understood as limited only to the selling of sugar.For reasons stated above, it appears to us that having misdirected itself in law as to the scope and effect of the relevant portions of sections 10 of the Act the tribunal did not approach the facts from a proper angle and, further, that its findings cannot, in the circumstances of this case, be given such sanctity as would exclude the same from review by the High Court or this court. Turning to the facts to be gathered from the records it is quite clear that the intention of the company was to discontinue its business and the sale of the machinery and plant was a step in the process of the winding up of its business. The sale of the machinery and plant was not an operation in furtherance of the business carried on by the company but was a realisation of its assets in the process of gradual winding up of its business which eventually culminated in the voluntary liquidation of the company. Even if the sale of the stock of sugar be regarded as carrying on of business by the company and not a realisation of its assets with a view to winding up, the machinery or plant not being used during the accounting year at all and in any event not having had any connection with the carrying on of that limited business during the accounting year, section 10(2)(vii) can have no application to the sale of any such machinery or plant. In this view of the matter, the answer to the first question should be in the negative and we answer accordingly.