1973 PLP 121 (PTD)

In the instant case, the disallowance by the departmental authorities and the Tribunal of the claim of the assessee‑firm to set off a sum of Rs. 31,820 paid in discharge of a decree in respect of its country craft route agency business which had been discontinued against the profits of its petroleum agency business which had not been discontinued was upheld by the High Court. It makes no difference whether the assessee is an individual or a firm. L. M. Chhabda & Sons v. Commissioner of Income‑tax (1967) 65 I T R 638 (S C) ref. K. Srinivasan, . D. S. Meenakshisundaram and K. C. Rajappa for the Assessee. V. Balasubrahmanyan and J. Jayaraman for the Commis sioner. VEERASWAMI, J.‑‑This reference relates to the assessment year 1953‑

54. The assessee was a partnership in that year, the terms of it reduced to a writing dated September, 22, 1944. It had two items of business, one S. V. O. C. agency under the firm name. Tinnevelly I. S. & C: Machado, Tinnevelly, and the other in countrycraft route agency. It appears that the firm was entrusted with a consignment of rice for transport from Trivandrum to Tuticorin. But the countrycraft carrying the rice struck against a submerged rock and sank. This led to a claim by the assessee and counter‑claim by the Government which eventually resulted in a decree against the assessee which had to pay a sum of Rs. 31,820 in discharge of it. This sum was paid during the assessment year. The assessee sought to set off this sum as expenditure but against the profits of the S. V. O. C. agency business, as the route agency business was stopped as early as 1947. The revenue as well as the Tribunal have concurrently taken the view that the two businesses carried on by the assessee and ore of which was discontinu ed in 1947 had nothing to do with each other and there was interdependence between them, so that the expenditure of Rs. 31,820 referable to the agency business was not one incurred is respect of any agency business carried on during the assessment year, and that the expenditure incurred could not be deducted from or taken into account in ascertaining the profits of the other business. The question before us is : "Whether, on the facts and in the circumstances of the case, the assessee‑firm is not entitled to the deduction of the sum of Rs. 31,820 as an admissible expenditure, outgoing or loss in the computation of its business income under section 10 of the Indian income‑tax Act, 1922, for the assessment year 1953‑54 ?" If instead of the assessee being a firm it were an individual, it is not in dispute that the decision of the Tribunal would be unexceptionable. In fact, it is covered by L. M. Chhabda & Sons Commissioner of Income-tax ((1967) 65 I T R 638 (S C)). There the Supreme Court stated : "For income of a business to be taxable under section 10 of the Act it is one of the conditions that, the assessee must carry on the business In the relevant year of account. If the business is discontinued before the commencement of the accounting year, the income attributable to that business received in the year cannot be taxed under section 10, because the source of income had ceased to exist. If the income of a business is not taxable under section 10 as income of a particular year because the business was not carried on it that year, the assessee can obviously not, seek to debit the expenditure incurred for carrying on that business, against his other income, for the outgoings are, chargeable only against the income of a business which was carried on in the at previous year: It follows that if an assessee carries on several distinct and independent businesses, and one of such businesses is closed before the previous year; he cannot claim, allowance under section 10 of the Act of an outgoing attributable to the business which is closed against the income of ,his other businesses in that year." But Mr. Srinivasan contends that the fact that the assessee this reference was a firm makes a difference. But he is not able to bring out any, difference except to say that the assessee is the same and the head of business is the same which may include several businesses. We do not think that makes any difference. The principle is this Though the head may be one, namely, business, there its components are different as in the case of several businesses run, each of a distinct nature, each has got to be taken as a separate unit for purposes of ascertainment of profits. Expenditure, under sec tion 10(1) is allowed not as a deduction or as allowance but as the component inherent in the process of ascertaining the profits, namely, arriving at the net result of credits and, debits, referable to a particular independent activity of business. The expenditure should partake of the very source of profit, namely, the particular business activity and it, is taken into account as an outgoing in ascertaining the profits. The aggregation of the profits derived from several independent business activities can make no difference to this particular phenomenon involved in, the process of ascertaining the profits from each business activity. On that view we answer the question against the assessee with costs. Counsel's fee Rs. 250.