2002 PLP (Trib (PTD)

It was held by the Hon'ble Madras High Court that "the disallowance of the amount of loss claimed by the assessee to have been incurred .in his arecanut business during the year of account relevant to the assessment year was not valid in law. As 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 for ever, the business must be deemed to be continuing." It was further held that "if a person carries on two or more distinct businesses the profits or losses of all of them ought to be added together and the aggregate sum so arrived at would represent his profits or gains in the business. If the net result of this calculation shows a loss, such loss may, under section 24 of the Act, be set off against the profits or gains derived by the assessee from other heads of income of that year and the Income-tax Officer reached the right decision in law in the present case."

5. We have also gone through the provision of section 72 of the Income Tax Ordinance 1979, which is also incorporated hereunder for the facility of reference:

"

72. Assessment in the case of discontinued business or profession.

(1) Where, in any year, any business or-,profession is discontinued, the person discontinuing such business or profession shall give to the Deputy Commissioner a notice of such discontinuance within fifteen days of the date of such discontinuance (hereinafter referred to as the "said date"). (2) The person discontinuing such business or profession shall, under the provisions of this Ordinance or upon being required by the Deputy Commissioner by a notice in writing, furnish a return or returns of total income in respect of the period commencing from the end of the latest income year for which an order has been made under subsection (1) of section 59, sections 59A, 62, 63 or 65, or, where no such order has been made, a return has been made under sections 55, 56 or 57, as the case may be, and ending on the said date or where no such order or return has been made the income year or years, comprising the period ending on the said date; and the period commencing from the end of the latest income year to the said date shall, for purposes of this section, be deemed to be an income year (distinct and separate from any other income year) for the assessment year in which the said date falls. (3) Notwithstanding anything contained in subsections (1) and (2), the Deputy Commissioner may serve a notice on any person who, in his opinion, has discontinued, or is likely to discontinue, in any year, any business or profession, to furnish, within such time as may be specified in such notice, a return or returns of total income for the income year or years for which the assessee is required to furnish such return or returns under subsection (2). (4) The assessment shall be made at the rates applicable to the relevant assessment year and ail the provisions of this Ordinance shall, so far as may be, apply accordingly." We have also gone through the Memorandum and Articles of Association of the assessee-company. We have found that the company has not been established solely for the purpose of shipping business but to invest and deal with the surplus moneys is also among the objects for the establishment of the company. Relevant Articles of Memorandum are reproduced hereunder:

III The objects for which the Company is established are: (1) To carry on business either solely or in partnership with other companies, corporations, firms or individuals, as general merchants, agents, manufacturers, contractors, importers, exporters, factors, wharfingers warehousemen, bonded whare housemen, ship-owners, barge owners, lighter-men, forwarding agents and carriers by land, sea and air. (2) To commence, acquire and carry on the business of stevedores, shipchandling and shiprepairs. (3) To take part in -the promotion, supervision of the business or operation of any company or undertaking and for that purpose to appoint and remunerate any directors, trustees, accountants or other experts or agents. (16) To enter into an agreement or into any arrangement for sharing profits, union of interest, joint adventure, reciprocal concessions or cooperation or otherwise with any person or company carrying on or engaged in or about to carry on or engage in any business which the company is authorised to carry on or engage in or any business or transaction, capable of being conducted so as directly or indirectly to benefit the Company, and to take, or otherwise acquire and hold, shares or stocks in or securities of any such company and to subsidise or otherwise assist, any such company or person as aforesaid and to sell, hold, re-issue, with or without guarantee, or otherwise deal with such shares, stock or securities, concerning the business of this company. (17) To take, or otherwise acquire and hold, shares in any other company having objects altogether or in part similar to those of this Company or carrying on any business capable of being conducted so as directly or indirectly to benefit this Company. (24) To invest and deal with the surplus moneys of the Company not immediately required upon such investments and in such manner as may from time to time be determined. (26) To draw, make, accept, endorse, discount, execute and issue promissory notes, bills of exchange, bills of lading, warrants, debentures and other negotiable or transferable instruments concerning this Company: (27) To advance money to such persons and on such terms as may be arranged and in particular to customers of and persons having dealings with the Company and to guarantee the performance of contracts by members of or persons having dealing with the Company. (28) To borrow, or secure the payment of money in particular by the issue of debentures, perpetual or otherwise, charged upon all or any of the Company's property both present and future and to redeem or pay off any such securities."

6. After going through the facts of the instant case and perusal of the above referred cases and relevant provisions of law, we are of the considered view that the Assessing Officer without issuing notice to the assessee under section 72 of the Ordinance was not justified in not setting off the business loss on account of expenses against the other income because the assessee has not discontinued its business but was under temporary lull in the business and the expenditures incurred by the assessee were incurred in carrying on the business, and were allowable and the DCIT has erred in not assessing business loss under the provision of section 22 of the Income Tax Ordinance, 1979. We are of the considered view that the learned CIT(A) has rightly directed to allow all the business expenses which are verifiable and necessary to maintain registered office of the assessee and have been incurred in execution of statutory obligation of the company as the Assessing Officer was not justified in not setting off the business loss on account of expenses against the other income as the assessee has not discontinued its business on termination of shipping agency and there was temporary lull in the business which is evident from the fact that it is maintaining its registered office and performing its internal functions/statutory obligations under the Companies Ordinance, 1984 and Income Tax Ordinance 1979. We, therefore, find no warrant for interference in the impugned order of the learned CIT(A), which is upheld and the appeal by the department dismissed. C. M. A. /M. A. K./156/Tax(Trib.) Appeal dismissed.