Ratnam, J.:— The assessee is an individual and was carrying on business as a financier advancing monies in respect of hire-purchase transactions. In respect of the assessment years 1968-69 and 1969-70, he claimed net losses of Rs. 93,579 and Rs. 51,063, respectively. Scrutinising the accounts submitted by the assessee, the Income-tax Officer found that during the assessment years in question, the assessee did not make any fresh advance and no hire-purchase transactions were also entered into in the relevant years. The Income-tax Officer also found that even in the assessment year 1967-68, the assessee had almost stopped his business and was merely engaged in realising the outstandings due from his customers and also interest due from them. Inasmuch as the position continued to be the same for the assessment years in question, the Income-tax Officer took the view that the loss arising in the process of winding up should be appropriately dealt with under the head “Other sources” and he disallowed sums of Rs. 38,329 and Rs. 12,158. Amongst the items so disallowed, there were amounts paid as salary to one Sri Srinivasa Appa Rao, who was none other than the father-in-law of the assessee. For the assessment year 1968-69, out of a total salary of Rs. 24,000, a sum of Rs. 18,000 was disallowed in view of the disallowance made in the earlier years and also keeping in view the reasonableness of the remuneration for purposes of realisation of the outstandings. For the assessment year 1969-70, out of a claim of payment of salary to Sri Srinivas??? Appa Rao in a sum of Rs. 10,500, the Income-tax Officer held that Rs. 500 per mensem would be reasonable and disallowed the balance as paid for other personal considerations. A sum of Rs. 133 towards income-tax included under salary was also disallowed totalling to Rs. 4,633. For the assessment year 1969-70, the assessee claimed allowance of a sum of Rs. 30,036 on account of waiver of interest. On the ground that the business of the assessee was stopped, this claim was negatived and the Income-tax Officer was also of the view that the interest accrued on parties' accounts could only be capital loss. While disallowing this amount, the fact that no steps were taken by the assessee for the recovery of interest, in respect of which claim for waiver was made from the parties, was taken note of and finally the Income-tax Officer completed the assessment by computing the income of the assessee for the assessment year 1968-69 at Rs. 11,950 and for the assessment year 1969-70 at Rs. 60,470. On appeal by the assessee before the Appellate Assistant Commissioner, it was held that mere maintenance of an establishment by the assessee for collecting arrears and outstandings, would not amount to carrying on of the business and the disallowance of portions of salary paid to Sri Srinivasa Appa Rao for the assessment years in question was justified. Regarding the claim of the assessee in respect of waiver of interest of Rs. 30,036 for the assessment year 1969-70, he held that it was not admissible, as no business was carried on by the assessee during the relevant year. On further appeal by the assessee before the Tribunal, it was contended that though the assessee did not make any fresh advance or enter into hire-purchase transactions during the relevant accounting years, yet, the assessee was collecting the outstandings due and that the salary paid to Sri Srinivasa Appa Rao should have been allowed in full. The claim for allowance in a sum of Rs. 30,036 for the assessment year 1969-70 on account of waiver of interest was also reiterated. The Tribunal found that the assessee could not be stated to have carried on any business during the assessment years in question and that there was no justification for holding that the disallowance of salary payment made to Sri Srinivasa Appa Rao was either unreasonable or low and that the disallowance in respect of waiver of interest for the assessment year 1969-70 did not merit any interference, as the assessee did not carry on any business during the accounting year relevant to the assessment year 1969-70.

2. At the instance of the assessee, under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), the Tribunal has referred the following common questions of law for the opinion of this court:

“(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that there was closure of the business?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the disallowance of a portion of the salary paid to the manager is without any basis?

(3) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the loss of unrealised interest of Rs. 30,036 is a capital loss not allowable as a deduction in computing the income?”

3. Learned counsel for the assessee first contended that the view taken by the Tribunal that the assessee did not carry on any business during the accounting years relevant to the assessment years in question, is not correct and that though it may be true that the assessee did not make any fresh advance or enter into hire-purchase transactions, he had been realising the outstandings by institution of proceedings against the debtors of the assessee and that would be sufficient to establish that the assessee had been carrying on his business.

4. Per contra, learned counsel for the Revenue submitted that the mere collection of outstandings cannot be termed to be continuation of business and placed considerable reliance upon the decision of the Supreme Court reported in CIT v. Lahore Electric Supply Co. Ltd., [1966] 60 ITR 1 and Indraprastha Steel Industries Ltd. v. IT AT, [1973] 88 ITR 138 (Delhi).

5. It is not in dispute that during the accounting years relevant to the two assessment years in question, the assessee had not made any fresh advances or entered into hire-purchase transactions, but that he had been merely collecting or attempting to collect the outstandings due to him by taking proceedings against his debtors. Factually, therefore, the business transactions of the assessee were at an end during the accounting years relevant to the assessment years in question. In other words, the assessee had not carried on any activity, which can be described as a business activity, which was capable of producing profit, which could be charged to tax. The circumstance that the assessee endeavoured his best to collect the outstandings cannot be characterised as a business activity. It is, in this connection, that the decision of the Supreme Court in CIT v. Lahore Electric Supply Co. Ltd., [1966] 60 ITR 1, is relevant. The Supreme Court pointed out that it would be laying down strange law to hold that where a business, in fact, ceased to be run, it must be deemed as continuing because the outstanding liabilities of that business had not been liquidated and business as contemplated is an activity capable of producing a profit and payment of outstanding liabilities is not an activity which can ever produce such a result. To similar effect is the decision in Indraprastha Steel Industries Ltd. v. ITAT, [1973] 88 ITR 138 (Delhi). There also, during the accounting period relevant to the assessment year 1967-68, the assessee did not make any purchases, nor did it spend any amount on purchase of stores and spares consumed and had no stock in possession, but it was realising its dues and earned interest on the outstandings from the purchasers of the machinery. Affirming the order of the Tribunal, the court held that merely because the assessee, during the relevant year, engaged itself in realising its assets and had earned interest, it cannot be said that it had engaged in any business. The principle laid down in the aforesaid decisions would squarely apply to the facts of this case when it is seen that, during the accounting years relevant to the assessment years in question, the assessee had not made any advance at all or entered into hire-purchase transactions, but had merely been realising the outstandings. In view of the factual finding regarding the cessation of business of the assessee during the accounting years relevant to the assessment years in question, it follows that the Tribunal was quite right in concluding that the assessee had not carried on any business during the assessment years in question.

6. Regarding the disallowance of a portion of salary payments made by the assessee to Sri Srinivasa Appa Rao taking into account the salary allowed in the previous years, the allowance made by the authorities below cannot be said to be either unreasonable or unfair or even low. In so far as the assessment year 1968-69 is concerned, out of the sum of Rs. 24,000 stated to have been paid during the accounting year, the authorities had disallowed a sum of Rs. 18,000 on the ground that taking into account the purpose for which the salary was paid, viz., realisation of the outstandings, it would be fair and reasonable to allow a salary at Rs. 500 per month. Likewise, for the assessment year 1969-70, the authorities had allowed Rs. 500 per month as reasonable remuneration for the services of Sri Srinivasa Appa Rao and had disallowed the balance and also the income-tax of Rs. 133 included under the salary. We are not persuaded to hold that the disallowance made by the authorities is, in any manner, unreasonable or unfair.

7. We now proceed to consider the claim for waiver of interest in a sum of Rs. 30,036 made by the assessee in respect of the assessment year 1969-70. We have earlier held that the business of the assessee had been stopped and that the assessee was making attempts to realise the outstandings. Further, it is seen that it was admitted before the assessing authority that no action at all had been taken by the assessee for the recovery of interest from the parties in respect of whom interest was waived as claimed. We are, therefore, of the view that the claim for allowance in a sum of Rs. 30,036 towards waiver of interest for the assessment year 1969-70 has also to fail. We, therefore, answer the questions referred to us against the assessee. There will, however, be no order as to costs in this reference.