Ramaswami, J.:— This reference is made by the Income-tax Appellate Tribunal, Calcutta bench; under section 66(1) of the Indian Income-tax Act.

The reference relates to an assessment order made by the Income-tax Officer, Special Circle, Patna, on 21st June 1941 against the assessee. The order was with respect to Income-tax for the year of assessment 1945–1946 but was based on the accounting period from 1st October 1943 to 30th September 1944. The assessee is “Pursa Limited”, a joint stock company which carried on business in growing, manufacturing and selling sugar. The assessee company was incorporated under the Indian Companies Act but the shareholders and directors resided in the United Kingdom and directed the affairs of the company therefrom. The company went into voluntary liquidation on 20th June 1945 and is at present represented by liquidators in this Court in June 1943 the directors had commenced to negotiate for the sale of the factory and other assets with the ultimate object of winding up the business. On 7th October 1943 an agreement for sale was concluded between the assessee on the one hand and Messrs Dalmia Jain and Co., on the other. The memorandum of agreement provided that the vendor was to sell and demise to the purchaser for a total price of Rs. 28 lakhs all the lands, buildings and machinery and plant. But the stock of manufactured sugar and of grain lying in the godown was expressly excluded and remained the property of the company. It was stipulated that the possession of the assets covered by the contract was to be delivered to the purchaser after the execution of the agreement and after payment of the purchase price. There was a clause that even after possession had been delivered and up to one year from that date the company would retain the right to occupy the manager's bungalow and godown in order to enable the company to dispose of the stock in trade and other capital assets not covered by the sale. On 7th October 1943, the consideration of Rs. 28 lakhs was paid by Messrs Dalmia Jain and Co., and three days later possession of the factory was taken by the vendee. On 7th October 1943 the assessee possessed sugar stocks valued at Rs. 6 lakhs and it is not controverted that the assessee continued to sell the stock of sugar up to June 1944 and the total price realised was Rs. 7½ lakhs. In the course of the present assessment proceeding the Income-tax officer wrote to the company to show cause why the activities of the company during the accounting year should not be taken as tantamount to realisation of the assets on liquidation. In their reply dated the 19th March 1947 the liquidators asserted that the company carried on business during the accounting year and did not merely realise assets. They claimed that the various debits contained in the sugar factory accounts were those incurred in carrying on the company's business. The liquidators accordingly pressed for deductions which they had claimed in their return. On receipt of this letter the Income-tax Officer on 7th May 1947 informed the liquidators that the profits made by the company, on the sale of the buildings, plant and machinery were taxable under the second proviso to section 10(2)(vii) of the Income-tax Act and he called upon them to furnish certain particulars in regard to sale price of the machinery and plant and the original cost which the company had incurred. On 22nd May 1947 the liquidators wrote to the Income-tax Officer that the proceeds arising out of the sale of the company's plant, and machinery were not taxable since the company had ceased to carry on business. But the Income-tax Officer held that the proceeds of the sale of plant and machinery and the value of the stores were liable to assessment under section 10(2)(vii) of the Income-tax Act. Accordingly by his order dated 21st June 1947 he added a sum of Rs. 13 lakhs and odd on account of the proceeds of the sale of plant and machinery and Rs. 15,882 on account of the proceeds of the sale of stores. The assessment was affirmed in appeal by the Appellate Assistant Commissioner of Income-tax by his order dated 31st January 1948. The Appellate Assistant Commissioner held that in the year of account there was no manufacture of sugar by the company and there was only sale of sugar. But he agreed with the Income-tax Officer that the sale of sugar by the company amounted to carrying on business, that the plant and machinery were sold during the continuance of the business and the profits made by the company were liable to assessment under section 10(2)(vii). Before the Appellate Tribunal the assessee did not dispute the correctness of the figure as to the amount of profits in respect of the sale of machinery and building. But his argument was that section 10(2)(vii) of the Act had no application to the case since the sale had been effected in the process of winding up the company and realising its assets. The Appellate Tribunal however rejected the contention of the assessee holding that the sale of sugar continued up to June 1944 and the assessee had spent substantial amount of money in the way of establishment and general charges even after the machinery and plant had been sold.

At the instance of the assessee the Appellate Tribunal formulated the following questions for the determination of the High Court:

“(1) On the facts and in the circumstances of this case is the surplus of Rs. 13,05,144 arising out of the sale of plant and machinery of the sugar factory chargeable under section 10(2)(vii), and (2) was the profit of Rs. 15,882 on the sale of stores of the factory taxable under the Income-tax Act in the circumstances of this case”.

The reference was argued before Shearer and Sarjoo Prosad, JJ., in the first instance. But the learned Judges did not agree as to the answers to be furnished to either of the questions raised. Shearer, J., held that section 10(2)(vii) was applicable only in the case of a business which had continued during the year of assessment and in succeeding year, that it did not apply to a business which had been discontinued or was in the process of being discontinued. The learned Judge considered that the Appellate Tribunal had misdirected itself in law as to the scope and effect of the second proviso to clause 7 of section 10(2); and that the sum of Rs. 13 lakhs and odd was not liable to be taken into account in assessing income-tax on the assessee during the year of assessment. Upon the second question Shearer, J., held that there was no material upon which the Income-tax Department could draw the inference that the profit of Rs. 15,882 was made by the assessee on the stores of the factory and therefore the amount of Rs. 15,882 was not taxable under the Income-tax Act.

On both these questions Sarjoo Prosad, J., expressed a contrary view. As regards the amount of Rs. 13 lakhs and odd Sarjoo Prosad, J., held that section 10(2)(vii) would apply even to a case where the profits were made out of transaction entered into with a view to closing down the business and not with a view of replacing the machinery and plant. The learned Judge accordingly found that the amount of Rs. 13 Sakhs and odd was liable to be taxed. As regards the amount of Rs. 15,882 Sarjoo Prosad, J., held that upon the question as framed it was not open to the assessee to argue that there was no evidence upon which the Tribunal could hold that the profits amounted to Rs. 15,882.

In view of the difference of opinion this case has been placed before me for decision under section 98(2) of the Civil Procedure Code read with section 66A of the Income-tax Act.

The learned Judges have formulated the following points of law on which they have differed:

“(1) When, in the process of closing down a manufacturing business, the entire aggregate of plant and machinery is sold, is the difference between the price obtained at the sale and the written-down value of the plant and machinery to be deemed to be profits of the business and assessable to income-tax under, the proviso to section 10(2)(vii) of the Indian Income-tax Act? Does it make any difference that the business of selling goods manufactured in the previous accounting year has continued and (2) when, in such a case, stores used in the business are sold, is the difference between the price paid by the vendee and the value which the vendee puts on the stores in his books of account a profit? If so, is it deemed to be a profit of the business and liable to income-tax under the aforesaid provision?”

It is desirable at the outset to call attention to the scheme and structure of the Indian Income-tax Act. Section 6 of the Act enumerates the various heads of income chargeable to income-tax. Item (iv) of this section relates to “profits and gains of business, profession or vocation”. The term “business” is defined in section 2(4) to include any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Section 10 of the Act is a section which deals specifically with income arising from business, which is chargeable to income-tax. Sub-section (1) of this section provides that the tax shall be payable by the assessee under the head

“profits and gains of business, profession or vocation”

in respect of the profits or gains of any business, profession or vocation, carried on by him. In the twelve clauses of sub-section (2) are enumerated various deductions which are permissible out of the gross profits in order to arrive at the taxable profits of the business. Clause (iv), for example, provides for a deduction on account of insurance premium paid for insuring buildings, plant, machinery etc. against the risk of damage or destruction. Clause (v) refers to current repairs of such buildings, plant, machinery or furniture. Clause (vi) provides that an allowance may be claimed in respect of depreciation of such buildings, machinery, plant or furniture which is equivalent to such percentage on the original cost to the assessee as may be prescribed in any case. Clause (vii) enacts that an allowance may be claimed

“in respect of any machinery and plant which had been sold or discarded, the amount by which the written down value of the machinery, or plant exceeds the amount for which the machinery or plant is actually sold or its ‘scrap value’”

This clause is subject to the first proviso that such amount should be actually written off in the books of the assessee. The second proviso is important, for it enacts that

“where the amount for which any such machinery or plant is sold exceeds the written down value the excess shall be deemed to be profits of the previous year in which the sale took place”.

It should be noticed that section 2 of the Act has been correspondingly amended; and sub-section (6c) states that “income” includes…………… any sum deemed to be profits under second proviso to clause (vii) of sub-section (2) of section 10”.

The issue in the present case depends on the true meaning and effect of the second proviso to clause (vii) of section 10(2) of the Act.

Before the amendment of 1939, section 10(2)(vii) only made an allowance admissible

“in respect of any machinery or plant which in consequence of its having become obsolete had been sold or discarded”,

the allowance being

“the amount by which the written down value of the plant or machinery exceeds the amount for which the machinery or plant is actually sold or its scrap value”.

To cite an example, if the original cost of the machinery was Rs. 10,000 depreciation allowed up till the year of sale was Rs. 3,000, written down value was Rs. 7,000 and the plant was sold for; Rs. 6,000, the balancing allowance would be Rs. 1,000. But it was incumbent on the assessee to show that the machinery or plant had become obsolete, before he could be granted the allowance. It, was not however made a condition as it was in the corresponding English statute of an allowance being granted that the obsolete plant or machinery should have been actually replaced by a modern and up-to-date type. When the clause was amended in 1939 it ceased to be a condition that the machinery or plant should have become obsolete. The allowance could be claimed by the assessee even though the machinery or plant was not, technically obsolete but such plant or machinery was sold or scrapped for any reason whatever. The allowance in the case of sale was of such sum as represented the excess of the written down value-over the sale-proceeds. The purpose of the allowance was that the balance of the amount of capital expenditure remaining unallowed minus the amount of sale-proceeds should be granted to the assessee so as to enable him to recoup his cost in full. In the English Act of 1945 the allowance is for this reason called “balancing allowance”. The allowance is similar in its nature to depreciation, which is a loss and expense incurred in using the asset for the earning of profits and ought therefore be charged against those profits as they have earned. If instead of being sold the machinery is merely discarded or put aside the entire written down value on that date would represent the allowance. In either case, such amount is required to be completely written off in the books of the assessee. But where a sale of a machinery or plant or a building fetches an amount in excess of the written down value there is no scope of any allowance to be granted to the assessee but a different principle operates. The principle is that such portion of the depreciation allowance granted in the past and which has proved unwarranted should be brought into charge. In other words the charge is imposed to balance the depreciation allowance already granted to the assessee and which turns out in the event to have been un-deserved. For this reason the charge is styled “balancing charge” in section 68(i) of English Income-tax Act, 1945. To take the previous example, if the plant is sold for Rs. 11,000 the amount of Rs. 4,000 would be charged to tax. The Amendment of 1939 was defective in one respect for she amount of sale-proceeds in excess of cost price was taxed though it should be capital profit, free of tax. The defect was removed by Act VIII of 1946 wherein provision was made that the difference between the written down value and the actual sale price, of the plant which was to be treated as income should not in any case exceed the difference between the original cost and the written down value. In other words, the effect of the 1946 amendment was to tax the entire depreciation allowance granted till the time of sale but the excess of the sale-proceeds over cost price of the plant was treated as capital profit free of tax. On behalf of the assessee, it was contended by Mr. Mitra that section 10(2)(vii) will operate, and the excess sale-proceeds will be taxable, only if the machinery or plant gold has been replaced and the business of manufacture continued in the year of account. It was argued in effect that the section 10(2)(vii) will not be applicable if the machinery was sold in the process of closing down a manufacturing business. I see no reason why the section should be construed in this restricted, manner. There is no express condition (as in the corresponding English statute) that the allowance could be claimed only if the assessee replaced or intended to replace the machinery or plant which had been sold. It was also contended for the assessee that clause (vii) will not operate in a case where the entire aggregate of plant or machinery is sold. In my opinion this argument too is not valid. As a matter of construction, the words of the clause “any machinery or plant” are obviously applicable to any number of items of machinery or plant. It is clear that the clause applies in a case where the entire aggregate of plant or machinery is sold, though the calculation of allowance or tax cannot be in respect of the aggregate of the machinery or plant, but will be in respect of the written down value of each separate item [see Charente Steamship Co., Ltd. v. Wilmot]. For the application of section 10(2)(vii) it is immaterial that the sale is effected of each separate item of machinery or of the whole aggregate of machinery or plant in one block broken up or in running condition.

It is a well-known principle that in a taxing statute there is no room for any presumption or intendment. If the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. In a taxing statute there is no room for any intendment. In the Cape Brandy Syndicate v. Commissioners of Inland Revenue Rowlatt, J. observed: “Now of course it is said and urged by Sir William Finlay that in a taxing Act clear words are necessary to tax the subject. But it is often endeavoured to give to that maxim a wide and fanciful construction. It does not mean that words are to be unduly, restricted-against the Crown or that there is to be any discrimination against the Crown in such Acts. It means this, I think; it means that in taxation you have to look-simply at what is clearly said. There is no room for any intendment; there is no equity about a tax; there is no presumption as to a tax; you read nothing in; you imply nothing; but you look fairly at what is said and at what is said clearly and that is the tax”.

On behalf of the assessee the argument was addressed that if section 10(2)(vii) was to operate the assessee must “carry on business” within the meaning of section 10(1) of the Act. It was pointed out that the object of the assessee in selling the machinery and plant was to wind no and discontinue the business, that it was immaterial that the business of selling goods already manufactured continued since the business of manufacturing goods had been stopped. The argument is attractive but in my opinion, it is wholly untenable. Though the object of the directors may be to wind up the business and not to earn the profits by the continuance of the business still if the nature of the activities appertain to commercial methods the company would carry on a business in legal sense. For it is no paradox to say that there can be trading or carrying on of business during the course of winding up of affairs of a business. A trader for instance who wishes to retire from business may wind up his business in several ways. He may sell his concern as a going concern or he may auction off his stock. But he may also without resorting to a forced sale involving him in a sacrifice, wind up by continuing to carry his business' in the ordinary way without however replenishing his stock. He would ultimately leave himself with no stock and then retire. In these circumstances the realisation of stock would effectuate both his purposes and consequent there would be trading. For example in J. and R. O'Kane and Co. v. Commissioners of Inland Revenue the appellants, who carried on business as wine and spirit merchants, issued a circular letter early in 1916, announcing their decision to retire from business, and shortly afterwards they issued to their regular customers lists of spirits for sale. The lists were headed “Retiring from business” and contained certain conditions of safe which required that the purchaser should clear the goods from bond and retain the casks. During the year 1916 few sales were made, but during the year ending 31st December 1917, practically the whole of the stock was sold. Meanwhile the appellants had acquired a certain quantity of spirits up to the spring of 1917 under running contracts with distillers, but no other purchases were made. The appellants were assessed to excess profits duty for the year 1917 in respect of the profits arising from the whole of their sales in that year, and on appeal, it was held by the House of Lords that there was ample evidence on which the Special Commissioners could, arrive at their findings and that the appellants were liable to excess profits duty in respect of the profits in question. In his speech Lord Buckmaster states (at page 347):

“The first question, therefore, is: Did the profits in question arise from any trade or business? It is alleged that they did not, for the reason that they were derived, not in carrying on the business, but in the process of realisation under an altered method of trading not consistent with a continuing concern.

My lords, I find it difficult to think that these considerations can in the circumstances of this case afford any protection to the appellants. For in truth it is quite plain that right up to the end of 1917 they, were engaged in trading which, so far as the external world is concerned, was the ordinary method of carrying on trade modified only by arrangements which were merely part of the machinery of business dealing adopted to effect their intention to retire. It may well be accepted that they did so intend; yet the intention of a, man cannot be considered as determining what it is that his acts amount to; and the real thing that has to be decided here is what were the acts that were done in connection with this business and whether they amount to a trading which would cause the profits that accrued to be profits arising from a trade or business?”

In a similar case Hillerns and Flower v. Murray the partnership agreement by which the assessee firm was constituted, expired on the 31st March 1926. The dissolution of the partnership by lapse of time was announced to customers by circular latter dated 31st March 1926. On that date the firm held certain trading stock, and after that date the partners received, delivery of further stock contracted to be bought before that date, the stock thus held and acquired was delivered to customers in fulfilment of contracts made before, but due for fulfilment after 31st March 1926. No new contracts of purchase or sale, were made after 31st March 1926. An assessment to income-tax was made upon the firm for the year 1926–1927 in respect of profits realised through the fulfilment of contracts in that year. On appeal it was held by the King's Bench Division that there was evidence upon which it could be found that the appellants were trading after the date of dissolution of partnership. At page 91 Homer, L.J, states:

“When there is stock-in-trade which can only be sold at a sacrifice by what is called a forced sale—same immediate sale by auction—it may be necessary, in order to dispose of that stock-in-trade to the best advantage, to carry on the business so that the stock-in-trade can be sold in the usual course of trade. That seems to me to have been the case in Ireland which came before the House of Lords in O'Kane's case (12 Tax Cases 303). Or it may be, and in my opinion this is what happened, in the present case, the partnership may be possessed of outstanding contracts of a beneficial character. In that case, instead of shutting up the whole business and letting the people who suffered damage by breach of contract be paid their damage at winding-up, it is considered more beneficial to the partnership to continue the business for the purpose of completing the contract. In those circumstances, of course, it would be impossible to say that the fact that all that was done by the partners was to realise the assets to the best advantage necessarily showed that they were not carrying on a business, because in many cases, in fact I think one might say in most cases, in the case of a winding-up of a partnership it is necessary, for the proper getting in of the assets and the winding-up of the affairs of it, to carry on the business for a short time, or to carry on the business to a limited extent”

The question therefore in the present case is whether the assessee was carrying on the business in the year of account. It is not material to enquire whether the transactions were entered into with the ultimate object of closing down the business or liquidating it. But the question whether the company carried on business is essentially a question of fact, for the decision of the question depends upon the quality and character of the facts established in the case. [See for instance Martin v. Lowry and Rees Roturbo Development Syndicate v. Ducker]. The appellate Tribunal has found in the present case that the assessee company was carrying on business after the factory had been sold during the year of account. This conclusion is one of fact and there are materials in this case upon which the Appellate Tribunal could properly reach this conclusion of fact. In the first place there is the admitted circumstance that in the memorandum of sale dated 7th December 1943 the stock of sugar was not included. From the affidavit of Robert Adam Brown it appears that on 30th September 1943 the stock of sugar was 52,860 maunds that out of this stock the company made direct sales of 822 maunds and the balance of stock was sold by Messrs Bird and Co. between December 1943 and June 1944. It is stated in the same affidavit that there was an agreement between the assessee company and Messrs Bird and Co., dated 22nd April 1942 by which the latter were appointed sole selling agents for a period of five years from 1st January 1943 and the assessee company undertook that they would not themselves or through any other agent sell any sugar manufactured in the factory though by clause 16 of the agreement the assessee company did retain the right to effect direct sales up to 5,000 maunds per season. The Appellate Tribunal, has found that the stock of sugar was valued at Rs. 6 lakhs but it was sold for Rs. 7½ lakhs. It is an admitted fact the company spent a sum of Rs. 50,000, on account of establishment and general charges even after the machinery and plant had been sold. It appears that the proposal to sell the plant and machinery was agreed to on 8th October 1943 in a, general meeting of the shareholders of the company. But the contract of sale was actually executed and the purchase money paid on 8th December 1943 and possession was given to the purchaser Dalmia Jain and Co. on 10th December 1943. It is true that there was no crushing of sugarcane on the part of the assessee during the accounting period but the crushing season, it is conceded, did not start until the month of December. On behalf of the assessee Mr. S. Mitra contended that the Tribunal had failed, to consider copies of certain minutes of the Board meetings and the correspondence between the company's administration and the Board of Directors. The Appellate Tribunal has referred to these documents though the matter is not considered in detail. In any case, the documents do not in my opinion, support the contention of the assessee that no business was carried on in the accounting year. For in his letter dated 24th April 1948 Commander Dixon states that

“the trading and manufacturing had to learned on until such time as any sale was completed”.

Commander Dixon states that

“in negotiating the sale of the assets in connection with the mill and zerats, sugar stocks and grains were purposely excluded as it could not be known at what date such a sale would be concluded and the quantity of both these items and also their market prices must vary from day to day”.

According to the contract with Messrs Bird and Co. the sugar of 1943 must he sold by the latter according to the requirement of the market and despatched according to delivery dates required by the purchaser. Commandar Dixon states that these despatches were completed by 1st March 1944, that these despatches were a completion of contracts made by the selling agents of sugar given to them to sell before the sales of the factory was completed. The affidavit of Robert Adam Brown is to the same effect. He says that for the purpose of manufacturing sugar the company grew a certain amount of sugarcane on its own lands and purchased further supplies of cane and that all land on which the company grew sugarcane was sold as part and parcel of the Pursa Sugar Factory, and the company thereafter grew no more sugarcane and did not buy any sugarcane. The affidavit states that between 9th August 1943 and 7th December 1943 certain stores were consumed in the normal course of the company's business. From paragraph 3 of the agreement with the selling agents, exhibit A, (annexed to the affidavit of Robert Adam Brown) it appears that the company agreed that they will not themselves or through their agent sell any sugar manufactured except in accordance with the terms of the agreement. The letter of Commander Dixon and the affidavit of Robert Adam Brown, to which learned counsel has made reference, do not support the contention made on behalf of the assessee that no business was carried on during the accounting year. On the contrary, these documents support the finding of the Appellate Tribunal that during the accounting period the company carried on business, even after they had sold the machinery and plant to Dalmia Jain and Co.

For the reasons assigned J agree with my brother Sarjoo Prosad, J., and hold that upon the facts of this case the surplus of Rs. 13,05,144 arising out of the sale of the plant and machinery of the sugar factory is chargeable under section 10(2)(vii), proviso 2 of the Income-tax Act. I would answer the first question of law formulated by the Division Bench in the above manner. I regret that on this question I have reached a conclusion different from that of my brother Shearer, J., for whose opinion I have great respect.

As regards second question, the finding of the Appellate Tribunal is, in my opinion, erroneous, for there is no material upon which the Tribunal could hold that the profit of Rs. 15,882 was made on the sale of the factory stores. From the statement of the case it appears that the sum of Rs. 15,882 represented the difference between Rs. 88,000 which the Income-tax Officer described as “sale-proceeds on the basis of expert valuation” and Rs. 72,118 which was the cost of certain stores to the assessee. The Income-tax Officer did not indicate upon what material the assessment of Rs. 15,882 was made and whose expert valuation was accepted. But the Appellate Tribunal stated that the Income-tax Officer really relied upon the stores account opened in the books of Dalmia Jain and Co., which showed that the company or some officers of the company had valued the stores at Rs. 88,000. But paragraphs 16 and 17 of the memorandum of agreement indicate that with respect to the stores ordered or received by the assessees after the 9th August 1943 Messrs Dalmia Jain and Co., were to pay nothing more than the cost price, and in consequence, on these stores at least the assessee made no profit at all. Clause (c) of paragraph 19 contained a statement by the purchasers as to how they proposed to allocate the total consideration money of Rs. 28 lakhs between certain specific items, but the stores were not separately valued but were valued along with other property and to the whole a sum of Rs. 2,50,000 was allocated. In my opinion there was no material upon which the Income-tax Officer could draw the inference that the vendors made profit of Rs. 15,882 on the sale of stores. On the second question of law formulated by the Division Bench I agree with Shearer, J., and hold that the amount of Rs. 15,885 which is alleged to be the profits on the sale of the stores is not taxable under the Income-tax Act in the Circumstances of this case.

Reference answered.

S.H