Bombay H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of the business of Belapur Company Ltd., for the entire period from October 1, 1968, to September 30, 1969, accrued on September 30, 1969 and was, accordingly, assessable in its entirety in the hands of the assessee-company ?

Counsel Appeared

Dr. V. Balasubramanian with J.P. Devdhar & K.C. Sidhwa, for the Revenue : B.D. Damodar, i/b M/s. Kanga & Co., for the Assessee

T. D. SUGLA, J.:

In this Departmental reference relating to the assessee’s asst. yr. 1970-71, the Tribunal has referred to this Court only one question of law under s. 256(1) of the IT Act, 1961. That question is :

“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the profit of the business of Belapur Company Ltd., for the entire period from October 1, 1968, to September 30, 1969, accrued on September 30, 1969 and was, accordingly, assessable in its entirety in the hands of the assessee-company ?”

The relevant facts in brief are that there was a company known as “Belapur Company Limited”. There was another company by the name “Gangapur Sugar Mills Limited”. By an order of our Court dated July 10, 1970, Belapur Company Limited was amalgamated with Gangapur Sugar Mills Limited w.e.f. June 1, 1969. However, the order of amalgamation was not produced before the Departmental authorities or the Tribunal and it does not find a place in the annexure to the statement of the case. Accordingly, we have to proceed on the basis of the facts stated by the Tribunal.

It appears that, after the merger, the company, Gangapur Sugar Mills Limited, continued with its name changed as Belapur Sugar and Allied Industries Limited. Belapur Company Limited had its previous year as September ending. For the year under reference, the previous year had to be from October 1, 1968 to September 30, 1969. The previous year of the Gangapur Sugar Mills Limited, the assessee in the changed name, was June ending. For the year under reference, it would be from July 1, 1968, to June 30, 1969. The assessee filed its return of income for the assessment year 1970-71 disclosing its income for the period from July 1, 1968, to June 30, 1969. For the unit, Belapur Company, however, it was for the period from October 1, 1968 to September 30, 1969. It is not in dispute that the assessee-company is liable to be assessed in respect of the profits or losses from both the units according to their respective previous years. Belapur Company having been amalgamated with the assessee-company w.e.f. June 1, 1969, according to the Departmental authorities,the profits or losses earned by the Belapur unit for the period up to May 31, 1969, could not be taken as profits or losses of the assessee. The profits or losses pertaining to the period from June 1, 1969, to September 30, 1969, alone should have been included in the computation of the assessee’s total income. Following the Supreme Court decision in the case of CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42, the Tribunal, however, accepted the assessee’s claim that the profits or losses for the entire period of the previous year, i.e., from October 1, 1968, to September 30, 1969, in respect of Belapur unit accrued or arose on September 30, 1969. The Tribunal so held on the facts which do not appear to be in dispute, namely, that the business carried on by Belapur unit was taken over as a running concern. The books of account of that unit were not closed nor were profits and/or losses computed on May 31, 1969.

According to Dr. Balasubramanian, learned counsel for the Department, when the ownership of the business changed, it was incumbent upon the assessee to have computed its profits or losses in respect of Belapur unit only for the period for which it owned that unit. His submission is that the assessee-company owned the Belapur unit for the period from June 1, 1969, onwards and, therefore, it is the profit and/or loss of the period thereafter which could be assessed in the hands of the assessee- company.

The Supreme Court decision in CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42, he stated, is not applicable to this case. In that case, the assessee was formerly a partner in a partnership firm in the capacity of a Karta of his joint Hindu family. The partnership-firm has calendar year as its previous year. Some time in November, 1956, there was a partial partition in the family as a result of which the said assessee became a partner in his own right and the share in the partnership came to his share on partition. The question arose whether for that year, i.e., the calendar year 1955, the share of income from that partnership for the period up to November, 1956, was or was not assessable in the hands of the assessee as Karta of the joint Hindu family. The Supreme Court held that, as the profits to a partner in the partnership-firm accrued at the end of the year and not from day to day and as at the end of the year the assessee was a partner in his individual capacity and not as Karta of the joint Hindu family, no share of income for that year was assessable as income of the family. According to Dr. Balasubramanian, the case of a partner is different from the case of a company which has been amalgamated with another company. A partnership has no concern as to whether a person is a partner in his own right or is representing his family, whereas in the case of different owners, as in the present case, the position is very much different. Mr. Damodar, learned counsel for the assessee, strongly relied on the order of the Tribunal. He laid great emphasis on the observations of the Supreme Court in CIT vs. Ashokbhai Chimanbhai (1965) 56 ITR 42 to the effect (headnote) : “‘Profits’ do not accrue from day to day or even from month to month and have to be ascertained by a comparison of assets at two stated points. Unless the right to profits comes into existence there is no accrual of profits and the destination of profits must be determined by the title thereto on the day on which they arise.”

We have considered the rival contentions carefully. In our judgment, the law as laid down by the Supreme Court is clear. It is that, in the case of a continuing business, the profits do not accrue from day to day or even from month to month. The profits have to be ascertained by a comparison of assets at two stated points. Considering the facts of the case in this background, it appears to us that when Belapur Company amalgamated with the assessee’s company on June 1, 1969, the books of account of Belapur Company were not made up as on May 31, 1969. The accounts continued as such and were closed only on September 30, 1969, the date so long observed by Belapur Company as its year ending. Thus, when the assessee took over the business of Belapur Company on merger or amalgamation, about which we are not sure in the absence of the order of amalgamation, the unit was taken over without ascertaining the profit or loss position as on that day. That being so, we are in agreement with the Tribunal that the profits or losses of Belapur Company (now a unit of the assessee-company) accrued or arose to the assessee on the last day of the accounting year, i.e., September 30, 1969. The Tribunal was, therefore, right in including the same in the assessee’s total income for the year under reference.

Accordingly, we answer the question in the affirmative and in favour of the assessee. No order as to costs.

[Citation:192 ITR 543]