Kaushal Construction Company vs Commissioner of Income Tax

K.K. Adhikari, J.—By order passed by this court on September 20, 1980, in Miscellaneous Civil Case No. 498 of 1979 preferred by the assessee, the Income Tax Appellate Tribunal, Nagpur Bench, Nagpur, was directed to submit the statement of the case and make a reference on the following question of law, namely:

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was carrying on business and that the receipt of Rs. 11,82,520 was an ordinary trading receipt taxable u/s 28 of the Income Tax Act for the assessment year 1973-74?"

In accordance with the order dated September 20, 1980, the Appellate Tribunal has submitted the statement of the case.

The material facts are these. The assessee is a partnership firm and was a contractor who was awarded the work of cleaning the plant in the blast furnace and the work of coal-loading crane track in coke oven at Bhilai in August, 1957, The work was completed on January 1, 1980 (sic). However, disputes arose between the assessee and the Bhilai Steel Authorities which ultimately was referred to arbitration on June 5, 1962, by the assessee. The claim of the assessee was resisted by the Bhilai Steel Plant and the Hindustan Steel Limited and ultimately the Supreme Court in Civil Appeal No. 1235 of 1968 appointed a sole arbitrator to decide all the matters of dispute arising between the assessee and the Bhilai Steel Plant of the Hindustan Steel Limited and it was agreed that the Hindustan Steel Limited should pay an amount of Rs. 11,82,520 to the assessee in full and final settlement of all the claims of the assessee. This amount of Rs. 11,82,520 was received by the assessee on January 7, 1973, during the assessment year in question, that is, 1973-74. The assessee raised objections before the Income Tax Officer stating therein that the payment received by the assessee was a capital receipt and that the amount in question was not taxable in the year under consideration or in an earlier year. The objections of the assessee were, however, rejected and it was held that the amount received by the assessee was taxable in the year under consideration. Appeal was preferred by the assessee before the Appellate Assistant Commissioner who allowed the appeal and held that the amount received by the assessee was not taxable. The Revenue thereafter preferred an appeal before the Appellate Tribunal against the order passed by the Appellate Assistant Commissioner. The Tribunal partly allowed the appeal holding, inter alia :

(i) that the receipt of Rs. 11,82,520 was an ordinary trading receipt taxable u/s 28 of the Income Tax Act;

(ii) that the assessee was carrying on the business during the relevant accounting year;

(iii) that the assessee had claimed the benefit which was granted to it for the years 1965-66 onwards up to 1972-73 ;

(iv) that the assessee was treated as a registered firm u/s 184(7) of the Income Tax Act for all these years.

Aggrieved by the order passed by the Tribunal, the assessee preferred an application u/s 256(1) of the Income Tax Act before the Tribunal who rejected the same. The assessee thereafter preferred an application to this court u/s 256(2) of the Income Tax Act and that is how the question noted above has been referred to this court for its decision.

From the facts and circumstances as noted above, the real question which arises for decision of this court is whether the assessee was carrying on the business during the relevant accounting year so as to make the amount received by the assessee during the assessment year 1973-74 taxable u/s 28(1) of the Income Tax Act.

The learned counsel for the assessee submitted that the assessee-firm was dissolved in the year 1974, and was not carrying on the business during the relevant assessment year and, therefore, the amount received by the assessee was not taxable for the assessment year 1973-74. It was also submitted that no fresh contract work was undertaken after the year 1964-65 and the amount received by the assessee was the award money during the accounting period 1973-74 for which the assessee had submitted its return of income wherein it had appended a note claiming that the amount was not taxable on the money received through award during the year and the expenses claimed by it was incurred by the assessee entirely in connection with the recovery of the outstanding amount from the Bhilai Steel Plant as also in connection with the arbitration proceedings before the High Court and the Supreme Court of India. It was submitted that there was no business activity during this period. The learned counsel for the assessee relied on Commissioner of Income Tax Vs. Thakurdas, ; Joshi and Varma v. CIT [1970] 119 ITR 262 S.P.V. Bank Ltd. Vs. Commissioner of Income Tax, and A. Gajapathi Naidu Vs. The Commissioner of Income Tax, Madras, .

Having heard the arguments advanced on behalf of the parties on either side, in our opinion, no question of law arises from the facts and circumstances of the case as stated in the statement of the case. The question whether the assessee was carrying on the business during the relevant assessment year is a pure question of fact and the Tribunal has recorded a clear finding that the assessee was carrying on the business during the relevant assessment year. Apart from this, it is seen that the assessee was treated as a registered firm and had also claimed deduction of expenditure during the assessment year 1973-74. This being a pure question of fact, the same cannot be gone into in this reference. In Commissioner of Income Tax Vs. Thakurdas, the Tribunal had recorded a finding that the assessee had ceased to carry on the business and, therefore, this court held that since the amount received by the assessee was received after it had ceased to carry on business, it was not taxable as business income. This case, therefore, is distinguishable on facts ; so also the case in Joshi and Varma v. CIT [1970] 119 ITR 262 and in S.P.V. Bank Ltd. Vs. Commissioner of Income Tax, . The facts in A. Gajapathi Naidu Vs. The Commissioner of Income Tax, Madras, are also not applicable to the facts and circumstances of the present case. It has already been noted that there is a clear finding of the Tribunal that the assessee was carrying on the business during the relevant time and, therefore, the receipt of the amount by the assessee due to it for the work done by the assessee for the Bhilai Steel Plant was taxable u/s 28(1) of the Income Tax Act. The Tribunal was right in holding that merely because of the dispute which resulted in delay in recovery of the amount by the assessee from the Bhilai Steel Project, the nature of the receipt does not change from a trading receipt to a capital receipt. All the efforts of the assessee were in effect directed towards the recovery of the trading receipt which were in connection with the business. The amount received by the assessee was not a capital receipt. Under the circumstances, the amount received by the assessee was taxable as an ordinary trading receipt u/s 28 of the Income Tax Act.

For the reasons stated above, the reference is answered in favour of the Revenue and against the assessee in the following manner'':

The Appellate Tribunal was right in holding that the assessee was carrying on the business and that the receipt of Rs. 11,82,520 was an ordinary trading receipt taxable u/s 28 of the Income Tax Act for the assessment year 1973-74.

There shall be no order as to costs.