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I.T.A. No. 4274/LB of 1985-86, decided on 7th May, 1987.

---S. 35--"Such business or profession"--"Same business"- Distinction--Loss--Set off--Assessee was still in business and had not even temporarily discontinued it nor the assessee went to inactivity--Brought forward loss of such an assessee has to be set off against income declared by the assessee.

Mere fact that the assessee was not able to obtain the normal business, does not mean that he has either discontinued the business or he is out of the business. It is not necessary in the line of business like the one in which the assessee is engaged, that an assessee would necessarily get the business in each year. When there is no objection in regard to the actual incurring of the expenditure, the expenses could not be disallowed merely for want of justification. Entire expenses claimed by assessee were allowed.

The brought-forward losses can be set off under section 35 of the Ordinance where the loss in any assessment year is under the head "income from business or profession". Under that section, so much of the loss as had not been set off under section 34 or whole of the loss where the assessee has no income under any other head, is to be carried forward to the following assessment year and set off against the profit and gains, if any, of such business or profession assessable for that year and if such business or profession continues to be carried on by the assessee for that assessment year. Continuation of business like the one which is carried on by the assessee, does not mean that contracts must be obtained in each years so- as to term it as carrying on the business. The very fact that the assessee is maintaining the head office and the fact that the assessee has not a informed the I.T.O. that he discontinued the business, indicates that the company is carrying on the business.

The assessee was still in the business and has not even temporarily discontinued it nor the assessee went into inactivity. In these circumstances, the brought-forward losses have to be set-off against the income declared by the assessee under the head "income from business or profession". The income declared by the assessee has to be assessed and in fact has been assessed as income from business or profession. Therefore, even otherwise brought-forward losses had to be set off against the income of the assessee under S.35 of the Ordinance. The brought-forward losses have to be set off against the profit and gains "of such business or profession" and not from the 'same business'. There is a difference between 'such business' and the 'same business'. The brought-forward losses of the assessee were ordered to be set off against the income declared by the assessee.

General Corporation Limited v. C.I.T. Madras (1935) 3 ITR 350 ref.

Sh. Asif Islam, C.A. for Appellant.

Nazir Ahmed Saleem, A.C. / D.R. for Respondent.

Date of hearing: 22nd December, 1986.

This is an appeal filed by a Private Limited Company deriving income from rendering technical services. No business of rendering technical services was done by the assessee in this assessment year and even in the assessment year 1982-83. This business was done by the assessee upto the assessment year 1981-82. However, the assessee has been maintaining the head office and claimed certain expenses were incurred in order to run the office. The assessee also declared receipts at Rs.16,907/- on account of certain business liabilities which had been outstanding for over three years. The assessee also declared profit on sale of furniture, vehicles and bicycles etc. After adjusting the expenses claimed by the assessee, net loss of Rs.6,473/- was declared in the assessment year under consideration. The assessee also declared brought-forward losses at Rs.3,17,211 for the earlier years. The I.T.O. while accepting the receipts being verifiable allowed expenses at Rs.10,000/- (including depreciation of Rs.4,313/-) on the ground that the profit and loss expenses can be allowed to the extent of maintenance of office only. The brought-forward loss of the assessee was not adjusted against the declared receipts on the ground that the income derived by the assessee was not from the same source. On appeal the learned A.A.C. dismissed the appeal of the assessee. Hence this appeal.

2. The learned counsel for the assessee contended that the receipts declared by the assessee were income within the meaning of Rule 7 of the Third Schedule, that the I.T.O. has not suspected the genuineness of the expenses claimed by the assessee and that the brought-forward losses were to be adjusted a/s 35 of the Ordinance.

3. The learned D.R. on the other hand contended that since the assessee was not deriving income from the same source, therefore, these losses cannot be adjusted. It was further submitted by the learned D.R. that the expenses allowed by the I.T.O. were reasonable.

4. I have considered the arguments. On perusal of the order of the I.T.O., I find that he did not say a word that the expenses incurred by the assessee were not actually incurred. His only objection was that since the assessee was not rendering any technical services, which was .the business of the assessee, therefore, expenses can be allowed except for the maintenance of office. This is hardly a ground for making a disallowance out of the expenses claimed. Mere fact that the assessee was not able to obtain the normal business does not mean that he has either discontinued the business or he is out of the business. It is not necessary in the line of business like the one in which the assessee is engaged, that an assessee would necessarily get the business in each year. When there is no objection in regard to the actual incurring of the expenditure, the expenses could not be disallowed merely for want of justification. It is, therefore, directed that the entire expenses claimed by the assessee should be allowed.

5. In regard to the brought-forward losses, the I.T.O. refused to adjust them against the income of the assessee because "this income is not from the same source". The learned A.A.C. has also maintained the order of the I.T.O. on the same ground. The brought-forward losses can be set off u/s 35 of the Ordinance where the loss in any assessment year is under the head income from business or profession. Under that section, so much of the loss as had not been set off u/s 34 or whole of the loss where the assessee has no income under any other head, is to be carried forward to the following assessment year and set off against the profit and gains, if any, of such business or profession assessable for that year and if such business or profession continues to be carried on by the assessee for that assessment year. It is not the case of the department that the assessee discontinued the business. It is pertinent to note here that the continuation of business like the one which is carried on by the assessee, does not mean that contracts must be obtained in each year so as to term it as carrying on the business. The very fact that the assessee is maintaining the head office and the fact that the assessee has not informed the I. T .O. that he discontinued the business, indicates that the company is carrying on the business. In General Corporation Limited v. C.I.T. Madras reported as (1935)-3-I T R-350 a similar question arose. In that case a company engaged in the business of mining mica, stopped' its work on account of cyclone, with the object of resuming the same. The work was, however, not actually resumed. The assessee incurred expenditure during inactivity of the business and claimed it to be adjusted against the assessee's profits from other business. The High Court held the expenditure as allowable and also observed:

"Whether the business was being carried on must depend in each case on its own facts and not on any general theory of law. "

In the present case the assessee was still in the business and has not even temporarily discontinued it nor the assessee went into inactivity. In these circumstances, the brought-forward losses have to be set off against the income declared by the assessee under the head income from business or profession. The income declared by the assessee has to be assessed and in fact has been assessed as income from business or profession. Therefore even otherwise brought-forward losses had to be set off against the income of the assessee u/s 35 of the Ordinance. It may further be noted that the brought-forward losses have to be set off against the profit and gains "of such business or profession" and not from the 'same business' as has been observed by the I.T.O. as well as by the learned A.A.C. There is a difference between 'such business' and the 'same business'. I, therefore, direct that the brought forward loss of the assessee should be set off against the income declared by the assessee. The appeal is accepted.

M.B.A./401/T Appeal accepted.

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