NARAIN SWADESHI WEAVING MILLS versus THE COMMISSIONER OF EXCESS PROFITS TAX

Citation: [1955] 1 S.C.R. 952 · Decided: 25-10-1954 · Supreme Court of India · Bench: MEHR CHAND MAHAJAN · Disposal: Appeal(s) allowed

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Judgment (excerpt)

952 
SUPREME COURT REPORTS 
NARAIN SW ADESHI WEAVING MILLS 
"· 
THE COM;MISSIONER OF EXCESS 
PROFITS TAX. 
[1955] 
[MEHR CHAND MAHAJAN C. J., S. R. DAs, 
GHULAM HASAN, BHAGWATI and 
VENKATARAMA AYYAR JJ.J 
),- . 
Excess Profits Tax Act (XV of 1940), ss. 2(5), 5, JO-A-Condi-
tion precedent to -applicability of s. 10-A-"Business" if can be 
defined-What is "business", how determined. 
As condition precedent to the applicability of section 10-A of 
the Excess Profits Tax Act, 1940, it must be proved that during the 
chargeable accounting period the assessee was carrying on the kind 
of business to which the Act applies by virtue of section 
5 of the 
Act. 
Section 2(5) of the 
Act states what is included in the word 
"business". 
It is 
not possible 
to lay down 
a general definition 
which would cover all cases of business. 
Business 
involves the 
fundamental idea of a continuous activity. 
It connotes some real, 
substantial and systematic or organised course of activity 
with a 
set purpose. 
Single isolated 
transaction may also 
bear the clear 
indicia of trade or an adventure in the nature of trade which is 
included in the word "business" mentioned in section 2(5) of the ,,__. 
Act. 
Hence whether a particular source of income is business or 
not must be decided on the facts and circumstances of each 
case 
according to our ordinary conception of business. 
Since 1935 the assessee firm carried on the business of manu-
facturing ribbons and laces and for this purpose owned buildings, 
leasehold rights, plant, machinery etc. 
On April 71 1940, a public 
limited · liability· ·company was 
incorporated with the 
object of 
acquiring and taking over the 
buildings, leasehold 
rights, 
plant, 
machinery etc., from 
the assessee firm. 
The company 
purchased 'r' 
leasehold rights in the lands and buildings where plant, machinery 
etc. were installed. 
The assessee firm 
as such ceased to manu-
facture ribbons and laces and was left with plant and machinery 
etc. whichi it did not require and which ceased to be commercial 
asset in the hands of the firm. 
The land and the buildings having 
been sold the assessee firm put it out of its power to use the plant, 
machinery etc. In these circumstances the company took and the 
assessee firm granted a lease 
of the plant, 
mac~inery etc., at an 
annual rent of Rs. 40,000. 
Held, that this lease of the plant, machinery etc., given by the 
asscssee firm could not be "business" 
within the meaning of sec- """ 
tion 2(5) of the Excess Profits Tax Act, 1940. 
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S.C.R. 
SUPREME COURT REPORTS 
953 
Commissioner of Excess 
Profits Tax, Bombay City v. Shri 
Lakshmi Silk Mills Ltd. ((1952) S.C.R. I), distinguishe,d. 
Inland Revenue Commissioner v. Broadway Car Co., Ltd. ( (1946] 
2 A.E.R. 609), relied upon. 
Commissioner of Income-tax v. Shaw 
Wallace & Co., ([1932) 
I.LR. 59 Cal. 1348), referred to. 
CIVIL 
APPELLATE 
JURISDICTION : 
Civil 
Appeal 
No. 145 of 1953. 
Appeal by Special 
Leave from the Judgment and 
Order dated the 8th day of 
September, 1950, of the 
High Court of Judicature for the 
State of Punjab at 
Simla in Civil Reference No. 3 of 1949. 
Achhru Ram (R. S. Narula and Naunit Lal, 
with 
him) for the appellants. 
M. C. Setalvad, Attorney-General for India, ( G. N. 
Joshi and P. G. Gokhale, with him) for the respondent. 
1954. October 25. The 
Judgment 
of the 
Court· 
was delivered by 
DAs J.-This appeal by special leave arises out of a 
consolidated reference made on the 19th 
April, 1949, 
under section 66(1) of the Indian Income-tax Act read 
with section 21 of the Excess 
Profits Tax Act by the 
Income-tax Appellate Tribunal, Madras 
Bench. . The 
reference arose out of four several proceedings for· assess-
ment to 
excess 
profits 
tax of the 
appellant, 
the 
chargeable accounting periods 
being 
periods 
ending 
with 31st March of each of the 
years 1942, 1943, 1944 
and 1945. 
The relevant facts appearing from the consolidated 
statement of the case are as follows :-
Narain Swadeshi Weaving Mills, the appellant before 
us (hereinafter referred to as the assessee firm), is a 
.firm constituted in 1935 upon 'terms and conditions set 
forth in a deed of partnership dated the 6th 
November, 
1935. 
The partners were Narain Singh and two of his 
sons, Ram Singh and Gurdayal Singh, their 
respective 
shares in the partnership being 6 annas, 5 · annas and 
5 annas. The business of the firm which was carried on 
1954 
Narain Swaduhi 
Weavi

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