Commissioner Of Income-Tax, Calcutta vs J. K. Eastern Industries (Private) ... on 19 June, 1963
6. By the terms of its memorandum of association, the assessee could not do any business in groundnuts and masoor. Carrying on of that business was not by itself illegal but was illegal in so far as it was beyond the authority of the assessee to do such a business in view of the memorandum of association of the company. It is now well settled that, even if the business is illegal, it would still be a business within the meaning of the Income-tax Act ; if any profits are derived from such business, the same are assessable and there cannot be any distinction between the losses and profits of the illegal business. In our view, whether the transaction is or is not within the powers of a company has no bearing upon the nature of the transaction or on the question whether the profits arising from the transactions are assessable as revenue profits or not. Reference may be made to the decision of this court in the case of CIT v. J. K. Eastern Industries (P) Ltd. [1965] 55 ITR 376. In that case also, the assessee-company, who were the managing agents of a flour mill and who were not regular dealers in twills or hessians, carried on certain speculative purchases and sales on a large scale of twills and hessians and incurred losses. The claim was disallowed by the Income-tax Officer on the ground
that the transactions were outside the scope of the powers of the company under the memorandum of association and also on the ground that the transactions were not in the nature of trade. The Tribunal held that the sales and purchases were adventures in the nature of trade and allowed the losses as business losses. The decision of the Tribunal was upheld by this court and the loss was allowed even though such business was not within the scope of the powers of the company under the memorandum of association.