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PETITIONER: B. R. LTD.

       Vs.

RESPONDENT: V.   P. GUPTA, C.I.T., BOMBAY

DATE OF JUDGMENT03/05/1978

BENCH: CHANDRACHUD, Y.V. ((CJ) BENCH: CHANDRACHUD, Y.V. ((CJ) TULZAPURKAR, V.D.

CITATION:  1978 AIR 1320            1978 SCR  (3) 877  1978 SCC  (3)  70

ACT: Income  Tax  Act, 1922, S. 24(2) as it stood  prior  to  its amendment  by  the Finance Act, 1955-Interpretation  of  the expression  "same business" occurring in  S.  24(2)-Decisive tests  to show the "same business" for the purpose  of  "set off" of loss in previous year.

HEADNOTE: The  appellant  used  to carry on business  in  (i)  general insurance (ii) brokerage and commission and (iii) import and sale of woollen fabrics, leather beltings, hardware,  toilet goods,  chemicals and cotton fabrics etc.  The  business  of import and sale was closed by the appellant towards the  end of  the calendar year 1952, corresponding to the  assessment year  1953-54.   In  that year, the  appellant  suffered  an accumulated  business  loss  of  Rs.  56,488/-.   From   the assessment  year 1954-55 i.e. from the commencement  of  the calendar year 1953, the appellant started exporting textiles instead  of  importing  woollen  fabrics.   "The   appellant claimed that the loss of Rs. 56,488/- incurred by it on  the import  and sale of articles should be set off  against  the profits  made  by it during the  assessment  years  1954-55, 1955-56  and  1956-57.   The  Income  Tax  Officer  and  the Appellant  Assistant Commissioner rejected the claim on  the ground that the business of importing and selling goods  was distinct and separate from the business of exporting  goods; that  the import and export business did not constitute  the "same  business";  and  that  as  the  import  business  was discontinued and did not exist in the assessment years 1954- 57  the  unabsorbed loss could not be set  off  against  the profits  in the export business.  The revision  applications filed before the Commissioner were rejected. Allowing the appeals by special leave the Court HELD,:    1.  Under  Section 24(2) of the  Income  Tax  Act, 1922, an unabsorbed loss could be carried forward to be  set off against the profits of a subsequent year or years,  only if  such  profits  accrued to the  assessee  from  the  same business  and not otherwise.  In law, the two  words  "same’ and "similar" connote different concepts and, therefore, the carrying  on  of  a  similar  business  will  not  meet  the requirements  of  the section.  The business has to  be  the same  as before.  But though this is so, it is not  possible

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to  evolve a satisfactory test of universal application  for determining   whether,  the  business  which   an   assessee carries--on  in a year in which he has made profits  against which  a carried forward loss could be set off is  the  same business  which he was carrying on in the year in  which  he incurred  the  loss.   The determination  of  the   question whether  an  assessee  is  carrying  on  in  two   different accounting periods the same business depends essentially  on the  facts  of  each particular case,  though  the  decision whether  an assessee is carrying on the same business  is  a mixed question of law and fact.[881 H, 882 A-D] Satabganj  Sugar Mills Ltd. v. Commissioner of  Income  Tax, Central, Calcutta, 41 I.T.R. 272; followed. 2.   The  objective tests or the "fairly adequate tests"  as laid down by the decisions    of  Courts,  for   determining whether the two businesses constituted the same   business" within the meaning of S. 12B(1) of the Act, 1922 are               (i)   Whether  there is any  inter-connection,               any inter-lacing, inter-dependency, any  unity               at  all  embracing the two businesses  of  the               assessee.               (ii)  Whether  there is in-existence a  common               management, common fund and a common place  of               business.               878               (iii) Complete  unity of control and  not  the               nature of the two lines of business should  be               the deciding factor and;               (iv)  Non   existence   of  any   element   of               diversity  or distinction or  separateness  in               regard to both the businesses. [882 G, 883  G-               H, 884 F] Scales   v.  George  Thompson  &  Co.  13  Tax   Cases   83; Commissioner  of  Income Tax, Madras V. Prithivi  Ins.   Co. Ltd., 63 I.T.R., 632; Hooghly Trust (P) Ltd. v. Commissioner of Income Tax, West Bengal, 73 I.T.R. 685; Produce  Exchange Corporation  Ltd., v. Commissioner of Income  Tax  (Central) Calcutta 77 I.T.R. 73; Standard Refinery and Distillery Ltd. v. Commissioner of Income Tax (Central), Calcutta, 79 I.T.R. 589; followed.               3.    In the instant case               (a)   The Commissioner was wrong in taking the               view that the business which the appellant was               doing in the relevant assessment years was not               the  same business which it was doing when  it               incurred   the  unabsorbed  loss.   A   common               management, a common business organisation,  a               common  administration,  a common fund  and  a               common  place of business show in the  instant               case  the inter-lacing and interdependence  of               the  businesses carried on by  the  appellant.               [884 F-G]               (b)   The    Commissioner   relied   on    the               circumstances  that "there is a  distinct  and               marked difference in the nature of goods dealt               with"  by  the appellant and,  "the  procedure               involved  in  the  import  of  articles   from               foreign  countries and the export of  articles               manufactured  in  India to  different  foreign               countries   is  entirely  different".    These               circumstances are not by themselves sufficient               to establish that the business of import which               the  appellant  was  doing  is  not  the  same               business  as  that of  export.   The  decisive               test,  as  held  by  this  Court  in   Produce

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             Exchange Corporation; is unity of control  and               not  the nature of the two lines of  business.               [884 H, 885 A-B]               (c)   The  Commissioner  also  fell  into  the               error  of supposing that, apart from the  fact               that the two activities must form an  integral               part   of  the  entire  business,  the   "main               consideration which has to prevail is whether,               "notwithstanding  the fact that  the  assessee               may close one activity, it does not  interfere               in  carrying on of the other  activity".   The               fact that one business cannot conveniently  be               carried on after the closure of the other  may               furnish  a  strong  indication  that  the  two               businesses constitute the same business.   But               the   decision  of  this  Court   in   Prithvi               Insurance Co. shows that no decisive inference               can  be  drawn from the fact  that  after  the               closure  of one business, another may  or  may               not conveniently be carried on.[885 B-C]               (d)   The Commissioner also overlooked that in               the  report  dated  June 6,  1962,  which  the               Income-Tax   Officer  made  in  the   revision               application  filed  by the appellant,  it  was               expressly stated that it was true that  "there               was a common control and common management  of               the  same Board of Directors" of the  business               of  import  and  export.  Thus  the  unity  of               control  and the other circumstances  adverted               to  above show that there was  dovetailing  or               inter-lacing  between the business  of  import               and  the business of export carried on by  the               assesses  and  that they constitute  the  same               business. [885 C-D]               and  (e) The appellant is entitled to set  off               the  unabsorbed  loss of the  assessment  year               1953-54 against the profits of the  assessment               years 195455, 1955-56 and 1956-57. [885 E]

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeal Nos.  1594-1596 of 1972. From  the Judgment and Order dated 18-1-1972 of the  Commis- sioner of Income Tax at Bombay in Revision Petition B.C. No. RP/ V/Nos. 374-376 of 1960. 879 Ravinder  Narain,  K.  J.  John and  Talat  Ansari  for  the Appellant. R. M. Dhebar, K. C. Dua and A. Subhasini for the Respondent. The Judgment of the Court was delivered by CHANDRACHUD,  C.J.-The appellant which is a  public  limited company  incorporated  under  the Indian  Companies  Act  is authorised by its memorandum and articles of association  to carry  on business, inter alia, as importers, exporters  and insurance agents. We are concerned. in these appeals with the assessment years 1954-55, 1955-56 and 1956-57 corresponding to the accounting years  1953, 1954 and 1955.  The appellant used to carry  on business  in  (i)  general  insurance,  (ii)  brokerage  and commission,  and (iii) import and sale of  woollen  fabrics, leather beltings, hardware, toilet goods, chemicals,  cotton fabrics, etc.  The business of import and sale was closed by the  appellant  towards the end of the  calendar  year  1952

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corresponding  to  the assessment year 1953-1954.   In  that year the appellant suffered an accumulated business loss  of Rs. 56,488/-. From  the assessment year 1954-55, that is to say, from  the commencement  of  the  calendar  year  1953,  the  appellant started  exporting  cotton  textiles  instead  of  importing woollen  fabrics which, as stated earlier, it had ceased  to do towards the end of the calendar year 1952.  The appellant claimed that the loss of Rs. 56,488/- incurred by it on  the import  and sale of articles mentioned above should  be  set off  against  the profits made by it during  the  assessment years 1954-55, 1955-56 and 1956-57. The   Income-tax   Officer  and  the   Appellate   Assistant Commissioner  rejected and appellant’s claim on  the  ground that  the  business  of  importing  and  selling  goods  was distinct and separate from the business of exporting  goods; and since the import business which the appellant was  doing till the commencement of the assessment year 1953-54 and the export  business which it commenced in the  assessment  year 1954-55  did  not constitute the same business  and  as  the business  of  import  in which the  loss  was  suffered  was discontinued or did not exist in the assessment years  1954- 55  to 1956-57, the unabsorbed loss of the  assessment  year 1953-54  could not be set off against the  profits  realised from the other business in subsequent years. Instead  of  filing an appeal to  the  Income-tax  Appellate Tribunal,  the appellant filed revision applications to  the Commissioner  of  Income-tax  against  the  orders  of   the Appellate  Assistant Commissioner, under section 33A of  the Income-tax Act, 1922.  The revision applications were  filed on  June 15, 1960 but it was on January 18, 1972  that  they were disposed of by the Commissioner, Bombay City-V, Bombay. The  reason for the delay seems to be that the  Commissioner was  awaiting  the decision of a case which, it  seems,  was ultimately withdrawn. 880 It  was  urged  on  behalf  of  the  appellant  before   the Commissioner that the business of import and export was  one and  the same business as both activities involved  purchase and  sale of goods and that the place where the  goods  were purchased or sold would not make any material difference  as far  as the nature of business was concerned.  In his  order dated  January  18,  1972  the  Commissioner  observed  that apparently  this  argument was well-founded but  a  detailed scrutiny of the nature of the two businesses would show that the  nature of the articles imported was entirely  different from  the nature of the articles exported and the  procedure involved  in  the  import and export of  articles  was  also entirely  different.   The Commissioner found  that  whereas until  the commencement of the assessment year  1954-55  the appellant was dealing in woollen fabrics and other articles, it started dealing in cotton textiles only with effect  from the assessment year 1954-55.  Relying upon a judgment of the Calcutta  High  Court in Shree Ramesh Cotton Mills  Ltd.  v. C.I.T.  Calcutta(1) the Commissioner held that the  business of import of certain articles in one year and the export  of other  articles in other years were not dovetailed into  one another  and there was no inseparable link between  the  two activities.   The  fact that the same capital and  the  same management  looked  after the businesses  in  the  different ventures would not, according to the Commissioner, make  the import  and export businesses carried on in different  years the  same business.  The Commissioner’s attention was  drawn to a judgment of this Court in Produce Exchange  Corporation Ltd.  v. C.I.T. (Central) Calcutta(2) but he felt  that  the

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decision was distinguishable since the appellant therein was carrying on business in diverse commodities in the same year and  the  import business was stopped in  subsequent  years. Consequently,   the  Commissioner  rejected   the   revision applications  pertaining  to  the  three  assessment  years. These  appeals  by special leave are  directed  against  the orders passed by the Commissioner. Section 6 of the Indian Income-tax Act, 1922, which  corres- ponds  to  section  14 of the Act of  1961,  classified  all income  for  the  purposes  of  charge  of  income-tax   and computation  of  total income under six  heads,  the  fourth being   "profits  and  gains  of  business,  profession   or vocation".   Section  10(1)  of the Act of  1922  taxed  the profits  of business, profession or vocation carried  on  by the assessee.  By section 24(1) of that Act any assessee who sustained a loss of profits or gains for any year under  any of the heads mentioned in section 6 was entitled to have the amount  of the loss set off against his income,  profits  or gains  under  any other head in that year.   Section  24(2), prior to its amendment by the Finance Act, 1955, read thus               "Where any assessee sustains a loss of profits               or  gains in any year, being a  previous  year               not  earlier  than the previous year  for  the               assessment  for the year ending on the 3 1  st               day   of   March,  1940,  in   any   business,               profession or voca-               (1) 64 ITR 317.               (2) 77 ITR 739.               881               tion,  and the loss cannot be wholly  set  off               under sub-section (1), so much of the loss  as               is not so set off or the whole loss where  the               assessee had no other head of income shall  be               carried forward ’to the following year and set               off against the profits and gains, if any,  of               the   assessee   from   the   same   business,               profession or vocation for that year;               Section 16 of the Finance Act, 1955, in so far               as  relevant, substituted the  following  sub-               section for the original sub-section (2)  with               effect from April 1, 1955 :               "Where any assessee sustains a loss of profits               or  gains in any year, being a  previous  year               not  earlier  than the previous year  for  the               assessment for the year ending on the 31st day               of March, 1940, in any business, profession or               vocation,  and the loss cannot be  wholly  set               off under subsection (1), so much of the  loss               as is not so set off or the    whole      loss               where the assessee had no other head of income               shall  be  carried forward  to  the  following               year, and               (ii)  where  the loss was sustained by him  in               any other business, profession or vocation, it               shall be set off against the profits and gains               if   any,  of  any  business,  profession   or               vocation  carried  on  by him  in  that  year,               provided  that  the  business,  profession  or               vocation  in  which the  loss  was  originally               sustained continued to be carried on by him in               that year; and The  Commissioner’s  orders  which  are  impugned  in  these Appeals  show  that the revision  applications  were  argued before him on the footing that sub-section (2) of section 24 as it stood before its amendment in 1955 governs the matter.

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The  appeals  before us were argued on the same  basis  and, therefore,  our decision must turn on the interpretation  of the expression "same business" which occurs in section 24(2) as it stood then.  We may, however, add that even under  the amended provision, the consideration whether in the year  of profit the assessee was carrying on the same business  which he was carrying on in the year in which the unabsorbed loss, occurred  is  not  irrelevant.   Indeed,  it  is  not   even irrelevant for the purposes of section 72 of the  Income-tax Act,  1961, which corresponds to section 23(2) of  the  1922 Act.  After the amendment of section 24(2) in 1955 and under section 72 of the Act of 1961, the right to carry forward an unabsorbed  loss  depends upon whether  the  assessee  still carries  on  the business in which the  loss  was  incurred. That  involves  consideration of the  question  whether  the business carried on by the assessee is the same which he was carrying on when he suffered a loss. Under  section 24(2) of the Act of 1922, an unabsorbed  loss could  be carried forward to be set off against the  profits of a subsequent year or years, only if such profits  accrued to the assessee from the 882 same  business and not otherwise.  It is elementary that  in law,  the two words ’same’ and ’similar’  connote  different concepts and therefore the carrying on of a similar business will not meet the requirements of the section.  The business has to be the same as before.  But though this is so, it  is not  possible  to evolve a satisfactory  test  of  universal application  for determining whether, the business which  an assessee  carries on in a year in which he has made  profits against  Which a carried forward loss could be set  off,  is the  same business Which he was carrying on in the  year  in which he incurred the loss.  Decided cases to which we  will presently refer show that the determination of the  question whether  an  assessee  is  carrying  on  in  two,  different accounting periods the same business depends essentially  on the  facts  of  each particular case  though,  the  decision whether an assessee is carrying on the same business is,  as held by this Court in Setabganj Sugar Mills Ltd. v.  Commis- sioner of Income-tax, Central, Calcutta(1), a mixed question of  law  and fact as the question has to be decided  on  the application  of  various  tests in so far  as  they  may  be applicable.   Since  legal  principles are  required  to  be applied to the facts found and legal inferences are required to be drawn from those facts, the question assumes the  form of a mixed question of law and fact and ceases to be a  mere question of fact. In Scales v. George Thomson & Co.,(2) the respondent company was incorporated in 1905 to take over as a going concern the business  of  George Thompson & Co.,  shipowners,  ship  and insurance brokers, underwriters and merchants.  The question regarding  the  computation of income-tax liability  of  the company concerned the underwriting activities carried on  by the  company.  The Revenue contended that the whole  of  the operations of the company constituted one trade,  profession or  vocation  only  while the  company  contended  that  the underwriting  was a separate trade, profession or  vocation, from  that  of shipowning and that on the cessation  of  the underwriting  activities  in  1920  the  results  of   these activities  in the years 1918, 1919’ and 1920 should not  be included  in  computing  the  income-tax  liability  of  the company for the year ending April 1922.  For  answering  the question  whether the operations of the company  constituted one  trade, profession or vocation, Rowlatt,  J.  formulated the following test

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             "I  think the real question is, was there  any               inter-connection, any interlacing, any  inter-               dependence,  any unity at all embracing  those               two businesses". Applying this test the learned Judge held that the business, of the company as shipowners was different from its business as   underwriters  because  the  two  businesses  were   not interlaced or dovetailed into each, other. (1)  41 ITR 272. (2)  13 Tax Cases 83. 883 In  Commissioner of Income-tax, Madras v. Prithvi  Insurance Co. Ltd.,(1) the respondent company carried on the  business of  life insurance as well as general insurance.  Both  life insurance and general insurance businesses were attended  to by  its branch managers and agents without any  distinction. There  was  one common administrative Organisation  and  the expenses  incurred both for administration and for heads  of expenditure  such  as salary of the  staff,  postage,  staff welfare fund and general charges, were common.  The question was whether the unabsorbed losses of the respondent  company for the assessment year 1950-51 and earlier years in respect of  life  insurance business could be set  off  against  its profits of the general insurance business for the assessment years  1951-52 to 1954-55 under section 24(2) of the  Indian Income-tax  Act,  1922.  Speaking for the  Court,  Shah,  J. adopted  the  test  evolved  by Rowlatt,  J.  as  a  "fairly adequate  test" for determining whether the  two  businesses constituted  the  same  business and  held  :  "That  inter- connection,  interlacing,  inter-dependence  and  unity  are furnished   in  this  case  by  the  existence   of   common management,    common    business    Organisation,    common administration, common fund and a common place of business". The Court rejected the Commissioner’s argument that  whether one  of the businesses can be closed without  affecting  the conduct  of  the  other  business was  a  decisive  test  in determining  whether the two constituted the  same  business within the meaning of section 24(2).  If one business cannot be  conveniently carried on after the closure of the  other, said the Court, there would be a strong indication that  the two  businesses  constituted  the "same  business"  but,  no decisive  inference could be drawn from the fact that  after the  closure  of one business another  may  conveniently  be carried on. In Hooghly Trust ( Private) Ltd. v. Commissioner of  Income- tax,  West  Bengal,(2) the question was  whether  the  cloth business and the business in the general section carried  on by  the  assessee constituted the same business  within  the meaning  of section 24(2).  Adopting the test formulated  by Rowlatt,  J., this Court set aside the judgment of the  High Court  and  upheld the one of the Tribunal  that  the  cloth business  never  assumed  the proportion  or  stature  of  a distinct and separate business and that there was sufficient evidence to show dovetailing of the two business. In Produce Exchange Corporation Ltd., v. Commissioner of In- come-tax (Central), Calcutta, (supra) the appellant  carried on  business as a dealer in diverse commodities and also  in stocks and shares.  In the accounting year 1949, it suffered a  loss  in  the sale of shares which it  claimed  to  carry forward  and set off against the profits of  the  subsequent years from transactions in other commodities.  The  Tribunal found  that there was complete unity of control  and  shares were  one  of a number of commodities in which  the  company dealt with in the ordinary course of business and that there was  no element of diversity or distinction of  separateness

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about  the  transaction  in  shares.   Differing  from   the Tribunal the High Court held that the (1)  63 ITR 632. (2)  73 ITR 685. 884 essential matter to be considered was the nature of the  two lines of business and not merely their unity of control  and therefore the entire trading activity of the company did not constitute one business.  Reversing the decision of the High Court  it was held by this Court that the decisive test  was unity  of  control and not the nature of the  two  lines  of business  and  therefore  the  Tribunal  was  right  in  its decision  that  the  share  business  and  other  businesses carried  on  by the company constituted  the  same  business within  the meaning of section 24(2) as it stood before  its amendment in 1955.  This conclusion was reached by the Court by applying the test in Scales, (Supra). There  is only one other judgment to which we would like  to refer  and  that  is  reported  in  Standard  Refinery   and Distillery  Ltd.  v. Commissioner of  Income-tax  (Central), Calcutta.(1) The appellant which owned a distillery and  had acquired a sugar refinery, obtained on lease a sugar and gur refining  company  with  effect from  June-  1,  1945.   The appellant  purchased  a  certain number of  shares  of  that company in 1 946 and sold them in 1947 at a loss.  A part of this  loss was unabsorbed and the question which  arose  for consideration was whether the appellant could carry  forward that  loss  and  set it off against the  income  from  sugar manufacturing  and  distillery  for  the  subsequent   year. Hegde, J. speaking for the.Court observed that the  concepts of  inter-connection and inter-lacing, inter-dependence  and unity  were not free from ambiguity but that this Court  had laid  down  in  Prithvi Insurance Co.  (Supra)  and  Produce Exchange  Corporation  (Supra) certain objective  tests  for finding out the existence of inter-connection, inter-lacing, interdependence and unity between two or more business.   On an  application of those objective tests, to which  we  have already  referred, the Court set aside the judgment  of  the High  Court  and upheld the view of the  Tribunal  that  the activities  of  the company constituted  the  same  business since  there was complete unity of control, shares were  one of a number of commodities in which the company dealt in the ordinary  course of business and since there was no  element of diversity or distinction or separateness in regard to the transaction  in shares qua the other trading  activities  of the company- In  the  light  of  the objective  tests  evolved  in  these decisions, not forgetting of course the basic formulation of Rowlatt,  J.  in  Scales, we are of  the  opinion  that  the Commissioner was wrong in taking the view that the  business which  the  appellant was doing in the  relevant  assessment years  was not the same business which it was doing when  it incurred the unabsorbed loss.  A common management, a common business  Organisation,  a common administration,  a  common fund and a common place of business show in the instant case the  interlacing  and  inter-dependence  of  the  businesses carried on by the appellant. In  support  of his conclusion that the two  businesses  are different, the Commissioner relies on the circumstances that "there is a distinct and marked difference in the nature  of goods dealt with" by the appel- (1)  79 ITR 589. 885 lant and, "the procedure involved in the import of  articles from   foreign   countries  and  the  export   of   articles

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manufactured  in  India to different  foreign  countries  is entirely   different".   These  circumstances  are  not   by themselves  sufficient  to establish that  the  business  of import  which  the  appellant  was doing  is  not  the  same business  as that of export.  The decisive test, as held  by this Court in Produce Exchange Corporation, (Supra) is unity of control and not the nature of the two lines of  business. The Commissioner also fell into the error of supposing that, apart  from  the fact that the two activities must  form  an integral   part   of   the  entire   business,   the   "main consideration   which   has   to   prevail   is"    whether, "notwithstanding  the fact that the assessee may  close  one activity, it does not interfere in carrying on of the  other activity".   The fact that one business cannot  conveniently be  carried on after the closure of the other may furnish  a strong  indication  that the two businesses  constitute  the same  business.  But the decision of this Court  in  Prithvi Insurance Co., (Supra) shows that no decisive inference  can be  drawn  from  the  fact that after  the  closure  of  one business, another may or may not conveniently be carried on, The  Commissioner also overlooked that in the  report  dated June  6,  1962,  which the Income-tax Officer  made  in  the revision  applications  filed  by  the  appellant,  it   was expressly  stated that it was true that "there was a  common control   and  common  management  of  the  same  Board   of Directors"  of the business of import and export.  Thus  the unity  of  control and the other circumstances  adverted  to above show that there was dovetailing or interlacing between the business of import and the business of export carried on by the assessee and that they constitute the same business. For  these  reasons, we set aside the orders passed  by  the Commissioner and hold that the appellant is entitled to  set off  the,  unabsorbed loss of the  assessment  year  1953-54 against the profits of the assessment years 1954-5S, 1955-56 and  1956-57.   The  appellant will get  its  costs  of  the appeals in one set from the respondent. S.R.                          Appeals allowed. 886