http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8  

PETITIONER: HOOGLY TRUST (PRIVATE) LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, WEST BENGAL ANDANDAMAN AND NICOB

DATE OF JUDGMENT: 04/02/1969

BENCH: GROVER, A.N. BENCH: GROVER, A.N. SHAH, J.C. RAMASWAMI, V.

CITATION:  1969 AIR  946            1969 SCR  (2) 557  1969 SCC  (1) 535  CITATOR INFO :  RF         1978 SC1320  (12)  R          1986 SC1483  (4)

ACT: Income-tax Act (11 of 1922), s. 24(2) (before its  amendment by the Finance Act of 1955)-Business in several commodities- Loss  in  one-Set  off claimed against  profits  in  others- Question   of   fact-When  High  Court   can   examine   its correctness.

HEADNOTE: The  assessee  carried on business  in  several  commodities including cloth.  In the assessment years 1953-54 and  1954- 55 the assessee suffered loss in cloth business, and it  was determined  for the purposes of s. 24(2) of  the  Income-tax Act,  1922  (as  it stood before  the  amendment  in  1955). During the subsequent three assessment years, the Income-tax Officer  refused to allow the carry forward of these  losses and  their  set off against the business  profits  of  those years  on  the  ground that the  losses  determined  in  the preceding  years arose out of the cloth business  which  was different from the other business carried on by ’the He held that since the cloth business was not carried on during  the relevant  year  of account the loss therefrom  in  preceding years  could  not be carried ,forward and set  off  against profits   of  other  business.   The   Appellate   Assistant Commissioner   agreed  with  the  Income-tax  Officer. Me Tribunal  found  (i) that the assessees  dealings  in  cloth started  very  early and the introduction  of  control  only changed the procedure of carrying on the business, (ii) that the assessee has been doing business in several  commodities and its  trading  in each  commodity  did  not  constitute separate  business,  (iii)  that the  cloth  business  never assumed  the  proportion or the stature of  a  distinct  and separate  business and (iv) that there was evidence to  show dovetailing of cloth business into the general section.  The question,   as   to  whether  on  the  facts  and   in   the circumstances  of  the  case, the  cloth  business  and  the business  in  the  general  section  constituted  the   same business  within the meaning of s. 24(2) as it  stood  then,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8  

was  referred  to the High Court.  Relying on  most  of  the facts  determined by the Appellate Assistant  Cormmissioner, the  High Court answered the question against the  assessee. In  appeal, to this Court, the assessee contended  that  (i) the findings on questions of fact given by the Tribunal were final and it was not open to the High Court to examine their correctness  in  the absence of any proper question  on  the point;  and (ii) on the findings of the Tribunal the  losses on  account  of  cloth business were liable  in  law  to  be carried  forward and set off against the profits during  the relevant assessment years. HELD : The question must be answered in the affirmative  and in favour of the assessee. (i)In  spite  of the form in which the question  had  been referred  it was not open to the High Court to  examine  the correctness of the conclusions of the Tribunal on-facts.  If the Tribunal does not consider the evidence covering all the matters  and  bases  its findings upon  some  evidence  only ignoring  other  essential material that would amount  to  a misdirection  in law and the findings would give rise  to  a question liable to be referred to the High Court.  But it is equally well settled that if the question about the validity of  the  findings  of fact-is sought to be  raised  for  one reason or 558 another,  reference of a proper question  challenging  those findings  must first be sought before those findings can  be challenged  before  the  High Court.  No  attempt  was  made before  the Tribunal to have any such question referred  and in  the absence of a proper question it was not open to  the High    Court   to   accept   the   findings   of   the    A appellate  Assistant  Commissioner in  preference  to  those given  by  the  Tribunal  or  to  come  to  any  independent conclusion  itself  on  the faces.  The  Tribunal  does  not appear  to have discussed the entire evidence on  which  the findings were based but the order of the Appellate Assistant Commissioner and his findings as also the entire record were before  it  and  there is nothing to suggest  that  all  the material facts were not present to its mind except that they are not mentioned in detail.  Its findings, therefore,  must be accepted as final and the only question which it was open to the High Court to examine was whether the cloth  business could be regarded as the same business within the meaning of s. 24(2) of the Act. [563 B-D; 563 G] India Cement Ltd. v. Commissioner at Income-Tax, Madras,  60 I.T.R.  52,  64  and Hazarat Pir  Mahomed  Shah  Saheb  Roza Committee v. Commissioner of Income-tax, Gujarat, 63  I.T.R. 490, 496, referred to. (ii)The question whether on the application of the  settled tests different ventures carried on by the assessee from the same  business  for  the  purpose of s.  24(2)  is  a  mixed question  of law and fact.  The fair test is  whether  there was any inter-connection, any inter-lacing, any inter-depen- dence, any unity were found to exist by virtue of the common management,    common    business    Organisation,    common administration,  common fund and common place  of  business. [564 D-E] Setabganj  Sugar Mills Ltd.  V. Commissioner of  Income-tax, Central,  Calcutta,  41 I.T.R. 272, 274,  Scales  v.  George Thompson & Co. Ltd., [1927] 13 T.C. 83; Manilal Dahyabhai v. Commissioner  of Income-tax, Bombay City, 37 I.T.R. 398  and Commissioner of Income-tax, Madras v. Prithvi Insurance  Co. Ltd. 63 I.T.R. 632, 637, referred to. Applying these principles the conclusions which the Tribunal arrived at were correct.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8  

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeals No.  1659  to 1661 of 1968.  Appeals from the Judgment and order dated March 26, 1965 of the  Calcutta High Court in Income-tax Reference No. 130  of 1961. Sukumar Mitra and D. N. Mukherjee, for the appellant (in all the appeals). S.T.  Desai, S. K. Aiyar, R. H. Dhebar and B. D.  Sharma, for the respondent (in all the appeals). The Judgment of the Court was delivered by Grover,  J.  These three appeals are by certificate  from  a common  judgment  of the Calcutta High Court  answering  the following  question  referred  to  it  by  the  Income   Tax Appellate Tribunal in the negative and against the assessee               "Whether on the facts and in the circumstances               of  the  case,  the  cloth  business  of   the               assessee  and  its  business  in  the  General               Section constituted the same business               559               within. the meaning of s. 24(2) of the  Indian               Income-tax  Act  as it stood at  the  material               time." According  to  the statement of the case the assessee  is  a private  limited  company owning shares and  securities  and also  doing  business.  The relevant  assessment  years  are 1955-56, 1956-57, 195758, the corresponding accounting years being  the  calendar  years 1954, 1955  and  1596.   In  the assessment   for  the  years  1953-54  and  1954-55   losses amounting  to Rs. 2,13,898 and Rs. 46,050 respectively  were determined  for the purposes of s. 24(2) of the  Income  tax Act  1922, hereafter called the "Act".  In the first year  a loss  of Rs. 2,08,686/- arose in cloth business whereas  the balance of the loss occurred in the General section and  the manure  section.   In the second year a loss of  Rs.  46,050 occurred  mainly  in  cloth  business.   During  the   three assessment years in question the Income tax Officer  refused to allow the carry forward of these losses and their set off against  the business profits of those years on  the  ground that the losses determined in the preceding years arose  out of  the  cloth business which was different from  the  other business  carried  on by the assessee and  since  the  cloth business  was  not carried on during the  relevant  year  of account  the loss therefrom in preceding years could not  be carried  forward  and set off against profits of  the  other business.  The Appellate Assistant Commissioner agreed  with the  conclusion of the Income tax Officer.  He rejected  the contention  of  the asessee that  common  ownership,  common direction and control, common financial arrangement,  common staff and common balance sheet necessarily established  that the  business  was  single.   He  took  the  view  that  the character  of the cloth business carried on by the  assessee was  entirely  different from the other business.   He  laid particular emphasis on the fact that the assessee acted as a distributing agent on behalf of the Government for cloth and cement  and  the mode of carrying on of  that  business  was altogether different from that of its ordinary business.  He referred to the fact that the cloth business had a  separate overdraft  account with the Bank with which stocks of  cloth had been pledged and there was separate staff for the  cloth business even though the assessee claimed that a part of the staff  in  the General section also looked after  the  cloth

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8  

business.  The  assessee contended before  the  Tribunal  in appeal  that till the end of 1945 its business was  confined only  to shares and the management of  zamindari  properties and that dealing in cloth began only in 1946 and in 1950 the assessee  was  dealing in manure and in 1952, in  paints  as well.   After the introduction of control on cloth  in  1948 the  company was appointed as a nominated buyer approved  by the  Government  doing  business at  it.,;  own  risk  under conditions  prescribed by the Government by whom  prices  at which  the  goods  were  to be  sold  were  fixed.   Certain expenses  relating to the cloth business like motor car  and godown 560 expenses  were  charged  to  the  General  account,  whereas certain  expenses relating to the General section like  rent and  telephone  charges were charged to  the  cloth  account while  audit fees were allocated to a different  department. The  control over the different activities of  the  assessee was  not exercised by the Director but by common  managerial staff  and  there was  sufficient  financial  inter-relation between  the  cloth business and the General  section.   The Tribunal held that the assessee’s dealings in cloth  started as early as 1946 and that the introduction of control by the Government   changed  the  procedure  of  carrying  on   the business.   It was further found that the assessee had  been doing business in several commodities one after the other or along with the other and apart from the fact that a separate profit and trading account was maintained for cloth business there was nothing to suggest that the cloth business assumed the  proportion or the stature- of a distinct  and  separate business.  It was accordingly held that the transactions  in cloth  were part and parcel of a single business carried  on by  the  assessee  and  the  loss  therefrom  could  not  be segregated as  a  loss from a distinct  business  for  the purpose of s. 24(2) of the Act. The  High Court referred to certain other facts as found  by the Appellate Assistant Commissioner.  It had been found  by him that the assessee was mainly doing banking business from 1942  to  1948 although it had, during that  period,  income from other ,sources.  In the year 1948 it started acting  as the distributing agent of cloth on behalf of the Government. That  business continued till the year 1952 when control  on cloth was lifted.  ’Me assessee disposed of in retail stocks left  over  during the first few months of  the  year  1953. Thereafter  the  assessee  ceased to have  any  dealings  in cloth.  The High Court quoted extensively from the order  of the  Appellate  Assistant Commissioner.  It  felt  that  the Tribunal  had  not dealt with the matter in  a  satisfactory way.  Reference was made to its own decision in another case in which it had been held by the High Court that in order to find out whether the business of an assessee was the same in two different years the primary consideration was the nature of  the  business  and the way  it  was  conducted.   Merely because  the  assessee’s business was one of  a  dealer  in several  kinds of commodities it could not be said  that  it has  only  one business for the purpose of s. 24(2)  when  a part of its activities had come to an end.  Relying on  most of   the  facts  determined  by  the   Appellate   Assistant Commissioner  the  High Court found difficulty  in  agreeing with the view on the Tribunal that there was any dovetailing of  the  cloth business into the General section.   This  is what the High Court said finally:               "In our opinion, (i) that the inference  drawn               by the appellate tribunal was not warranted by               the  facts  on record and (2) that  the  cloth

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8  

             business was separate from               561               the  assessors  business  in  general  section               notwithstanding    that   there    was    some               interconnection of expenses or control." In  order  to  decide the points raised  before,  us  it  is necessary  first to refer to the relevant provisions of  the Act.  Section 6 gives six heads of income profits and  gains which  shall be chargeable to income tax.  Out of these  the fourth head is "profits and gains of business, profession or vocation".   Section  10  taxes  the  profits  of  business, profession or vocation carried on by the assessee.   Section 24(1)  provides that where any assessee sustains a  loss  of profits  or  gains  for  any year under  any  of  the  heads mentioned in s.’ 6, he shall be entitled to have the  amount of  the  loss set off against his income  profits  or  gains under  any  other head in that year.  It is  unnecessary  to refer  to the proviso and the Explanations).  Prior  to  its amendment  by the Finance Act 1955, sub-s. (2) of s. 24  ran as follows :-               "(2)  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 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 of  that               year........               Sub-s.  (2) of s. 24 was substituted by s.  16               of  the  Finance  Act  of  1955  the  material               portion for our purposes being:               "(2)  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 sub-s. (1), so  much  of               the loss as is not set off or the whole  loss’               where the assessee had no other head of income               shall  be  carried forward  to  the  following               year, and               (i)....................................               (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               562               which   the  loss  was  originally   sustained               continued  to  be carried on by  him  in  that               year; and               (iii)............................... The argument before us has proceeded on the footing that the matter has to be decided under sub-s. (2) as it stood before its amendment in 1955.  The principle contentions on  behalf of the appellant-assessee are two-fold.  It is urged firstly

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8  

that  the  findings  Ion  questions of  fact  given  by  the Tribunal were final and it was not open to the High Court to examine  their  correctness  in the absence  of  any  proper question  on  the point. Secondly, on the  findings  of  the Tribunal the losses on account of cloth business were liable in law to be carried forward and set off against the profits during  the  relevant assessment  years. On the  other  hand counsel for the respondent maintains that it was open to the High Court to prefer the findings of the Appellate Assistant Commissioner  to those of the Tribunal because the  Tribunal had  based its conclusions on a misreading of  evidence  and ,on a consideration of irrelevant evidence.  Counsel further says  that the Tribunal’s decision was hardly.a decision  in the eye of law and that it had been rightly held by the High Court  that  the cloth business did not  fall  within  the meaning  of the expression "’the same business" in s.  24(2) of the Act as it stood before the amendment of 1955.  It has been  held  by this Court in Setabganj Sugar Mills  Ltd.  v. Commissioner  of Income tax Central, Calcutta (1)  that  the question  whether  on the application of the  settled  tests different ventures carried on by the assessee form the  same business for the purpose of s. 24(2) is a mixed question  of law  and  fact.  Reference was I made in this  case  to  the princ iple  stated  by  Rowlatt,  J.  in  Scales  v.  George Thompson  & Co, Ltd. (2) that the real question  is  whether there was any inter-connection, any interlacing, any  inter- dependence, any unity at all embracing those two businesses. The following observations from the judgment of this  ,court may be reproduced:               "No  doubt,  findings  of  fact  are  involved               because  a variety of matters bearing, on  the               unity of the business have to be investigated,               such  as  unity of  control  and  management,,               conduct  of  the  business  through  the  same               agency, the inter-relation of the  businesses,               the   employment   of   same   capital,    the               maintenance   of  common  books  of   account,               employment of same staff to run the  business,               the nature of the different transactions,  the               possibility   of  one  being  closed   without               affecting  the  texture of the  other  and  so               forth.   When,  however, the true  facts  have               been determined, the ultimate conclusion is  a               legal  inference from proved facts, and it  is               one of mixed law (1) 41 I.T.R. 272,274. (2)[1927]13  T.C. 83. 563               and fact, on which depends the application  of               S. 24(2) of the Act................ It  is not possible to accept the submission made on  behalf of  the  respondent that in spite of the form in  which  the question had been referred it was open to the High Court  to examine  the correctness of the conclusions of the  Tribunal on facts.  There can be no dispute that if the Tribunal does not consider the evidence covering all the matters and bases its  finding__  upon  some  evidence  only  ignoring   other essential  material that would amount to a  misdirection  in law and the findings would give rise to a question liable to be referred to the High Court.  But it is equally well  set- tled  that if it is sought to raise the question  about  the validity of the findings on fact for one reason or  another, reference  of a proper question challenging  those  findings must first be sought before those findings can be challenged before   the  High  Court  :  See  India  Cement   Ltd.   v.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8  

Commissioner  of  Income  tax, Madras(.’)  and  Hazarat  Pir Mahomed Shah Saheb Roza Committee v. Commissioner of  Income tax,  Gujarat (2) . No attempt was made before the  Tribunal to  have any such question referred and in the absence of  a proper question it was not open to the High Court to  accept the  findings  of the Appellate  Assistant  Commissioner  in preference to those given by the Tribunal or to come to  any independent conclusion itself on facts. The   Tribunal   gave  the  following  findings:   (1)   The appellant’s  dealings in cloth started as early as 1946  and the  introduction of control only changed the  procedure  of carrying  on  the business in the sense that  the  appellant became  the nominated buyer approved by the Government.  (2) The appellant had been doing business in several commodities one after the other or along with the other and its  trading in each commodity did not constitute separate business.  (3) The  cloth  business  never assumed the  proportion  or  the stature  of a distinct and separate business. (4) There  was sufficient evidence to show dovetailing of the cloth section into the General section.  The conclusion of the Tribunal on these findings was that the transactions in cloth were  part and parcel of a single business carried on by the  appellant and  did not constitute a distinct business for the  purpose of s. 24(2), The Tribunal does not appear to have  discussed the entire evidence on which the findings were based but the order  of  the  Appellate  Assistant  Commissioner  and  his findings as also the entire record were before it and  there is  nothing to suggest that all the material facts were  not present  to its mind except that they are not  mentioned  in detail.  Its findings, therefore, must be accepted as  final and the only question which it was open to the High Court to examine was whether the cloth business could, be regarded as the same business (1) 60 I.T.R. 52, 64. (2) 63 I.T.R. 490,496. 564 within the meaning of s. 24(2) of the Act.  A great deal  of reliance  has been placed on a decision of the  Bombay  High Court  in Manilal Dahyabhai v. Commissioner of  Income  tax, Bombay City(1) There the claim that the businesses were  the same, was sought to be substantiated on the ground that only one  set  of accounts was being maintained;  that  both  the businesses  were carried on in the, Same premises  with  the help  of the same staff,, that the capital employed was  the same, the receipts in respect of one of them being  utilized for the purpose of the other and that the terms of  overhead and other expenses were common.  It was held that the afore- said factors did not necessarily lead to the inference  that the businesses must be regarded as one and the same.  It was observed  that though not conclusive but an  important  test was  whether  one  of the two businesses  conducted  by  the assessee  could be stopped without affecting the texture  or framework of the other.  However in Commissioner of  Income- tax,  Madras  v. Prithvi Insurance Co. Ltd. (2)  this  Court said  "  we  are  unable  to  agree  with  counsel  for  the Commissionerthat the test, whether one of the  businesses can be closed withoutaffecting the conduct of the  other business, is a decisive test in determining whether the  two constitute  the  same  business within  the  meaning  of  s. 24(2)."  In  that very case the test laid down  by  Rowlatt, J.,,  in  Scales  v. George Thompson &  Co.  ,,Ltd.,(")  was accepted  as a fair test and inter-connection,  interlacing, inter-dependence and unity were found to exist by virtue  of the common management, common business Organisation,  common administration, common fund and common place of business.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8  

We have no manner of doubt that on applying these principles the conclusion at which the Tribunal arrived was correct and the  question  referred  should have been  answered  in  the affirmative and in favour of the assessee.  The appeals  are consequently  allowed with costs throughout and  the  answer returned  by  the  High Court  is  hereby  discharged.   One hearing fee. Y.P.                               Appeals allowed. (1)37 I.T.R. 398. (2)63 I.T.R. 632,637. (3)[1927] 13 T.C. 83 L8 Sup CI/69-2,500-13-3-70-GIPF. 565