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PETITIONER: PRODUCE EXCHANGE CORPORATION LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME TAX

DATE OF JUDGMENT: 27/04/1970

BENCH: SHAH, J.C. BENCH: SHAH, J.C. HEGDE, K.S. GROVER, A.N.

CITATION:  1971 AIR 2328            1971 SCR  (1) 382

ACT: Indian Income-tax Act, (11 of 1922) s. 24(2) Loss  suffered- Claim  of  set off by the assessee from  its  income-Whether assessee entitled-"Same business", tests

HEADNOTE: The assessee was a public limited company doing business  as a  dealer  in  diverse commodities and also  in  stocks  and shares.   In the year of account 1949 the  company  suffered loss in the sale of shares of public limited companies.   In proceedings for assessment for the year 1950-51 the  Income- tax Officer declined to take into account the loss suffered. In his view if the loss be taken as a trading loss it  could not  be set off against the business income of the  assessee because the loss resulted from transactions in shares  which constituted  a business distinct from the business in  other commodities.   On  the question whether the  loss  could  be taken  into account and the set off given under s. 24(2)  of the  Indian  Income-tax Act, 1922 in force in  the  year  of assessment; this Court, HELD : The assessee was entitled to the set off. Section 24(2) of the Indian Income-tax Act, 1922 in force in the relevant year of assessment, contemplated that the  loss which  could not be wholly set off against the other  income under  sub-s. (1) could be carried forward to the  following year and set off only against the profits and gains, if any, from  the same business.  A fairly adequate test for  deter- mining whether the two constitute the same business is  ’was there  any  inter-connection, any  interlacing,  any  inter- dependence,  any unity’ at all embracing those two  business ?’ [385 H, 386 A-D] Applying  this test in the present case there was  no  doubt that  there was a common management of the share  and  stock business  and  other  lines of business,  unity  of  trading Organisation,   common  employees,  common   administration, common fund and a common place of business. [386 E-F] Commissioner  of  Income-tax, Madras  v.  Prithvi  Insurance Company Ltd., 63 I.T.R. 632 followed. Scales  v.  George  Thompson & Co. (1927) 13  Tax  Cases  83 applied. 383

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Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax 64 I.T.R. 317 doubted.

JUDGMENT: CIVIL  APPELLATE JURISDICTION: Civil Appeals Nos.  2538  and 2539 of 1966. Appeals  by special leave from the judgment and order  dated March  26,  1965 of the Calcutta High  Court  in  Income-tax Reference No. 120 oF 1961. D.   Pal, T. A. Ramachandran and D. N. Gupta, for the appel- lant (in both the appeals). B.   Sen, S. K. Aiyar and B. D.  Sharma, for the  respondent (in both the appeals). The Judgment of the Court was delivered by Shah,,  J. The appellant is a public limited  company  doing business  as  a dealer in diverse commodities, and  also  in stocks  and  shares.  The Company  maintains’  its  accounts according to the calendar year.  In the year of account 1949 the  Company suffered a loss of Rs. 3,71,700 in the sale  of share  of  public  limited companies.   In  proceedings  for assessment  of income-tax for the assessment  year  1950-51, the lncome-tax Officer disallowed the claim to set off  loss against  the profits from transactions in other  commodities in  that  year.   The  appeal  filed  before  the  Appellate Assistant Commissioner was unsuccessful.  But the  Appellate Tribunal upheld the claim of the Company. In  the meanwhile assessment for the year 1951-52  was  com- pleted,  and the income of the Company was computed  at  Rs. 1,00,777.   In proceedings for assessment of income for  the assessment year 1952-53 the Income-tax Officer computed  the income of the Company from its business at Rs. 3,39,899  and declined  to  take  into account the loss  suffered  by  the Company  in  the  share transactions.  In the  view  of  the Income-tax Officer, even if the loss be treated as a trading loss it could not be set off against the business income  of the Company, because the loss resulted from transactions  in shares  which  constituted  a business  distinct from  the business in other commodities. 384 In appeal against the order to the Appellate Assistant  Com- missioner,   the  order  of  the  Income-tax   Officer   was confirmed.   The Appellate Assistant Commissioner held  that the business in shares and the business in other commodities were not the "same business" within the meaning of s.  24(2) of the Income-tax Act, 1922, as then in force.  He  observed that  a  common  capital, a common set of  employees  and  a common set of accounts and common business premises are  not the  deciding  factors in determining  whether  the  various activities  carried  on  by  the  assessee  constituted  one business  or separate businesses :" it is the nature of  the business  which  is  "the main factor"  and  where  separate profits  or  loss was ascertainable and the  nature  of  the business was different, the activities could not be held  to form one and single unit for the purposes of s. 24(2) of the Indian Income-tax Act. The Tribunal disagreed with the Appellate Assistant  Commis- sioner.  The Tribunal observed that there was complete unity of control and shares were one of a number of commodities in which the Company dealt in the ordinary course of  business. There  was,  in  the view of the  Tribunal  "no  element  of diversity   or   distinction  or  separateness   about   the transactions  in shares".  Accordingly, the Tribunal  upheld the  claim  of the appellant Company and directed  that  the

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loss be set off under s. 24 (2) of the Indian Income-tax Act then in force. The  Tribunal referred the following question to  the  High Court of Calcutta :               "Whether on the facts and in the circumstances               of  the case, the business activities  of  the               company  to  wit, dealings in shares  and  its               dealings  in  other  commodities  and  selling               agency  on  commission basis  constituted  the               same business within the meaning of section 24               (2) of the Indian Income-tax Act ?" The  High  Court  held, following their  judgment  in  Shree Ramesh  Cotton Mills Ltd. v. Commissioner of  Income  tax(1) that the "essential matters to be considered in  determining whether  the  two  businesses carried  on  by  the  assessee constitute the same-business, is about the nature of the two commodities, the manner in which (1)  64 I.T.R. 317. 385 they  are conducted being a secondary consideration".   They observed   that  "unity  of  control  or   management,   the employment  of the same or common finance, the user  of  the same  business premises and the record of the transactions in  the  same  set of books of accounts are  matters  to  be considered only when it is found that two businesses of  the same  nature.   Merely because the  transactions  in  shares consist  of  sales  and purchase as  to  dealings  in  other commodities  like  sugar, molasses etc. the  two  activities cannot  be held to form one unit of business", and that  the Tribunal  erred in holding that because there  was  complete unity  of  control  and shares formed a part  of  number  of commodities  in  which the assessee dealt  with,  the  whole trading activity formed one business. Section  24(2)  of the Indian Income-tax Act,  1922,  as  in force in the relevant years, read as follows               "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, under the head  "Profits  and               gains of business, profession or vocation" and               the  loss cannot be wholly set off under  sub-               section (1), the portion not so set off  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, and  if               it cannot be wholly so set off, the amount  of               loss  not so set off shall be carried  forward               to the following year, and so on; The  section contemplated that the loss which could  not  be wholly  set  off against the other income under  sub-s.  (1) could  be Carried forward to the following year and set  off only  against the profits and gains, if ’any, from the  same business.   There was difference of opinion among  the  High Courts  as to the meaning of the words "same business".   It is  unnecessary to refer to those authorities.  This  Court in Commissioner of Income-tax Madras v. 386 Prithvi  Insurance  Company  Ltd.(1) set  of  the  test  for determining  whether two lines of business constitute  "same business"  within  the meaning of s. 24(2) at  the  relevant time.  It was observed at p. 636               "A   fairly  adequate  test  for   determining               whether  the two constitute the same  business

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             is  furnished  by what Rowlatt,  J.,  said  in               Scales v. George Thompson & Co. Ltd.-(1927) 13               Tax Cases 831               ’Was    there   any   inter-connection,    any               interlacing,  any inter-dependence, and  unity               at all embracing those two businesses ?’               "That  inter-connection, inter-lacing,  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." Applying  that  test in the present case there is  no  doubt that  there  is a common management of the share  and  stock business  and  other  lines of business,  unity  of  trading organization,  common  employees, common  administration,  a common fund and a common place of business. We  need not consider whether the ultimate decision  of  the High Court in Shree Ramesh Cotton Mills Ltd.  ’s case(2)  on which  reliance was placed is correct, but we are unable  to agree  with  the  High  Court that  the  decisive  test  for determining whether the two lines of business constitute the same business is the nature of the two businesses. In our judgment, the Tribunal was right in holding that  the share  business  and  other businesses  carried  on  by  the appellant  Company constituted the same business within  the meaning of s.  24(2)  as  that section stood before  it  was amended in 1955. Counsel for the Commissioner contended that the Commissioner had  applied  under  S. 66(2) to the  High  Court        for calling (1) 63 I.T.R. 632. (2) 64 I.T.R. 317. 387 for  a  statement  of  the case from  the  Tribunal  on  the following question :               "Whether there was any evidence in support  of               the Tribunal’s finding that there was complete               unity of control and that shares formed a part               of  the  commodities  in  which  the  assessee               company  deals regularly from year to year  in               the ordinary course of its business?" The High Court declined to make an order on that application calling for the statement of the case on the ground that the first   ,question  was  "sufficiently   comprehensive"   and included  inquiry  into  the  question  proposed.   In   our judgment the decision of the Tribunal is amply supported  by the  evidence  which  is referred to in  the  order  of  the Tribunal.   Even  if  the  question  had  been  raised   and statement  of  the case had been called for,  it  could  not affect the ultimate result. The  answer  to  the  question  referred  will  be  in   the affirmative. The appeals are allowed.  The Commissioner of Income-tax  to pay  the costs of ’ the Company in this Court and  the  High Court.  One hearing fee. Y.P.                 Appeals allowed. 388