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PETITIONER: STANDARD REFINERY & DISTILLERY LTD.

       Vs.

RESPONDENT: COMMISSIONER OF INCOME-TAX, CALCUTTA

DATE OF JUDGMENT18/01/1971

BENCH: HEGDE, K.S. BENCH: HEGDE, K.S. GROVER, A.N.

CITATION:  1971 AIR 2293            1971 SCR  (3) 378

ACT: Income-tax Act (11 of 1922), s. 22(4)-Same business’,  tests for.

HEADNOTE: The assessee owned a distillery and a refinery.  In 1945, it obtained  on  lease the sugar factory belonging  to  another company,  and during the period from January to April  1946, it purchased about 41,000 shares of the lessor company,  and in  April  1947,  sold  the entire  block  of  shares.   The transaction resulted in a loss.  After setting off the  loss against  the other income for the assessment  year  1948-49, the  unabsorbed loss was carried forward under s.  24(2)  of the  Income-tax Act, 1922, to the assessment  year  1949-50. But  the assessee’s claim to set off the loss pertaining  to the share business against the profits in the sugar business was negatived by the Department, the Appellate Tribunal  and the High Court. In  appeal to this Court, this Court reframed  the  question referred  to  the  High Court as ’whether  the  business  of dealing  in shares and the business of  manufacturing  sugar etc. constituted the same business within the meaning of  s. 24(2)  of  the Act,’ and directed the Tribunal to  submit  a supplementary  statement  of case.  The  Tribunal  submitted that the two businesses had a single trading and profit  and loss  account,  that they had been dealt with  by  a  common Organisation,  that the transaction relating to  shares  was treated  as part and parcel of the business of the  assessee company, that a common fund was utilized for both businesses and that they were carried on in the same place of business. HELD  :  In  determining  whether  two  lines  of   business constitute  the  ’,came business’ within the meaning  of  s. 24(2),  the income-tax authorities must consider the  inter- connection, inter-lacing interdependence and unity furnished by  the  existence  of common  management,  common  business Organisation,  common  administration,  common  fund  and  a common place of business.     Applying those tests the share transaction as well as the other business    of the assessee should be considered as the ’same business.’ [380 F-G] C.I.T., Madras v. Prithvi Insurance Co. Ltd., 63 I.T.R. 632, S.C.  and Procedure Exchange Corpn.  Ltd. v. C.I.T.  Central Calcutta, 77 I.T.R. 739 S.C. followed.

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Satabganj  Sugar Mills Ltd. v. C.I.T., Central Calcutta,  41 I.T.R., 72 S.C. and Scales v. George Thompson & Co. Ltd., 13 Tax Cas. 83, referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1585  of 1968. Appeal  from the judgment and order dated July 23,  1963  of the  Calcutta High Court in Income-tax Reference No.  64  of 1958. S.   C.  Manchanda,  Gobind  Das and D. N.  Gupta,  for  the appellant. S.   Mitra,  S.  K.  Aiyar  and  R.  N.  Sachthey,  for  the respondent- 379 The Judgment of the Court was delivered by Hegde,  J. This is an assessee’s appeal.  The assessee is  a public  limited  company  and  the  appeal  relates  to  the assessment for the assessment year 1949-1950,  corresponding to the accounting year which is the calendar year ending  on December 3 1, 1948.  The assesse company was incorporated in 1942.  At the: beginning it owned a distillery at Unnao.  It acquired a refinery in 1943.  With effect from June 1, 1945, the  assessee company obtained on lease the New Sawan  Sugar and Gur Refining Co. During the period from January 29, 1946 to  April  23, 1946, the assessee company  purchased  41,300 shares  of the said company for Rs. 12,17,006/-.   On  April 30,  1947  the entire block of shares was  sold  to  Produce Exchange   Corporation   Ltd.  for  Rs.   8,46,750/-.    The transaction resulted in a loss of Rs. 3,70,356/This loss was treated by the assessee as a trading loss for the assessment year  1948-49.   After setting_ off this  loss  against  the other  income  of  the  assessee  company,  a  loss  of  Rs. 2,27,085/was  carried forward under s. 24(2) of the  Income- tax Act, 1922 (to be hereinafter referred to as the Act)  to the  year 1949-50 and later years.  The assessee claimed  to set  off  this  unabsorbed  loss  pertaining  to  the  share business  against its profits in the sugar business for  the assessment  year 1949-1950.  The Income-tax Officer did  not permit  this set off.  The Appellate Assistant  Commissioner confirmed the order of the Income-tax Officer.  In a further appeal,  the Appellate Tribunal agreed with  the  conclusion reached  by the Income-tax Officer.  Thereafter at  the  in- stance  of the High Court, the Appellate Tribunal  stated  a case under s. 66(2) of the Act on the following question  of law :               "Was there any evidence before the Tribunal on               which  it  could  hold that  the  business  in               dealing with shares was distinct and  separate               from  the business of sugar manufacturing  and               distillery?" By  its  judgment  dated  April 23,  1963,  the  High  Court answered  the  question in the affirmative and  against  the assessee.  This appeal has been brought against the decision of  the  High Court after obtaining a certificate  under  s. 66(A) (2) of the Act. The appeal came up for hearing before this Court on February 6,  1969.  After hearing the Counsel for. the  parties  this Court observed :               In the present case however it is not possible               for  us  to  satisfactorily  dispose  of  this               appeal  because  the  statement  of  the  case               submitted  by the Tribunal is  incomplete  and

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             has  omitted to state material  facts  bearing               upon the question referred.  For instance,  it               is not clear as to               380               whether the assessee aduced any evidence as to               why  it started purchasing the shares  of  the               lessor  company  about six months after  the               commencement  of  the lease.  It is  also  not               stated  by the Tribunal whether there  is  any               evidence   of   inter-relation   between   the               purchase  of  shares and  the  manufacture  of               sugar." In view of that conclusion this Court directed the  Tribunal to  submit a supplementary statement of case on some of  the points formulated in the order. The Tribunal accordingly submitted a supplementary statement of case.  Even after considering that supplementary.  state- ment,  this Court found itself unable to record its  opinion on  the  question referred to.  This Court was also  of  the opinion that the question which the Tribunal was directed to and did refer was defective and restricted the scope of  the enquiry.  It accordingly reframed the question as follows :               "Whether  the  business  of  the  company   of               dealing   in  shares  and  the   business   of               manufacturing  sugar  and  other   commodities               constitute   the  same  business  within   the               meaning  of s. 24(2) of the Indian  Income-tax               Act,   1922,   in  force  in   the   year   of               assessment?" It  further  directed the attention of the Tribunal  to  the decision of this Court in Commissioner of Income-tax, Madras v.  Prithvi  Insurance Co. Ltd.(1) in order  to  assist  the Tribunal to find out the relevant points for  consideration. In   the’  order  calling  for  a further   supplementary statement, this Court observed               "As pointed out by this Court in  Commissioner               of  Income  Tax, Madras v. Prithvi  Ins.   Co.               Ltd.  in  determining  whether  two  lines  of               business  constitute the same business  within               the meaning of s. 24(2) of the Income-tax Act,               the  income-tax authorities must consider  the               inter-connection,  interlacing,  inter-depend-               ence  and unity furnished by the existence  of               common     management,     common     business               Organisation,  common  administration,  common               fund and a common place of business." The  Tribunal  has now submitted  the  second  supplementary statement of case called for by this Court.  The facts found by it are as follows :               (1)   There is a single trading and profit and               loss  account.  In the same account the  sales               of spirit, sugar and molasses as well as stock               and shares appear;               1.     3 I.T.R. 632.               381               (2)   The  share transactions as well  as  the               business  has,  been dealt with  by  a  common               Organisation, though, the sale of shares is  a               single  transaction and the purchase of  those               shares  is  also  more or  less  of  the  same               character;               (3)   The  business of the company as well  as               the  transaction relating to the  shares  were               attended to as part and parcel of the business               of the assessee company;,

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             (4)   A  common  fund was  utilised  both  for               business purposes as well as for the  purchase               of  shares.  A part. of the over-draft of  Rs.               6,80,046/-  taken from the. bank  on  December               31,  1947 has been discharged from out of  the               income of the business; and               (5)   the  share transaction work as  well  as               the  other business of the-  assessee  company               were carried on in the same place of business. From  the facts found by the Tribunal, it is clear that  the share,  transaction as well as the other businesses  of  the company  were  dealt  with by a  common  management,  common business  organization, common administration,  common  fund and common place of business. It  was urged by Mr. Mitra, learned Counsel for the  Revenue that  from  the  facts  found by the  Tribunal,  it  is  not possible  to conclude that there was  any  inter-connection, inter-lacing,   interdependence   and  unity   between   the transactions of the assessee. company relating to the shares as  well  as  its  other  business  and  therefore  the  two activities cannot be considered as-"the same business".   He contended  that  this Court in Prithvi Insurance  Co.  Ltd’s case(1) has accepted the correctness of the decision of  the King’s  Bench in Scales v. George Thompson, Co., Ltd. ( 2  ) and in that case Rowlatt J. had held that before two or more businesses  can  be considered as ’the same  business’  they should  not  be  easily  separable  and  there  must  be   a dovetailing  of  the one with the other.  According  to  Mr. Mitra  the transanctions relating to the shares  could  have been  easily  separated  from the  other  business  of’  the company and therefore there is no inter-connection;  equally there  is  no  interlacing  because  the  share  transaction business does not dovetail itself into the other business of the  assessee  company.   Further there  is  neither  inter- dependence  or  unity  between  the  two  businesses.    The concepts   of  inter-connection  and  inter-lacing,   inter- dependence  and unity are not free of ambiguity.   But  this Court has laid down certain objective tests for finding out (1) 63 I.T.R. 632. (2)  13 Tav.  Cases 83.. 382 the  existence  of  inter-connection,  inter-lacing   inter- dependence arid unity between two or more businesses.   In Commissioner of Income-tax, Madras v. Prithvi Insurance  Co. Ltd.(1),  this  Court ruled  that  inter-connection,  inter- lacing,  inter-dependence  and unity were furnished  by  the existence    of   common   management,    common    business Organisation,  common  administration,  common  fund  and  a common place of business.  This conclusion was reiterated by this  very  bench in Produce Exchange  Corporation  Ltd.  v. Commissioner   of  In  come-tax,  (Central  Calcutta)   (2). Therein the assessee company carried on business as a dealer in  diverse ,commodities and also stock and shares.  In  the year of account 1949, it had suffered loss of Rs. 3,71,700/- in  the  sale of shares which the company claimed  to  carry forward and set off against the profits of 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 in the ordinary course of business and that there was no element of diversity   or   distinction  or  separateness   about   the transaction in shares, and accordingly upheld the claim On a reference  the High Court held that the essential matter  to be  considered was the nature of the two lines  of  business and not merely their unity of control and that therefore the

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Tribunal  erred in holding that the whole  trading  activity formed  one  business.  Reversing the decision of  the  High Court  this Court ruled that the decisive test was unity  of control and not the nature of the two lines of business. For  the reasons mentioned above we allow this appeal,  dis- charge the answer given by the High Court and answer the re- framed  question  in the affirmative and in  favour  of  the assessee.   The Revenue shall pay the costs of the  assessee both in this Court and in the High-Court. V.P.S.                  Appeal allowed. (1) 63 I.T.R. 632.         (2) 77 I.T.R. 739. 383