Produce Exchange Corporation Ltd. v. Commissioner of Income Tax

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 limit-ed companies. In proceedings for assessment of income-tax for · ;he assessment year 1950-51, the Income-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 Ap-pellate Assistant Commissioner was unsuccessful. But the Ap-pellate Tribunal upheld the claim of the Company.

In the meanwhile assessment for the year 1951-52 was coin-pleted, and the income of the Company was computed at Rs. 1,00,777. In proceedings for assessment of income for the &S-sessment year 1952-53 the Income-tax Officer computed the in-come of the Company from its business at Rs. 3,39,899 and dec-lined to take into account the loss suffered by the Company in the share transactions. I.n the view of the Income-lax 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 l distinct from the business in other commodities.

In appeal against the order to the Appellate Assistant Com-missioner, the order of the Income-tax Officer was confirm~<.!. Th~ Appellate Assistant Commissioner held that the business in shares and the business in other commodities were not the "same bmi · ness" within the meaning of s. 24(2) of the Income-tax Act. I. 912, as then in force. He observed that a common capital, a common set of employees and a common set of accounts o ,1f1 common busi-ness premises are not "the deciding factors ;,, 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 prn5ts or loss was ascertainable and the nature of the business 'Vas different. the acti-vities could not be held to form one and single unit for the pur-poses of s. 24(2) of the India11 Income-tax Act.

Tht: Tribu·nal disagreed with the Appellate Assistant Commis-sioner. The Tribunal observed that there was complek 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 dis-tinction or separateness about the transactions in shares". Ac-cordingly, the Tribunal upheld the claim of the appeJlant Com-pany and directed that the lnss 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(') that the "es-sential 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 they are conducted being a secondary consideration". They ob-served that "unity of control or management, the employment of the same or common fjnance, the user of the same business pre-mises 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 trae-sactions in shares consist of sales and purclrase as to dealings in other commodities like sugar, molasses etc. the two activities can-not 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 busi-ness.

Section 24(2) of the India.n Income-tax Act, 1922. as in force in the relevant years, read as follows :

"Where any assessee sustains a loss oi 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 ga~ns of business, profession or vocation" and the loss cannot be wholly set off under sub-section ( 1 ) , the portion not so set off shalJ be carried forward to the fol-lowing year and set off against the profits and gains, if any, of the assessf:'e from the same business, profession or vocation for tbat 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, ~nd so on; ..

The section contemplated that the loss which could not be wholly set off against the othei income ulider sub-s. ( 1) could be carried forward to the following year and ~et off only against the profits and gains, if any, .from the same/ b!1siness. There was differ-ence of opinion among the High C-o~s as to the meaning of the words· "same business". It is unnecessary to refer to those autho-rities. This Court in Commissioner of Income-tax Madras v. Prithvi Insurance Company Ltd.(') set out 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 cibse1 ved at p. 636:

"A fairly adequate test for determining whether the two constitute the same business is furnished by what Rowlatt, J., said in Scales v. George Thompson & Co. Ltd.-· [(1927) 13 Tax Cases 83)

'Was there any inter-conneciion, any inter-ladng, any inter-dependence, and unity at all embracing those two businesses ?'

"That inter-connection, inter-lacing, inter-depend-ence and unity are furnished in this case by the existence of common manageoent, common business organisa-tion, common administration, common fund and a com-mon 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 com-mon place of business.

We need not consider whether the ultimate decision of the High Court in Shree Ramesh Cotton Mills Ltd.'s case(') on which reliance was placed is correct, but we are unable to agree wi.th 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 Tmunal 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 Commis-sioner had applied under s. 66(2) to the High Court for calling

(I) 63 J.T.R.'632. (2) 64 J.T.R. 317.

for a statement of the c'se 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 con-trol 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 cf 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. 'D The appeals are allowed, The Commissioner of Iricome-tax

to pay the costs of the Company in this Court a:nd the High Court. One hearing fee. ·

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 Refer-ence No. 120 o.f 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).