TMI Blog1949 (4) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... o the capital of the company while a sum of ₹ 3,000 was to be contributed to the said capital by the fourth party. It was also agreed that during the period of the promotion of the company and before the company was actually floated the business of the Iron Works was to be carried on on partnership basis by the four, each having a one-fourth share in the profit and loss of the partnership. On incorporation of the company the partnership consisting of the four parties was to become a firm of managing agents. It was also agreed that any of the four parties advancing any money to the venture in excess of that agreed to be contributed to the capital could do so and on the money so advanced the parties would be entitled to get interest at the rate of 6 per cent. per annum. It seems that the company was never floated but the business of the Iron Works was actually commenced at some time in August 1939. It appears that after the business had been started the party who had agreed to contribute a sum of ₹ 3,000 to the capital of the business retired, thus leaving only three parties to the agreement in the field. In the month of September, 1942, the assessee firm served the other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital and its yield, the expenditure incurred in connection therewith could only be regarded as a capital outlay and was inadmissible as a deduction under Section 10(2). The Assistant Commissioner in dismissing the assessee's appeal held that the appellant had been found by the High Court to be co-owner of the Delhi Steel Rolling Mills and not a partner in that business and that the expenses on litigation had been incurred in connection with the realisation of the capital invested in that property and the deduction claimed had, therefore, been rightly disallowed as not connected with the money-lending activities of the assessee. The appeal of the assessee was also dismissed by the Appellate Tribunal. The assessee thereupon moved the said Tribunal under Section 66 of the Indian Income-tax Act for stating the case and for referring to this Court the question of law mentioned above. The Tribunal disallowed the application of the assessee on the ground that on the facts of the case no question of law arose. The assessee has now come up to this Court under Section 66(2). After hearing the learned counsel for the parties at length we are of the opinion that the Income-tax Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a personal expenditure and of having been laid out or expended wholly and exclusively for the purpose of the business. Business has been defined in Section 2(4) as including any trade, commerce, or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Where an assessee carries on different varieties of trade, commerce, or manufacture each variety will have to be regarded as a separate business for the purposes of Section 10 unless of course one or more varieties are so closely connected with each other as to be capable of being regarded as one business. The following observations in the judgment in South Indian Industrials Ltd., Madras v. Commissioner of Income-tax, Madras [1935] I.L.R. 58 Mad. 433; 3 I.T.R. 11, appearing at pages 438- 440 of the report are fully illustrative of this proposition:- The fallacy underlying the assessee' argument is that because a company carries on several concerns those concerns are all one business, namely, the company's business. That is not so. A company can carry on several distinct and separate businesses and it must always be a question of fact whether those businesses are separate busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied to the present case equally well. The company could cease any one or more of its activities without stopping the others and without getting rid of their share-holding in the Chittivalsah Jute Mills Company, Limited. Similarly, they could get rid of their Chittivalsah Jute Mills shares without stopping any of the other concerns. Cases like the present are dealt with in Commissioner of Income-tax, Madras v. Siddha Gowder and Sons [1932] I.L.R. 55 Mad. 818 and Commissioner of Income-tax, Madras v. Best and Co., Madras 1932] I.L.R. 55 Mad. 832. The five concerns in question here were separate businesses and, if those busines- ses had been carried on during the year of account, the profits and gains of each of them separately would have been arrived at under Section 10(1) and (2) of the Act after making the allowances given in sub-section (2). The language of the relevant portion of Section 10 also shows that the business in respect of the profits or gains of which an assessee can be required to pay income-tax, and consequently expenditure laid out or expended on which can be allowed in assessing such profits or gains, must be a business which was actually carried on duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing observations at pages 1350-51:- The sources from which the taxable incomes under the Act are to be derived are enumerated in Section 6, which runs as follows:- Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income-tax in the manner hereinafter appearing, namely:-.... (iv) Business....' The claim of the taxing authorities is that the sum in question is chargeable under head (iv), business. By Section 2(4) business includes any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture. The words used are no doubt wide, but underlying each of them is the fundamental idea of the continuous exercise of an activity. Under Section 10, the tax is to be payable by an assessee under the head business 'in respect of the profits or gains of any business carried on by him.' Again, their Lordships think, the same central idea. The words italicised are an essential constituent of that which is to produce the taxable income: it is to be the profit earned by a process of production. And this is borne out by the provision for allowances which follows. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from September, 1942. In any event, the expenditure claimed cannot be said to have been laid or expended wholly and exclusively for the purpose of the partnership business. Indeed, it was laid and expended for terminating the business. In Strong and Co. of Romsey Ltd. v. Woodifield [1903] A.C. 448; 5 Tax Cas. 215, their Lordships had to deal with a parallel provision of the English Income Tax Act and to decide whether the deduction claimed was a disbursement or expense wholly and exclusively laid out or expended for the purpose of the appellants' trade within the meaning of the relevant rule. Lord Davey in dealing with the question observed that the above words as used in the rule meant for the purpose of enabling a person to carry on and earn profits in the trade and that it was not enough that the disbursement claimed had been made in the course of, or arose out of or was connected with the trade, or was made out of the profits of the trade. It was necessary that it must have been made for the pur- pose of earning the profits. These dicta of Lord Davey have been cited with approval in the judgment of the House of Lords in a very recent case, namely, Smith's Potat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to have advanced the sum of ₹ 15,000 to the Shahdara Delhi Iron Works, Ltd., or the persons carrying on that business for the purpose of financing the business and the transaction should be regarded as no more than a money-lending transaction and as such a part of the business which he was actually carrying on during the accounting period. This contention of the learned counsel is, however, wholly without force and runs counter to what has been his case all along. He has maintained throughout the course of these proceedings that the sum of ₹ 5,000 was paid by him as his contribution to the capital of the partnership and can certainly not be permitted to take a somersault at this late stage of the case, because he discovers his original stand to be inconvenient. An advantage was sought by the learned counsel for the assessee to be taken of the judgment of the High Court given in appeal from the preliminary decree. It was urged that the aforesaid judgment gave him the option of converting his suit into one for recovery of the sum of ₹ 15,000 advanced by him and interest. We are, however, quite clear that even if he does exercise the option given to him ..... X X X X Extracts X X X X X X X X Extracts X X X X
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