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TMI Blog1967 (1) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 1944, it carried on the business of manufacture and sale of sugar only. During the accounting year ending with August 31, 1945, the assessee-company carried on certain speculative transactions in gunnies and earned a profit of Rs. 84,383. Again, in the accounting year ending with August 31, 1946, the assessee-company made a profit of Rs. 2,49,281 in gunny business and Rs. 13,501 in jute business. There is no dispute that the transactions in gunnies and jute were both speculative transactions. In the next accounting year ending with August 31, 1947, the assessee-company did some dealings in mustard seeds and also carried on speculative transactions in gunnies and hessians. All these transactions resulted in a profit of Rs. 6,14,018. The assessee-company, however, discontinued the speculative business mentioned above and also the dealings in mustard seeds during the accounting years, ending with August 31, 1948, and August 31, 1949, and concentrated upon manufacture and sale of sugar only. Thus, the nature of the business activity of the assesseecompany was, for about the first ten years since its incorporation, manufacture and sale of sugar only. During the next three years however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the several activities of the assessee-company formed part of the same business. He, therefore, directed the Income-tax Officer to revise the assessment and to give relief to the assessee under section 24(2) of the Indian Income-tax Act. Against this decision the Income-tax Officer appealed before the Tribunal. The only question before the Tribunal was whether the business of the assessee-company relating to the manufacture and sale of sugar and dealings in other commodities constituted one business or separate businesses. The Tribunal found that the sugar factory of the assessee-company was in Pakistan while its head office was in Calcutta. The results of the sugar mill business were incorporated in the account books maintained in the head office at Calcutta. The results of the assessee's activities relating to other businesses were also recorded in the same books. The profit or loss of each business was determined separately and they were shown separately in the consolidated profit and loss account. The Tribunal also found that there was one common staff at the head office for all the businesses and that the banking account for all the businesses was the same. The Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation was also summarily dismissed. Thereafter, the assessee-company appealed before the Supreme Court with special leave of that court. The Supreme Court was pleased to allow the appeal. The judgment of the Supreme Court is reported in [1961] 41 I.T.R. 272 and hereinbelow we quote relevant extracts from that judgment : " The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed question of law and fact. Certain principles are applied to determine whether, on the facts found, a legal inference can be drawn that the different ventures constitute separate businesses or, viewed together, can be said to constitute the same business. These principles were stated by Rowlatt J. in Scales v. George Thompson & Co. Ltd. The learned judge observed : ' ....... the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses. The learned judge also observed that what one had to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These princip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee from the same business, profession or vocation for that year . . . . " Explaining the meaning of the section, a Division Bench of this court observed in Income-tax Reference No. 144 of 1960 (Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax : " An assessee who has business activities of different kinds may, in a particular year, suffer loss in some and make profits in the others. For income-tax purposes only the result of the whole year's activities is to be taken into consideration under section 10 of the Act. If he reaps profits in some and incurs loss in others, he can only be assessed under section 10 on the balance of the profits over the losses. If he suffers a loss as a net result, he is allowed to carry it forward. Section 24(2) determines how losses which are brought forward from a previous year can be set off towards profits of the business in a subsequent assessment year. The section lays down that the assessee's claim to set off a loss against profits is to be confined to the profits of the same business as that in which the loss was incurred. If an assessee has two businesses and makes a profit A in one and loss B in the other, he is allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same set of books and the profit therefrom was transferred to the profit and loss account of the mill. " Dr. Pal submitted that the Tribunal must be deemed to have impliedly affirmed this finding because in the judgment of the Tribunal this finding was not found to be incorrect. Mr. Sabyasachi Mukherji, learned counsel for the Commissioner of Income-tax, relied on the following findings of fact in trying to repel the contention of Dr. Pal, namely, (a) the business of the assessee was primarily started, in the year 1934, to take over certain sugar mills, although the memorandum of association of the assessee-company authorised the company to carry on the business of buying, selling and dealing in jute, hemp and oil seeds, (b) for the first 10 years, between 1934 and 1944, the company concentrated upon sugar business only and did not carry on the business of buying, selling or dealing in jute, hemp or oil seeds. It was only during the years ending on August 31, 1945, to August 31, 1947, that the assessee-company carried on certain speculative transactions in gunny and earned some profit. Also, in the year ending August 31, 1948, the assessee-company carried on speculative busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. He, however, sought to take advantage of the language employed in laying down the law ; which is somewhat metaphorical in character although felicitous in expression and submitted that the facts found by the Tribunal which he emphasised upon, as hereinbefore indicated, were sufficient for an inference that the sugar business and the speculative businesses in gunny, hessian and mustard constituted one and the same business. Mr. S. Mukharji, on behalf of the Commissioner of Income-tax, however, submitted that the facts relied upon by Dr. Pal were wholly neutralised by some of the other facts found by the Tribunal on which he relied and which we have hereinbefore quoted. A number of decisions were cited before us by the learned counsel appearing on both sides. Dr. Pal relied upon the following decisions : Govindram Brothers Ltd. v. Commissioner of Income-tax, Rekhabckand Sarogi v. Commissioner of Income-tax K. S. S. Soundarapandia Nadar and Brothers v. Commissioner of Income-tax and Commissioner of Income-tax v. International Industries Ltd. Mr. S. Mukharji cited before us the following decisions in support of what he wanted to argue, namely, Manilal Dahyabhai v. Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the two lines of businesses, predominantly apparent, then notwithstanding that there are some elements from which it may appear that they were different businesses, the two businesses can be taken as one and the same business. In the unreported judgment of this High Court in Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax, G. K. Mitter J. considered some of the decisions cited before us from the bar, viz., Scales v. George Thompson & Co. Ltd. Setabgunj Sugar Mills Ltd. v. Commissioner of Income-tax Manilal Dahyabhai v. Commissioner of Income-tax and Standard Refinery Distillery Ltd. v. Commissioner of Income-tax and came to the following conclusion : " In my opinion the essential thing to be considered is the nature of the business in the two different years and the way it is conducted in each year. As the question can only arise in the case of one assessee, factors like employment of same capital or same management or the ventures being carried on under the same roof are not matters of much importance. The principal thing to consider is whether the activities are of such nature and are so linked as to appear to be one unit. As I have said, an assessee carrying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommon finance, common staff and common account book was rejected as subordinate tests and, in the absence of any dominating nexus between the two businesses, they were held to be separate businesses. In general, I find myself in respectful agreement with the observation made by G. K. Mitter J. Dr. Pal, in his fairness, did not dispute that there must be some unmistakable or dominating indication that the two businesses are the one and the same business. He did not dispute that it was not impossible to carry on two different businesses in the same building or office with the same staff and with the same set of books of account in which the transactions of the two businesses were separately entered. What he submitted was that the fact that the profits of the gunny, jute and mustard seeds transactions were transferred to the profit and loss account of the mill of the assessee supplied that dominant indication that the sugar business and the speculative business in jute, hessian and mustard seeds constituted one business. I am unable to agree with him. For only several years the assessee indulged in some speculative business in addition to its primary business as a sugar manufacturer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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