TMI Blog1949 (11) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts of purchase and sale and dealing in differences. Such contracts related also to the same commodities in respect of which they had also made ready purchases. In the next year of account 1938-39 they did not deal in forward contracts, but revived them again in the two succeeding account years. These dealings in forward contracts ended in loss which was larger than the profits earned by ready purchases and sales. The forward contracts were entered into through commission agents at Rangoon who submitted from Rangoon from time to time statements of account to the assessees at Tuticorin. The dealings relating to the satta business were entered in a separate folio in the accounts. In the accounting year 1941-42, i.e., the assessment year 1942-43, the loss incurred in respect of the forward contracts was carried forward into the accounts, and the assessees claimed a right to set off this loss against the profits they earned during the period, under Section 24(2) of the Income-tax Act. During this assessment year, however, the assessees did not enter into any contracts for future deliveries. The Income-tax Officer disallowed the claim to set off on the ground that the satta busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business is the same or not is no doubt essentially one of fact. If, however, there is no evidence to support the finding, or a proper inference from the proved facts was not drawn, they are questions of law. The judgment of the Appellate Tribunal does not give sufficient indication for coming to the conclusion that the two lines of business are distinct and separate. Both related to grains which the assessees either purchased as ready stock or in respect of which they entered into forward contracts of sales and purchases with a view, if necessary, to adjust the differences or to demand delivery according to the circumstances. One statement of fact in the judgment of the Appellate Tribunal needs amplification. It is stated by the Tribunal that in the year preceding the year of account the assessees did satta speculation business in grains at Rangoon, and then follows the sentence, Large quantities of grains were purchased and stocked in godowns and subsequently sold . If this statement were to refer to purchase and stocking in go-downs at Rangoon even in respect of forward contracts, it is objected on behalf of the Income-tax Commissioner, that this is wholly incorrect and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acing those two businesses ; and I should have thought, if it was a question for me, that there was none. The case raised the question whether shipping business and underwriting business carried on by a company constituted one trade or two separate trades within the meaning of the English Income Tax Act, 1918. In the earlier part of the judgment the learned Judge gave an indication as to the meaning of interdependence and interlacing, the expressions used by him in the observations quoted above. He pointed out that the activities of the company relating to underwriting had nothing to do with the activities relating to shipping, though both of them had something to do with ships. One was not dependant upon the other ; they were not interlaced. To quote the words of the learned Judge :- They do not dovetail into each other, except that the people who are in them know about ships ; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the underwriting ; it does not affect the ships. They might stop the ships and it does not affect the underwriting. They might carry on underwriting in a country where there were no ship ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained separately, that the staff for each business was separate and that the two places were removed by a long distance would not make the businesses at Penang and at Karaikudi different and distinct. The customary features incidental to Nattukottai Chetti business of money-lending and banking were taken into consideration as affording the test to determine the sameness of the business. The business was carried on in that case through agents who had consider able discretion in lending money. Separate sets of accounts were maintained ; copies of the day-book were periodically sent to the head quarters and instructions were issued by the principals to their agents from time to time by correspondence. There was a flow of remittances from the headquarters to the branches and from the branches to the headquarters, and the final trading result was ascertained at the headquarters. From these facts it was inferred that the picture presented was of a trading organisation inter-connected as head office and branch, with financial interdependence and unity of control. The interdependence may be financial, and the unity may be unity of management and control. Though capital is owned by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider in the case of Govindram Bros. Ltd. v. Commissioner of Income-tax, Central, Bombay [1946] 14 ITR 764. It was pointed out that there was no legal objection for a person if he conduct ed himself in a lawful manner to carry on the business of speculation in futures, provided of course the Contracts in the circumstances did not amount to wagering contracts. The mere fact that the commodities in which he speculated were different could not make the business a separate and distinct business. Chagla, J., pointed out that the nexus between the two businesses to make them the same business must be a factor which is apart from speculation. Both the learned judges came to the conclusion that the finding of the Tribunal that the businesses were distinct could not be justified, that the businesses were the same within the meaning of Section 24(2) of the Act, and that the right to set off was rightly claimed by the assessee. A case somewhat analogous to the present arose for decision in the Patna High Court in Rekhabchand Sarogi v. Commissioner of Income-tax [1947] 15 ITR 465. There also the assessee, a partner in a registered firm of merchants, was dealing in hardware, cement, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id that from the beginning the assessees did not entertain the intention of taking delivery under those contracts, and had in view only speculation upon the fluctuations on the grain market at Rangoon. The agents sent extracts of accounts to Tuticorin, and they were all entered in the same account books, though in a different folio. The financing of all the transactions, whether they related to purchases or whether they related to forward contracts, was from Tuticorin and the control of all the transactions was under a single management. The mere fact that the forward contract business could be separated, if trouble was taken to go through the accounts and to separate the dealings, does not make this business a distinct business from the other business of the assessees. It is the common practice of every merchant to enter under separate heads each line of business in order to ascertain whether that particular line was fetching profit or ending in loss. That circumstance, in my opinion, does not give the business a distinctive character so as to detract from its being the same business within Section 24(2) of the Act. I am therefore clearly of the opinion that the conclusion of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is difficult to sustain. It cannot be said that a dealer must necessarily carry on speculation business as an unavoidable incident of his business. There is a marked distinction between the two activities and we fail to see any common features. There is an element of speculation even in transactions relating to the sale and purchase of ready goods owing to market fluctuations. It is a legitimate and indeed a common thing, for merchants dealing in a particular type of goods, to enter into forward contracts under which they may be compelled to take or entitled to ask for delivery as the case may be and in case of default, pay or claim damages. There is no doubt a greater element of speculation in transactions of this kind which often involve a chain of buyers and sellers than in the case of purchase and sale of ready goods. How his business has to be carried on is primarily the concern of the merchant or trader, and it is only if and when profits emerge that the revenue authority has a right to dip its hand into his pocket. I can imagine a trader saying, Well, I will take my chance. I will enter into forward contracts as I expect a favourable turn of the market. If my e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me person and are connected with the same trade, the one being ancillary or subsidiary to the other, if they are owned, controlled and financed in common, if the staff employed and the place of business are the same and if common accounts are kept, it may readily be inferred that the two lines of business are really part of the same business. Observations to this effect are found in the decided cases. But it is not to be assumed that all these features must be present in every case or that the absence of one or more of them is fatal to the claim that the different lines of business are really parts of the same business. In Chidambaram Chettiar [1945] 13 ITR 177 it was held that where the businesses were the same in character, the facts that the business activities extended to several places, different staff were employed in those places, separate capital was allotted to each of the places, where the business was carried on, and separate accounts were maintained in those places would not outweigh the effect of common ownership, unity of control, interdependence for finance and the incorporation of the final results of the business in one account at the head office. The present ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case (supra) the learned Chief Justice of the Bombay High Court held that it would be difficult, if not impossible, to formulate precise rules for determining questions of this nature. In Govindram Brothers Limited case [1946] 14 ITR 764, the Court (Chagla, J., dubi-tante) held that losses in silver speculations could be carried forward and set off against the profits of cotton speculations of the same merchant in a subsequent year. In Rekhabchand Sarogi's case [1947] 15 ITR 465 , which is very similar on its facts to the present case, the Court pointing out that the question whether there were two distinct businesses or whether they constituted the same business, was largely one of degree and therefore one of fact, held that losses incurred in speculative dealings in futures could be carried forward and set off against the profits arising out of dealings in ready and tangible goods. The assessees here are merchants trading in rice and other grains which they buy and sell. Speculation in those commodities involved even in the purchase and sale of ready goods. By entering into forward contracts for the purchase and sale of those very commodities, it cannot be said that they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. The fact that in a particular year the assessees did not enter into forward or speculative contracts had not the effect of stamping their activities with the character of, a new or separate business when they recommenced their dealings by way of speculative contracts in the same commodities in a later year. Nor did the fact that they discontinued entering into speculative forward contracts after 1940-41 and confined their activities to purchasing and selling ready goods retrospectively stamp the speculative transactions carried on before 1941 as a separate and independent business. If a portion of the business, namely speculation in forward contracts and grain futures, became unprofitable and was stopped permanently or for a time, the effect of that was not to make the business of the assessees different from what it was previously. The assessees might resume the traffic in grain futures and forward contracts if they think fit ; they might discontinue it if they do not find it paying ; but their business remains exactly what it was, viz., that of traders in rice and other grains. There is authority for this view in the case of Govindram Brothers Limited [1946] 14 ITR 764 . ..... X X X X Extracts X X X X X X X X Extracts X X X X
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