TMI Blog1986 (1) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... ar in question is 1968-69. During the prior assessment year, the assessee, who is not represented before us, was carrying on business activity consisting of distribution of cinema films and purchase and sale of " National Defence Remittance Scheme Certificates ". The net business loss for the assessment year 1967-68 was determined at Rs. 2,32,485. In the assessment year in question, the assessee carried on only the business of distribution of cinema films and claimed that the unabsorbed loss of previous assessment year amounting to Rs. 2,32,485 should be carried forward and set off. The loss which was sought to be carried forward related only to the business activity of purchase and sale of National Defence Remittance Scheme Certificates. This activity was not carried on in the accounting year relevant to the assessment year 1968-69. The Income-tax Officer took the view that since the business of purchase and sale of National Defence Remittance Scheme Certificates, hereinafter referred to as " Certificates ", was not carried on in the assessment year in question, the assessee was not entitled to carry forward and set off the unabsorbed loss under section 72(1) of the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees, but the assessee in the present case was an individual. In such a case, according to learned counsel, funds for the two different kinds of activities were bound to come from a common source and, consequently, the test of interlacing and interdependence must be determined with reference to the possibility of one activity being carried on with or without the aid of the other activity. The relevant provision is in the first proviso to clause (i) of section 72(1) of the Income-tax Act, 1961. By that proviso, before business loss is permitted to be carried forward and allowed to be set off in the subsequent assessment years, it has to be established that the business or profession for which the loss was originally computed continued to be carried on by the assessee in the previous year relevant to that assessment year. The parallel provision under the Indian Income-tax Act, 1922, is to be found in section 24(2), where also a similar proviso was incorporated. The question as to what should be the test which should be applied in order to decide whether the assessee is carrying on the same business so as to entitle him to claim the advantage of carrying forward the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est which was laid down by the decision in Scales v. George Thompson and Co. Ltd. [1927] 13 TC 83 (KB). The test was once again considered in Produce Exchange Corporation Ltd. v. CIT[1970] 77 ITR 739 (SC). There again, the Supreme Court laid down while dealing with a case under section 24(2) of the Indian Income-tax Act, 1922, that the decisive test was unity of control and not the nature of the two lines of business. This decision is of some importance so far as the case before us is concerned, because, in this decision, the Supreme Court expressly disapproved of the test laid down by the Calcutta High Court in Shree Ramesh Cotton Mills Ltd. v. CIT [1967] 64 ITR 317 (Cal). The Calcutta High Court was dealing with section 24(2) of the Indian Income-tax Act, 1922. The assessee, before the Calcutta High Court, was a manufacturer of yarn and cloth, who had entered into forward transactions in hessian, sacking, bullion and castor seed. For the assessment year 1952-53 relevant to the year ending December 31, 1951, the assessee sustained a net loss in the manufacture of yarn and cloth as against a profit in its forward transactions. The assessee claimed a set-off of its carried forward l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol, or whether there was user of common finance and common books of account, are only to be applied when it has been found that there is such interconnection or coherence between the different activities that they appear so linked together as to form a composite whole." (Underlining is ours). The above observation will show that the predominant test which is almost conclusive in the opinion of the Calcutta High Court was, whether the cessation of one activity will affect the texture of the other for testing whether the businesses carried on were the same business. We have extracted the above paragraph because the Supreme Court in Produce Exchange Corporation Ltd.'s case [1970] 77 ITR 739, has expressly disapproved of this view of the Calcutta High Court. In the Produce Exchange Corporation Ltd.'s case, the Supreme Court observed with reference to the decision of the Calcutta High Court as follows (p. 742): "' Was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses ? ' That interconnection, interlacing, interdependence and unity are furnished in this case by the existence of common management, common business organis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on fund and common place of business are all circumstances which will establish the interconnection, interlacing, interdependence and unity of two or more lines of business. Once again these tests have been reiterated by the Supreme Court in B. R. Ltd. v. V. P. Gupta, CIT [1978] 113 ITR 647. The Supreme Court in that case has pointed out that in the context of set-off of carried forward loss under section 24(2) of the Indian Income-tax Act, 1922, for the purpose of ascertaining whether the two lines of business constitute the same business, the decisive test is unity of control and not the nature of the two lines of business. The court further held that the fact that one business cannot conveniently be carried on after the closure of the other may furnish a strong indication that the two businesses constitute the same business. But it was made clear that no decisive inference can be drawn from the fact that after the closure of one business, another may or may not conveniently be carried on. Learned counsel appearing for the Revenue has, however, argued that from the two decisions, this court has read the above Supreme Court decisions in a different way. He has relied on a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture of fertilisers was undertaken to meet its own needs. The court took the view that there was a clear diversity or distinction or separateness in regard to the fertilisers qua the other trading activities of the company such as the sale of coffee or tea and, accordingly, the deduction under the heads of managing agency commission, sitting fees and head office expenses should be restricted with reference to the income earned in the businesses carried on in tea and fertilisers and the deduction under those heads could not be given in relation to the expenses incurred in connection with the business in coffee. It is undoubtedly true that the Division Bench in that case has held that the new business undertaken by the assessee did not have any connection with the earlier business in coffee and tea. It appears to us that this decision does not affect the test which has been laid down by the Supreme Court and what seems to have weighed with the learned judges was that fertiliser was not commodity in which the company dealt with in the ordinary course of business in coffee or tea. What is, however, important is that even in this decision, this court has not in any way departed fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the assessee had been sold during the accounting year in question would not lead to the inference that the assessee carried on the collapsible tubes business during the accounting period relevant to the assessment year 1970-71 and the assessee was not, therefore, entitled to have the unabsorbed losses relating to collapsible tubes factory for the years 1964-65 to 1967-68 carried forward and set off against the income determined in the business of refractory works for the assessment year 1970-71. Before this court, the assessee had relied on the decisions of the Supreme Court in Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739, Standard Refinery Distillery Ltd. v. CIT [1971] 79 ITR 589 and B. R. Ltd. v. Gupta (V. P.), CIT [1978] 113 ITR 647. It is pertinent to point out that this court observed that in all these cases, it had been found that the business which had been stopped was an integral part of the business which had been continued and as such the assessee was held entitled to claim the benefit of carry forward and set off of the unabsorbed depreciation. What is important is that these cases were held to be inapplicable by the Division Bench with the observ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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