TMI Blog1983 (10) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... mission payable by the assessee to M/s. Kothari and Sons (Agencies) Private Limited was an admissible deduction for the assessment years 1968-69 and 1969-70 ? 4. Whether, oil the facts and in the circumstances of the case, the Tribunal was right, in holding that the assessee was entitled to the deduction of a further sum of Rs. 3,24,718 for the assessment year 1968-69, and Rs. 3,56,660 for the assessment year 1969-70, towards head office expenses ? " Not satisfied with the statement of the case referring the said questions, the Revenue required the following two questions to be referred by filing an application under s. 256(2) of the Act, and this court directed a reference on the following questions in T.C. Nos. 517 to 520 of 1981 : " 1. Whether, on the facts and in the circumstances the case, the Appellate Tribunal was correct in law in holding that the business carried on by the assessee in tea, coffee and fertilisers constituted a single and unitary business activity even while noting the fact that the assessee had maintained separate accounts for fertiliser unit for the purpose of obtaining relief under section 15(c) of the Indian Income-tax Act, 1922 ? 2. Whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was a common management, a common administration, a common fund and a common head office from which control over all units was exercised and, therefore, all the businesses should be taken to be so interconnected so as to treat them as a single business. Out of that portion of the order of the Tribunal which deals with the managing agency commission, question No. 1, referred to in T.Cs. Nos. 378 to 383 of 1978, and the two questions in T.Cs. Nos. 517 to 520 of 1981 arise. For the same assessment years, the ITO had disallowed a proportionate amount of the sitting fees paid on the ground that the income from coffee was not taxable and, therefore, the proportionate amount of sitting fees referable to the business in coffee should be disallowed. The AAC, on appeal, allowed the deduction in its entirety. This was contested before the Tribunal by the Revenue. The Tribunal had held that since all the three businesses are one and entire, full allowance has to be granted towards sitting fees. In relation to this aspect, the Revenue has sought and obtained a reference on the second and third questions in T.Cs. Nos. 378 to 383 of 1978. For some of the assessment years, the assessee ori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchase being made out of funds generated over the years. In 1956, the assessee again purchased another coffee estate called " Santagherry Estate " in Mysore State. In 1962, the name of the assessee was changed to Blue Mountain Estates and Industries Ltd., because the company wanted to start a fertiliser factory at Ennore near Madras. The sales of both coffee and tea were effected through head office by giving instructions to the estate managers and the financial control of the tea and coffee estates was with the head office and accounts were rendered monthly by the estate managers to the head office. The amounts required for payment of weekly wages and for meeting other expenses of the estate were remitted from the head office once or twice in a month to enable the managers to incur the expenditure. The sale proceeds of both coffee and tea as received in the head office were credited to the same account with the State Bank of India. The remittances to both tea and coffee estates were also made from the State Bank of India account. Regarding the fertiliser business, the company made an investment of nearly Rs. 46 lakhs out of which Rs. 21 lakhs represented fresh capital raised and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business is distinct and separate and that they did not constitute a same and single business and held that the sole test of unity of control propounded by the Supreme Court in various cases has been satisfied in this case where all the three businesses are being carried on, financed and controlled by the same management, that the income from all the businesses passed through the same account and that, therefore, the businesses should be treated as one and the same. While the assessee seeks to sustain the view taken by the Tribunal, the Revenue challenges the view of the Tribunal as legally unsustainable. Before us the learned counsel for the Revenue contend s that the onus was on the assessee to show that the three businesses carried on by it were one and the same, and in support of the said submission he referred to the ratio of the decision of the Supreme Court in Chhabda Sons v. CIT [1967] 65 ITR 638. The learned counsel also refers to the decisions of the Supreme Court in Standard Refinery Distillery Ltd. v. CIT [1971] 79 ITR 9 and CIT v. Maharashtra Sugar Mills Ltd. [1971] 82 ITR 452. The question whether certain businesses carried on by an assessee constitute a sing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... another. Dealing with a contention of the Revenue in that case that the company is one and that it declares one dividend and, therefore, the two businesses carried on by the company should be taken to be a single business, the court observed that the company can carry on two businesses, although it may, for the purpose of convenience, if it wishes, amalgamate the proceeds before paying the shareholders, that the method of bookkeeping will not throw any light on the question and that the real question to be considered was whether there was any interconnection, interlacing, interdependence and unity at all embracing those two businesses. In one of the earliest cases in South Indian Industrials Ltd. v. CIT [1935] 3 ITR 11, a Full Bench of this court dealt with this question. In that case, the assessee company was formed in 1904 to acquire and carry on the business of the Chittivalsah Spinning and Weaving Co., the Madras Portland Cement and Tile Works, Rice Mills and Foundry. The said company thereafter purchased a large number of shares in a jute company and received in the year of account a sum of Rs. 1,40,000 by way of dividends. Against this income, the assessee claimed set off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and that the opening of one theatre and the closing of another did not affect the working of the other. The Supreme Court held that it could not be said that one venture was part of another and the mere circumstance that the result of the accounts of the different ventures were maintained at the head office, no inference necessarily arose that the exhibition of films in different theatres constituted the same business. Further, it was observed that there is no such general principle that where an assessee carries on business ventures of the same character at different places, it must be held as a matter of law that the ventures are parts of a single business, that whether different ventures carried on by the assessee form parts of the same business must depend on the facts and circumstances of each case, and it is for the assessee to establish that the different ventures constitute parts of the same business and that if the assessee carries on several distinct and independent businesses, and one of such businesses is closed before the end of the previous year, he cannot claim allowance under s. 10 of the Indian I.T. Act, 1922, of an outgoing attributable to the business which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and the same business as claimed by the assessee. The learned counsel for the Revenue refers to the recent decision of this court in Waterfall Estates Ltd. v. CIT [1981] 131 ITR 207, as supporting his stand. The learned counsel for the assessee strongly relies on the decision of the Supreme Court in B. R. Ltd. v. Gupta, CIT [1978] 113 ITR 647, and contends that the decisive test to be applied in this case is the unity of control and not the nature of the lines of business, and that as this case satisfies the test of unity of control, it should be held that the assessee is carrying on the same business though the lines of business carried on by it may be different. But we are of the view that the said decision of the Supreme Court cannot be taken as laying down that unity of control is the only and sole test to be adopted as contended by the assessee. On the facts of that case, the Supreme Court had to consider the efficacy of the two tests, one, unity of control and, the other, the different lines of business, and as between the two tests, the Supreme Court expressed the view that the test of unity of control should prevail over the other test relating to nature and the lines o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d distillery. The objective tests adopted by the Supreme Court were: (1) whether the shares dealt with by the assessee were one of the number of commodities in which the assessee dealt in the ordinary course of business, and (2) whether there was any element of diversity or distinction or separateness in regard to the transaction in shares qua the other trading activities of the company. By adopting the same objective tests as have been adopted by the Supreme Court in that case, we find that the assessee, in this case, was originally carrying on the business in tea. Later, it acquired coffee plantations and began dealings in coffee. Later, the assessee changed its name from Blue Mountain Estates Limited to Blue Mountain Estates and Industries Limited and began to carry on an industrial activity. Therefore, it cannot be said that it is not possible for the assessee to carry on one activity without reference to the other. No doubt the test of unity of control is established in this case as the finances and the control were from the head office of the company. To find out whether there is interconnection, interlacing and interdependence, we have to see whether the goods dealt with by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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