1965 (3) TMI 69 - HC - Income Tax

Summary

Issues Involved:
1. Whether the business activities of the company, including the manufacture and business in cotton textiles and earning profits in forward transactions in hessian, sacking, bullion, and castor seeds, constituted the same business within the meaning of section 24(2) of the Indian Income-tax Act, 1922.

Detailed Analysis:

1. Facts of the Case:
- The assessee is a manufacturer of yarn and cloth and also engages in forward transactions in hessian, sacking, bullion, and castor seed.
- For the assessment year 1952-53, the assessee sustained a net loss of Rs. 1,36,090 in the manufacture of yarn and cloth and made a net profit of Rs. 4,93,446 in forward transactions.
- The assessee sought to set off the losses in the manufacture of yarn and textiles brought forward from preceding years against the profits made in forward transactions, claiming they constituted the same business under section 24(2) as it stood before April 1953.

2. Tribunal's Decision:
- The Tribunal held that the factors presented by the assessee (one set of accounts, common finance, same roof, common staff, and ownership of assets) did not necessarily lead to the inference that the activities constituted one business.
- The Tribunal applied the test of whether one business could be stopped without affecting the texture or framework of the other and found that the claim of the assessee was not justified.

3. Relevant Legal Provisions:
- Section 24(2) of the Indian Income-tax Act, 1922, allows losses from one year to be carried forward and set off against profits of the same business in subsequent years.

4. Judicial Precedents and Tests:
- Scales v. George Thompson & Co. Ltd.: The court held that the business of underwriting and ship-owning were separate as they were not interlaced or interdependent.
- Setabgunj Sugar Mills Ltd. v. Commissioner of Income-tax: The Supreme Court emphasized the need to investigate unity of control, management, inter-relation of businesses, and the possibility of closing one without affecting the other.
- K.S.S. Soundrapandia Nadar and Bros. v. Commissioner of Income-tax: The court stressed that common ownership alone does not constitute the same business; the conduct of business and the nature of activities are crucial.
- Manilal Dahyabhai v. Commissioner of Income-tax: The court applied the test of whether closing one business would affect the other and found that speculation business and cloth business were separate.

5. Court's Analysis:
- The court examined whether the activities of manufacturing textiles and engaging in forward transactions were so interconnected as to constitute one business.
- The nature and texture of the activities were considered crucial. The court found that manufacturing textiles and forward transactions in hessian, sacking, and castor seeds were inherently different.
- The court noted that common finance, staff, and accounts do not necessarily indicate a single business if the activities are fundamentally different.

6. Conclusion:
- The court held that the activities in forward transactions and manufacturing textiles did not constitute the same business.
- The cessation of one activity would not affect the texture of the other, indicating they were separate businesses.
- The answer to the question posed was in the negative and against the assessee.

7. Final Judgment:
- The court concluded that the business activities of manufacturing textiles and engaging in forward transactions did not constitute the same business under section 24(2) of the Indian Income-tax Act, 1922.
- The assessee's claim to set off the losses was denied, and the costs of the reference were to be paid by the assessee.

Summary:
The court determined that the business activities of manufacturing textiles and engaging in forward transactions in hessian, sacking, bullion, and castor seeds were not the same business under section 24(2) of the Indian Income-tax Act, 1922. Despite common finance, staff, and accounts, the fundamentally different nature of the activities led to the conclusion that they were separate businesses. The assessee's claim to set off losses from previous years against profits from forward transactions was denied.