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TMI Blog1965 (3) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... s a manufacturer of yarn and cloth. It also enters into forward transactions in hessian, sacking, bullion and castor seed. In the accounting year ending December 31, 1951, it sustained a net loss of ₹ 1,36,090 in the manufacture of yarn and cloth and made a net profit of ₹ 4,93,446 in forward transactions in bullion, castor seed, hessian, etc. After setting off the above loss against the profit, the balance of ₹ 3,57,356 was assessed as business income of the assessee. The assessee wanted to set off the losses in the manufacture of yarn and textiles brought forward from the preceding years to the extent of ₹ 5,60,854 against the profits made in the forward transactions in the year of account, on the ground that they constituted the same business within the meaning of section 24(2) as it stood before its amendment in April, 1953. The claim to set off was not allowed by the Income-tax Officer. The appeals to the Appellate Assistant Commissioner and the Tribunal were also unsuccessful. Before the Tribunal the assessee relied on the following factors in order to establish that it was carrying on the same business in the year ending December 31, 1951, as it was d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A in one and loss B in the other, he is allowed to carry forward the loss B minus A to the next year, but this loss cannot be set off against the profits made in the first business. The question which arises in all such cases is whether the business in the subsequent year is the same business as that in the earlier year. It may be that the assessee carries on his different business activities under one roof and under one management. It may again be that a part of the staff employed for business X also looks after business Y. The assessee may or may not maintain a common set of account books. He may or may not use finance employed in one activity when the occasion arises for it in the other activity. Various tests have been laid down from time to time to find out whether the business in the two years is the same. In my opinion, the activities of the assessee and his modus operandi in carrying them out must be examined as a whole. If the nature of the different activities or ventures is such and they are so conducted as to lead to an inference that the whole thing is one unit, the business must be considered as the same business notwithstanding the fact that a particular activity may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then being carried on under the name and style of George Thompson & Co. with all its assets or any of the assets, with or without all or any of the liabilities of the proprietors of that business in connection therewith, (2) to carry on all or any of the business of shipowners, merchants, ship-builders, etc., (3) to insure the whole or any part of the property of the company and to accept the whole or any part of the marine risk and liability of the company as underwriters and also to carry on the business of marine insurance in all its branches. By an agreement made between the firm of George Thompson & Co. and the company, it was inter alia provided that the vendor would sell and the company would purchase the goodwill of the business of the firm and take over the full benefit of all contracts and engagements relating to the business of the partnership. The interest in the underwriting account was sold to the company when the company was incorporated and, inasmuch as Lloyds would not recognise a company as a "name", it was continued in the names of the said George Thompson Handerson & Stephen Thompson (two of the partners of the firm), who acted as nominees of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit in transactions in gunnies and jute. In the accounting year ending August 31, 1947, the company did business in mustard seeds, gunnies and hessian and made profit. After this, the company ceased to have any business other than the manufacture and sale of sugar. During the accounting year ending on August 31, 1947, the profit from the sale of gunnies, mustard seed and jute amounted to ₹ 6,14,018. The sugar business in that year resulted in a loss of ₹ 2,09,306. The loss in sugar was set off against the profits of the other business and assessment made on the net profit. The company claimed to set off against this profit, business losses of past years in sugar amounting to ₹ 13,43,069, which had been brought forward. Having lost throughout before the revenue authorities, the company asked the Tribunal to make a reference to the High Court. The Tribunal declined and the application under section 66(2) was also summarily dismissed. The company went up to the Supreme Court and obtained special leave. The court observed [1961] 41 I.T.R. 272, 274 (S.C.). . The question whether, on the application of the settled tests, different ventures carried on by an individual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted by the assessees for these two years, they had submitted that these losses had arisen in the single business carried on by them in these commodities. The question before the court was whether there was any material for the finding that the dealing in forward contracts, carried on by the assessee in the Rangoon grain market, was a distinct and separate business from the dealing in ready goods of the same commodities. The High Court recognised that it was not easy to formulate a test applicable to all cases in order to determine whether two dealings in different commodities or the carrying on of different lines of business would constitute the same business or not within the meaning of section 24(2) of the Act. Satyanarayana Rao J. observed**"One thing, however, seems to be definite, and that is that common ownership alone would not constitute different lines of business the same business; nor the mere fact that two businesses are of a distinct nature would make them separate businesses. An individual may run multiple stores like Spencer & Co. at Madras, and yet the business may be only one business, though there are different lines. In the case of insurance companies, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees extended to entering into forward contracts for the purchase and sale of those very commodities in which they were dealing, but as part of the business itself. As I said, the business was carried on by the same persons, through the same agency, with the same funds, both with reference to the dealings in futures and forward contracts as well as ready goods. The speculations in futures were entered into with a view to increase the profits of the business and also perhaps to impress the commercial public in Rangoon and command credit facilities. The speculations were merely ancillary to the ready goods business and they converged to the same point, namely, the earning of profits as a result of the rice and grain business." It will, therefore, be noted that both the learned judges laid great stress on the fact that the forward contracts were in respect of the same commodities as that in which the assessees carried on a trade in ready goods and that the conduct of the business was such as to show that the forward contracts and the transactions in ready goods were part of an integral whole and that speculations were merely ancillary to the ready goods business. The concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... still a balance of ₹ 8,321. The assessee contended that this sum should be adjusted towards the income from his other trading activities. The Tribunal negatived this contention on the ground that his business in shares was different from that of commission agency. The Bench of the Madras High Court consisting of Rajagopalan and Rajagopala Ayyangar JJ. found that according to the Tribunal "...the assessee had no separate establishment, no separate place of business and no separate finance for his trading activities in the purchase and sale of shares....' Finances for both these activities of the assessee were derived from the same pool, that there was no separate establishment or expenditure, all these being inter-woven'." The learned judges observed "that the nature of the business which the assessee carried on in the purchase and sale of shares, that is, really dealing in futures, was a relevant factor to be taken into account in deciding whether it constituted an item of business distinct and separate from the commission agency business which he carried on, cannot be disputed." Accordingly, the question referred was answered against the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he funds to the cloth business, and merely because there were withdrawals made from the cloth business for the purpose of the business in speculation, it could not be said that there was identity between the two lines of business carried on by the assessee. The President of the Tribunal agreed with the Accountant Member's view. The learned judges of the Bombay High Court however did not rest their judgment merely on the concurrence as to the findings of the two Members of the Tribunal. Shah J. observed*: "The court must in each case ascertain whether, in view of the existence of these circumstances (the six factors mentioned above), unity between the two lines of business is established... Though not a conclusive test, an important test, viz., whether one of the two businesses conducted by the assessee could be stopped without affecting the texture or framework of the other, may properly be applied in this case. It was possible for the assessee to close the cloth business and to conduct exclusively the speculation business and the texture or framework of the speculation business would not have been affected thereby: and by the closure of the speculation business, the textu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed. The Division Bench referred to Setabganj Sugar Mills Ltd.'s case [1961] 41 I.T.R. 272 (S.C.) and Scales' case*** and said: "The position, therefore, is that whether or not it is the 'same business' is dependent on a variety of matters bearing on the unity of the business, but the real question, the central fact, the principal test is, whether there was any inter-connection, any interlacing, any inter-dependence, any unity embracing the ventures, whether the different ventures were so dovetailed into each other as to make them into the 'same business'. "The question referred was answered against the assessee. 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 such importance. The principal thing to consider is whether the activities are of such nature and are so linked as to appear to be one unity. As I have said, an assessee carrying on a business of a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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