1963-VIL-37-CAL-DT

Other Citation: [1965] 55 ITR 139

CALCUTTA HIGH COURT

IT REFERENCE NO. 64 OF 1958

Dated: 23.07.1963

STANDARD REFINERY & DISTILLERY LTD

Vs

COMMISSIONER OF INCOME-TAX

Bench

S. P. MITRA AND K.C. SEN, JJ.

JUDGMENT

Sankar Prasad Mitra, J.

This is a reference under section 66(2) of the Indian Income-tax Act, 1922. The assessee is a public limited company. The assessment year is 1949-50, the corresponding accounting year being the calendar year ending on December 31, 1948. The assessee-company was incorporated in 1942. It was then owning and working a distillery in Uttar Pradesh. It acquired a refinery in 1943. With effect from June 1, 1945, it obtained on lease the sugar factory belonging to the New Savan Sugar and Gur Refining Co. Ltd. and started manufacturing sugar. During the period between January 29, 1946, and April 23, 1946, the assessee purchased 41,300 shares of the New Savan Sugar and Gur Refining Company Ltd. for Rs 12,17,096. On April 30, 1947, the entire block of 41,300 shares were sold to the Produce Exchange Corporation Ltd. for Rs 846,750 resulting in a loss, which was determined to be Rs 3,70,356. This loss was accepted by the Appellate Tribunal as a trading loss. It fell to be considered in the immediately preceding year and after setting off the loss against the year's income, there remained a resultant loss of Rs 2,27,085. This loss was carried forward under section 24(2).

The unabsorbed loss of Rs 2,27,085 in the share transaction was claimed for set-off against the profits of the assessee's business in the succeeding year. The Income-tax Officer refused to allow the loss. This view of the Income-tax Officer was also accepted by the Appellate Assistant Commissioner.

The assessee's contentions were: (1) that the purchase of shares of the aforesaid company was intimately connected with the lease of the sugar mill; (2) that the business in the shares was carried on during the preceding accounting year by the same staff and with the same capital. Therefore, it was submitted that the share business was an inseparable part of and interconnected with the manufacture of liquor, sugar and molasses ; (3) that the capital with which the business in shares was carried on was supplied from the business of refining sugar ; and (4) that the management of the two businesses was also by the same staff. It was further argued that the memorandum of association of the applicant-company authorised it to carry on the business of purchase and sale of shares.

The Tribunal held that common ownership or common management of the businesses or the common staff and the same capital would not be the true test to find out whether they constitute the "same business". It further observed that what was required was interlacing, interdependence or dovetailing or, in other words, the essential condition to be satisfied was that the discontinuance of one business may affect the other, or the existence of one must depend upon the continuance of the other. The fact that the sugar mill was obtained on lease in 1945 and shares purchased in 1946 would not make the two businesses, according to the Tribunal, the "same business". The Tribunal has pointed out that the evidence on record does not show that the two businesses were interconnected or were inextricably connected with each other to constitute the "same business" within the meaning of sub-section (2) of section 24 of the Indian Income-tax Act. The Tribunal, therefore, dismissed the assessee's claim.

On the above facts and in the circumstances, the following question of law has been framed by this court :

"Was there any evidence before the Tribunal on which it could hold that the business in dealing with shares was distinct and separate from the business of sugar manufacturing and distillery ?"

At the very outset it is necessary to set out the relevant provisions of sub-section (2) of section 24 of the Act as they stood at the material time. These were:

"Where any assessee sustains a loss of profits or gains in any year . . . in any business, profession or vocation, and the loss cannot be wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head of income shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year ; and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on ; but no loss shall be so carried forward for more than six years ..."

It is apparent that considerable benefits have been conferred on the assessee by this section. He can claim reliefs for losses suffered by him for a period of six years. It is essential, therefore, that he should place before the tax authorities all the relevant materials to satisfy them that the loss was suffered in respect of the "same business" as contemplated by subsection (2) of section 24. In this reference it does not appear to us that the assessee brought to the notice of the Tribunal all the requisite materials for obtaining reliefs under section 24(2). In the paper-book we do not find, for instance, that the assessee adduced any evidence as to why it started purchasing the shares of the lessor-company more than six months after the commencement of the lease. There is also no evidence to show that the manufacture of sugar by the assessee was in any way benefited by the purchase of the shares. There was no evidence as to why the entire block of shares was sold in April, 1947, to the Produce Exchange Corporation.

The meaning of the expression "same business" appearing in sub-section (2) of section 24 of the Act has been judicially considered in a number of decisions. It is unnecessary to refer to them all in view of the pronouncement of the Supreme Court in Setabganj Sugar Mills Ltd. v. Commissioner of Income-tax [1961] 41 ITR 272 (SC). The principles involved have been explained by the Supreme Court at page 274 in these words :

"The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed question of law and fact. Certain principles are applied to determine whether, on the facts found, a legal inference can be drawn that the different ventures constitute separate businesses or viewed together, can be said to constitute the same business. These principles were stated by Rowlatt J. in Scales v. George Thompson & Co. Ltd. [1927] 13 Tax Cas. 83 at page 89 The learned judge observed :

' . . . the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses'.

The learned judge also observed that what one had to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one. No doubt, findings of fact are involved, because a variety of matters bearing on the unity of the business have to be investigated, such as unity of control and management, conduct of the business through the same agency, the interrelation of the businesses, the employment of same capital, the maintenance of common books of account, employment of same staff to run the business, the nature of the different transactions, the possibility of one being closed without affecting the texture of the other and so forth. When, however, the true facts have been determined, the ultimate conclusion is a legal inference from proved facts, and it is one of mixed law and fact, on which depends the application of section 24(2) of the Act ..."

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 interconnection, any interlacing, any interdependence, any unity embracing the ventures, whether the different ventures were so dovetailed into each other as to make them into the "same business".

The Appellate Tribunal in the instant case has found that the loss was suffered by the assessee in the business of purchase and sale of shares. It has noted the contention of the assessee that the capital with which the business in shares was carried on was supplied from the business of refining sugar, and the management of the two businesses was also by the same staff. It has noted, further, the contention of the assessee that under the memorandum of association, it was permissible for the assessee to carry on the business of purchase and sale of shares. According to the Tribunal, on the facts as they are on record, it is difficult to come to the conclusion that the two businesses were the "same business" within the meaning of subsection (2) of section 24 of the Income-tax Act. The Tribunal says that what is required is interlacing and dovetailing. In other words, the essential condition that ought to be satisfied is that the discontinuance of one business must affect the other. The two businesses, the Tribunal is of opinion, must be so connected that the existence of the one must depend upon the continuance of the other. The Tribunal then goes on to say that the assessee started the business of refining sugar and manufacturing sugar and molasses long before 1945. In 1945, the assessee took a lease of a factory belonging to the New Savan and Gur Refining Co. Ltd. In 1946, the assessee purchased the shares of the lessor-company and started the business of purchasing and selling shares. The Tribunal expresses the view that this would not make the two businesses the "same business". The Tribunal states that nothing would hang upon the question as to whether the shares were of the lessor-company or of other companies. The evidence on record, the Tribunal has concluded, does not show that the two businesses were interlaced and interconnected and were inextricably mixed with each other.

On a close scrutiny of the materials that were made available to the tax authorities by the assessee in the present case, we are of opinion that the finding of the Tribunal does not require any interference by us.

The onus is clearly on the assessee to establish that he is entitled to the reliefs proposed by sub-section (2) of section 24 of the Indian Income-tax Act. That onus, as we have already pointed out, has not been discharged by the assessee in the present reference.

Incidentally, I may refer to the decision of the Madras High Court in K. Govindan v. Commissioner of Income-tax [1955] 28 ITR 307 . It is stated that the question whether, for purposes of section 24(2) of the Indian Income-tax Act, 1922, a given business is a separate business or is a part of another business which the assessee carried on is essentially one of fact. The question that the High Court has to decide in such a case is whether the finding of the Tribunal that the two businesses were separate was one supported by the evidence placed before it. If there was evidence, the sufficiency of that evidence or other evidence contra, will not justify a refusal to accept the finding of fact arrived at by the Tribunal.

The Appellate Tribunal in the reference before us has stated that, on the facts as they are on record, it is difficult to come to the conclusion that the two businesses were the same business within the meaning of section 24(2). We have also felt the same difficulty in dealing with this reference and are inclined in the premises to uphold the Tribunal's finding. In any event, we are unable to say that this finding is without evidence.

In the result the answer to the question is in the affirmative. The applicant will pay to the respondent the costs of this reference. Certified for counsel.

Sen J.-I agree.