Full Judgment Text
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PETITIONER:
HOOGLY TRUST (PRIVATE) LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME-TAX, WEST BENGAL ANDANDAMAN AND NICOB
DATE OF JUDGMENT:
04/02/1969
BENCH:
GROVER, A.N.
BENCH:
GROVER, A.N.
SHAH, J.C.
RAMASWAMI, V.
CITATION:
1969 AIR 946 1969 SCR (2) 557
1969 SCC (1) 535
CITATOR INFO :
RF 1978 SC1320 (12)
R 1986 SC1483 (4)
ACT:
Income-tax Act (11 of 1922), s. 24(2) (before its amendment
by the Finance Act of 1955)-Business in several commodities-
Loss in one-Set off claimed against profits in others-
Question of fact-When High Court can examine its
correctness.
HEADNOTE:
The assessee carried on business in several commodities
including cloth. In the assessment years 1953-54 and 1954-
55 the assessee suffered loss in cloth business, and it was
determined for the purposes of s. 24(2) of the Income-tax
Act, 1922 (as it stood before the amendment in 1955).
During the subsequent three assessment years, the Income-tax
Officer refused to allow the carry forward of these losses
and their set off against the business profits of those
years on the ground that the losses determined in the
preceding years arose out of the cloth business which was
different from the other business carried on by ’the He held
that since the cloth business was not carried on during the
relevant year of account the loss therefrom in preceding
years could not be carried ,forward and set off against
profits of other business. The Appellate Assistant
Commissioner agreed with the Income-tax Officer. Me
Tribunal found (i) that the assessees dealings in cloth
started very early and the introduction of control only
changed the procedure of carrying on the business, (ii) that
the assessee has been doing business in several commodities
and its trading in each commodity did not constitute
separate business, (iii) that the cloth business never
assumed the proportion or the stature of a distinct and
separate business and (iv) that there was evidence to show
dovetailing of cloth business into the general section. The
question, as to whether on the facts and in the
circumstances of the case, the cloth business and the
business in the general section constituted the same
business within the meaning of s. 24(2) as it stood then,
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was referred to the High Court. Relying on most of the
facts determined by the Appellate Assistant Cormmissioner,
the High Court answered the question against the assessee.
In appeal, to this Court, the assessee contended that (i)
the findings on questions of fact given by the Tribunal were
final and it was not open to the High Court to examine their
correctness in the absence of any proper question on the
point; and (ii) on the findings of the Tribunal the losses
on account of cloth business were liable in law to be
carried forward and set off against the profits during the
relevant assessment years.
HELD : The question must be answered in the affirmative and
in favour of the assessee.
(i)In spite of the form in which the question had been
referred it was not open to the High Court to examine the
correctness of the conclusions of the Tribunal on-facts. If
the Tribunal does not consider the evidence covering all the
matters and bases its findings upon some evidence only
ignoring other essential material that would amount to a
misdirection in law and the findings would give rise to a
question liable to be referred to the High Court. But it is
equally well settled that if the question about the validity
of the findings of fact-is sought to be raised for one
reason or
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another, reference of a proper question challenging those
findings must first be sought before those findings can be
challenged before the High Court. No attempt was made
before the Tribunal to have any such question referred and
in the absence of a proper question it was not open to the
High Court to accept the findings of the A
appellate Assistant Commissioner in preference to those
given by the Tribunal or to come to any independent
conclusion itself on the faces. The Tribunal does not
appear to have discussed the entire evidence on which the
findings were based but the order of the Appellate Assistant
Commissioner and his findings as also the entire record were
before it and there is nothing to suggest that all the
material facts were not present to its mind except that they
are not mentioned in detail. Its findings, therefore, must
be accepted as final and the only question which it was open
to the High Court to examine was whether the cloth business
could be regarded as the same business within the meaning of
s. 24(2) of the Act. [563 B-D; 563 G]
India Cement Ltd. v. Commissioner at Income-Tax, Madras, 60
I.T.R. 52, 64 and Hazarat Pir Mahomed Shah Saheb Roza
Committee v. Commissioner of Income-tax, Gujarat, 63 I.T.R.
490, 496, referred to.
(ii)The question whether on the application of the settled
tests different ventures carried on by the assessee from the
same business for the purpose of s. 24(2) is a mixed
question of law and fact. The fair test is whether there
was any inter-connection, any inter-lacing, any inter-depen-
dence, any unity were found to exist by virtue of the common
management, common business Organisation, common
administration, common fund and common place of business.
[564 D-E]
Setabganj Sugar Mills Ltd. V. Commissioner of Income-tax,
Central, Calcutta, 41 I.T.R. 272, 274, Scales v. George
Thompson & Co. Ltd., [1927] 13 T.C. 83; Manilal Dahyabhai v.
Commissioner of Income-tax, Bombay City, 37 I.T.R. 398 and
Commissioner of Income-tax, Madras v. Prithvi Insurance Co.
Ltd. 63 I.T.R. 632, 637, referred to.
Applying these principles the conclusions which the Tribunal
arrived at were correct.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals No. 1659 to
1661 of 1968.
Appeals from the Judgment and order dated March 26, 1965 of
the Calcutta High Court in Income-tax Reference No. 130 of
1961.
Sukumar Mitra and D. N. Mukherjee, for the appellant (in all
the appeals).
S.T. Desai, S. K. Aiyar, R. H. Dhebar and B. D. Sharma,
for the respondent (in all the appeals).
The Judgment of the Court was delivered by
Grover, J. These three appeals are by certificate from a
common judgment of the Calcutta High Court answering the
following question referred to it by the Income Tax
Appellate Tribunal in the negative and against the assessee
"Whether on the facts and in the circumstances
of the case, the cloth business of the
assessee and its business in the General
Section constituted the same business
559
within. the meaning of s. 24(2) of the Indian
Income-tax Act as it stood at the material
time."
According to the statement of the case the assessee is a
private limited company owning shares and securities and
also doing business. The relevant assessment years are
1955-56, 1956-57, 195758, the corresponding accounting years
being the calendar years 1954, 1955 and 1596. In the
assessment for the years 1953-54 and 1954-55 losses
amounting to Rs. 2,13,898 and Rs. 46,050 respectively were
determined for the purposes of s. 24(2) of the Income tax
Act 1922, hereafter called the "Act". In the first year a
loss of Rs. 2,08,686/- arose in cloth business whereas the
balance of the loss occurred in the General section and the
manure section. In the second year a loss of Rs. 46,050
occurred mainly in cloth business. During the three
assessment years in question the Income tax Officer refused
to allow the carry forward of these losses and their set off
against the business profits of those years on the ground
that the losses determined in the preceding years arose out
of the cloth business which was different from the other
business carried on by the assessee and since the cloth
business was not carried on during the relevant year of
account the loss therefrom in preceding years could not be
carried forward and set off against profits of the other
business. The Appellate Assistant Commissioner agreed with
the conclusion of the Income tax Officer. He rejected the
contention of the asessee that common ownership, common
direction and control, common financial arrangement, common
staff and common balance sheet necessarily established that
the business was single. He took the view that the
character of the cloth business carried on by the assessee
was entirely different from the other business. He laid
particular emphasis on the fact that the assessee acted as a
distributing agent on behalf of the Government for cloth and
cement and the mode of carrying on of that business was
altogether different from that of its ordinary business. He
referred to the fact that the cloth business had a separate
overdraft account with the Bank with which stocks of cloth
had been pledged and there was separate staff for the cloth
business even though the assessee claimed that a part of the
staff in the General section also looked after the cloth
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business. The assessee contended before the Tribunal in
appeal that till the end of 1945 its business was confined
only to shares and the management of zamindari properties
and that dealing in cloth began only in 1946 and in 1950 the
assessee was dealing in manure and in 1952, in paints as
well. After the introduction of control on cloth in 1948
the company was appointed as a nominated buyer approved by
the Government doing business at it.,; own risk under
conditions prescribed by the Government by whom prices at
which the goods were to be sold were fixed. Certain
expenses relating to the cloth business like motor car and
godown
560
expenses were charged to the General account, whereas
certain expenses relating to the General section like rent
and telephone charges were charged to the cloth account
while audit fees were allocated to a different department.
The control over the different activities of the assessee
was not exercised by the Director but by common managerial
staff and there was sufficient financial inter-relation
between the cloth business and the General section. The
Tribunal held that the assessee’s dealings in cloth started
as early as 1946 and that the introduction of control by the
Government changed the procedure of carrying on the
business. It was further found that the assessee had been
doing business in several commodities one after the other or
along with the other and apart from the fact that a separate
profit and trading account was maintained for cloth business
there was nothing to suggest that the cloth business assumed
the proportion or the stature- of a distinct and separate
business. It was accordingly held that the transactions in
cloth were part and parcel of a single business carried on
by the assessee and the loss therefrom could not be
segregated as a loss from a distinct business for the
purpose of s. 24(2) of the Act.
The High Court referred to certain other facts as found by
the Appellate Assistant Commissioner. It had been found by
him that the assessee was mainly doing banking business from
1942 to 1948 although it had, during that period, income
from other ,sources. In the year 1948 it started acting as
the distributing agent of cloth on behalf of the Government.
That business continued till the year 1952 when control on
cloth was lifted. ’Me assessee disposed of in retail stocks
left over during the first few months of the year 1953.
Thereafter the assessee ceased to have any dealings in
cloth. The High Court quoted extensively from the order of
the Appellate Assistant Commissioner. It felt that the
Tribunal had not dealt with the matter in a satisfactory
way. Reference was made to its own decision in another case
in which it had been held by the High Court that in order to
find out whether the business of an assessee was the same in
two different years the primary consideration was the nature
of the business and the way it was conducted. Merely
because the assessee’s business was one of a dealer in
several kinds of commodities it could not be said that it
has only one business for the purpose of s. 24(2) when a
part of its activities had come to an end. Relying on most
of the facts determined by the Appellate Assistant
Commissioner the High Court found difficulty in agreeing
with the view on the Tribunal that there was any dovetailing
of the cloth business into the General section. This is
what the High Court said finally:
"In our opinion, (i) that the inference drawn
by the appellate tribunal was not warranted by
the facts on record and (2) that the cloth
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business was separate from
561
the assessors business in general section
notwithstanding that there was some
interconnection of expenses or control."
In order to decide the points raised before, us it is
necessary first to refer to the relevant provisions of the
Act. Section 6 gives six heads of income profits and gains
which shall be chargeable to income tax. Out of these the
fourth head is "profits and gains of business, profession or
vocation". Section 10 taxes the profits of business,
profession or vocation carried on by the assessee. Section
24(1) provides that where any assessee sustains a loss of
profits or gains for any year under any of the heads
mentioned in s.’ 6, he shall be entitled to have the amount
of the loss set off against his income profits or gains
under any other head in that year. It is unnecessary to
refer to the proviso and the Explanations). Prior to its
amendment by the Finance Act 1955, sub-s. (2) of s. 24 ran
as follows :-
"(2) Where any assessee sustains a loss of
profits or gains in any year,. being a
previous year not earlier than the previous
year for the assessment for the year ending on
the 31st day of March, 1940, 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 of that
year........
Sub-s. (2) of s. 24 was substituted by s. 16
of the Finance Act of 1955 the material
portion for our purposes being:
"(2) Where any assessee sustains a loss of
profits or, gains in any year, being a
previous year not earlier than the previous
year for the assessment for the year ending on
the 31st day of March, 1940, in any business,
profession or vocation, and the loss cannot be
wholly set off under sub-s. (1), so much of
the loss as is not set off or the whole loss’
where the assessee had no other head of income
shall be carried forward to the following
year, and
(i)....................................
(ii)where the loss was sustained by him in
any other business, profession or vocation, it
shall be set off against the profits and
gains, if any, of any business, profession or
vocation carried on by him in that year;
provided that the business, profession or
vocation in
562
which the loss was originally sustained
continued to be carried on by him in that
year; and
(iii)...............................
The argument before us has proceeded on the footing that the
matter has to be decided under sub-s. (2) as it stood before
its amendment in 1955. The principle contentions on behalf
of the appellant-assessee are two-fold. It is urged firstly
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that the findings Ion questions of fact given by the
Tribunal were final and it was not open to the High Court to
examine their correctness in the absence of any proper
question on the point. Secondly, on the findings of the
Tribunal the losses on account of cloth business were liable
in law to be carried forward and set off against the profits
during the relevant assessment years. On the other hand
counsel for the respondent maintains that it was open to the
High Court to prefer the findings of the Appellate Assistant
Commissioner to those of the Tribunal because the Tribunal
had based its conclusions on a misreading of evidence and
,on a consideration of irrelevant evidence. Counsel further
says that the Tribunal’s decision was hardly.a decision in
the eye of law and that it had been rightly held by the High
Court that the cloth business did not fall within the
meaning of the expression "’the same business" in s. 24(2)
of the Act as it stood before the amendment of 1955. It has
been held by this Court in Setabganj Sugar Mills Ltd. v.
Commissioner of Income tax Central, Calcutta (1) that the
question whether on the application of the settled tests
different ventures carried on by the assessee form the same
business for the purpose of s. 24(2) is a mixed question of
law and fact. Reference was I made in this case to the princ
iple stated by Rowlatt, J. in Scales v. George
Thompson & Co, Ltd. (2) that the real question is whether
there was any inter-connection, any interlacing, any inter-
dependence, any unity at all embracing those two businesses.
The following observations from the judgment of this ,court
may be reproduced:
"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 inter-relation 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
(1) 41 I.T.R. 272,274.
(2)[1927]13 T.C. 83.
563
and fact, on which depends the application of
S. 24(2) of the Act................
It is not possible to accept the submission made on behalf
of the respondent that in spite of the form in which the
question had been referred it was open to the High Court to
examine the correctness of the conclusions of the Tribunal
on facts. There can be no dispute that if the Tribunal does
not consider the evidence covering all the matters and bases
its finding__ upon some evidence only ignoring other
essential material that would amount to a misdirection in
law and the findings would give rise to a question liable to
be referred to the High Court. But it is equally well set-
tled that if it is sought to raise the question about the
validity of the findings on fact for one reason or another,
reference of a proper question challenging those findings
must first be sought before those findings can be challenged
before the High Court : See India Cement Ltd. v.
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Commissioner of Income tax, Madras(.’) and Hazarat Pir
Mahomed Shah Saheb Roza Committee v. Commissioner of Income
tax, Gujarat (2) . No attempt was made before the Tribunal
to have any such question referred and in the absence of a
proper question it was not open to the High Court to accept
the findings of the Appellate Assistant Commissioner in
preference to those given by the Tribunal or to come to any
independent conclusion itself on facts.
The Tribunal gave the following findings: (1) The
appellant’s dealings in cloth started as early as 1946 and
the introduction of control only changed the procedure of
carrying on the business in the sense that the appellant
became the nominated buyer approved by the Government. (2)
The appellant had been doing business in several commodities
one after the other or along with the other and its trading
in each commodity did not constitute separate business. (3)
The cloth business never assumed the proportion or the
stature of a distinct and separate business. (4) There was
sufficient evidence to show dovetailing of the cloth section
into the General section. The conclusion of the Tribunal on
these findings was that the transactions in cloth were part
and parcel of a single business carried on by the appellant
and did not constitute a distinct business for the purpose
of s. 24(2), The Tribunal does not appear to have discussed
the entire evidence on which the findings were based but the
order of the Appellate Assistant Commissioner and his
findings as also the entire record were before it and there
is nothing to suggest that all the material facts were not
present to its mind except that they are not mentioned in
detail. Its findings, therefore, must be accepted as final
and the only question which it was open to the High Court to
examine was whether the cloth business could, be regarded as
the same business
(1) 60 I.T.R. 52, 64.
(2) 63 I.T.R. 490,496.
564
within the meaning of s. 24(2) of the Act. A great deal of
reliance has been placed on a decision of the Bombay High
Court in Manilal Dahyabhai v. Commissioner of Income tax,
Bombay City(1) There the claim that the businesses were the
same, was sought to be substantiated on the ground that only
one set of accounts was being maintained; that both the
businesses were carried on in the, Same premises with the
help of the same staff,, that the capital employed was the
same, the receipts in respect of one of them being utilized
for the purpose of the other and that the terms of overhead
and other expenses were common. It was held that the afore-
said factors did not necessarily lead to the inference that
the businesses must be regarded as one and the same. It was
observed that though not conclusive but an important test
was whether one of the two businesses conducted by the
assessee could be stopped without affecting the texture or
framework of the other. However in Commissioner of Income-
tax, Madras v. Prithvi Insurance Co. Ltd. (2) this Court
said " we are unable to agree with counsel for the
Commissionerthat the test, whether one of the businesses
can be closed withoutaffecting the conduct of the other
business, is a decisive test in determining whether the two
constitute the same business within the meaning of s.
24(2)." In that very case the test laid down by Rowlatt,
J.,, in Scales v. George Thompson & Co. ,,Ltd.,(") was
accepted as a fair test and inter-connection, interlacing,
inter-dependence and unity were found to exist by virtue of
the common management, common business Organisation, common
administration, common fund and common place of business.
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We have no manner of doubt that on applying these principles
the conclusion at which the Tribunal arrived was correct and
the question referred should have been answered in the
affirmative and in favour of the assessee. The appeals are
consequently allowed with costs throughout and the answer
returned by the High Court is hereby discharged. One
hearing fee.
Y.P. Appeals allowed.
(1)37 I.T.R. 398.
(2)63 I.T.R. 632,637.
(3)[1927] 13 T.C. 83
L8 Sup CI/69-2,500-13-3-70-GIPF.
565