STANDARD REFINERY & DISTILLERY LTD. v. COMMISSIONER OF INCOME-TAX:, CALCUTTA January 18, 1971 [K. S. HEGDE AND A. N. GROVER, JJ.] Income-tax Act (11 of 1922), s. 22(4)-'Same busines.', tests for. The assessee owned a distillery and a refinery. In 1945, it obtained on lease the sugar factory belonging to another .company, and during the period from January to April 1946, it purchased about 41,000 shares of the lessor company, and in April 1947, sold the entire block of shares. The transa~tion resulted in a loss.
After setting off the loss against the other income ·for the assessment year 1948-49, the unabsorbed loss was carried forward under s. ·24(2) of the Income.tax Act, 1922, to the assess- ment year 1949-SO. But the assessee's claim to set off the loss pertaining to the sha;re business against the profits in th~ sugar business was negatived by the Department, the Appellate Tribunal and the High Court. In appeal to this Court, this Court reframed the question referred to the High Court as 'whether the business of dealing in shares and the busi- ness of manufacturing sugar etc. constituted the same. l>usinc'Ss within the meaning of s. 24(2/'Qf the Act,' and directed the Tribunal to submit a supplementaty •tatementofcase. The Tribunal submitted that the two businesses had a single trading and profit and loss account, that they had been dealt with by a common organisation, that the transaction relating to shares was treated as part and parcel of the business of the assessee company, that a common fund was utilized 'for both businesses and that they were carried on iii the same place of business ..
HELD : In determining whether two lines of business constitute the 'came business' within the meaning of s. 24(2), the income-tax authorities must .consider the inter-connection, inter-lacing inter-dependence ·and unity furnished by the existence of common management,
~mon business organisation, common administration, common fund .– a common place, of business. Applying those. tes:s the share transaction as well as the · other business of the assessee should be considered u the 'same business.· (380 F-G]
C.l.T., Madr~ v. Prithvi (nsuraricL Co. Lid., 63 i.T.R. 632, S.C. and Procedure ExchanM Corpn. Ltd. v. C.l.T. Central Ca/cu11a, 11 I.T.R. 739 S.C. followed. Satabganj ~ugar Mi/ls Ltd. v. C.l. T., Central Calcutta, 41 I.T.R., 72 S.C. and Scales v. Ger,rge Thompson & Co. Ltd., 13 Tax Cas. 83, referr- ~ m.
CIVIL APPELLATE JURISDICTION : Civil A-p~l!I No. 1585 ·Of 1968. Appeal from tpe judgment and order dated July 23, 1963 of the Cakutta Hi~h court in Income-tax Refereince No. 64 of 1958.
c S. C. Manchanda, Gobind Das and D. N. Gupta, for the appel- S. Mitra, S. K. Aiyar and R. N. Sachthey, for the respondent. STANDARD REFINERY v. C.l.T. (Hegde, J.) 37& 1;he Judgme~ of the Court was delivered by
Hegde, J. This is an assessee's appeal. The assess¢e is a public limited company and the appeal relates to the assessment for the assessment year 1949-1950, corresponding to the accoun- ting year which is the calendar year ending on December 31, 1948. The assesse company was incorporated in 1942. At the beginning it owned a distillery at Unnao. It acquired a refinery in 1943._. With effect from June 1, 1945, the assessee company obtained on lease the New Sawan Sugar and Our Refining Co . .Quring the period from Iainuary 29, 1946 to April 23, 1946, the asses~~ ·company purchased 41,300 shares of the said company C for Rs. '12,17,006/-.
On April 30, 1947 the entire block of shares was sold to Produce Exg.hange Corporation Ltd. for Rs. 8,46,750/-. The transaction resulted in a loss of Rs. 3,70,356/-. This loss was trea~ by the assessee as a trading loss for the assessment year 1948-49-
After •ting off this loss against the other income of the assessee company, a loss of Rs. 2,27,085/- was carried forward under s. 24 ( 2) of the Income-tax Act, 1922 (to be hereinafter:Crred to as the Act) to the year 1949-50 and later years.
e assessee claimed to set off this. unabsorbed loss pertaining to e share business against its profits in the sugar business for the· assessment year 1949-1950. The Income-tax Officer did not permit this set off. The Appellate Assistant Com- missioner confirmed the order of the Income-tax Officer.
In a E further appeal, the Appellate Tribunal agreed with the con- clusion reached by the Income-tai, Officer. Thereafter at the in- stance of the High Court, the Appellate Tribunal stated a case under s. 66(2) of the Act on the following question of law: "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 suga~ manufacturing and distillery?" lly its judgment dated April 23, 1963, the High Court answered the question in the affirmative . and against the assessee. This appeal has been brought against the decision -0f the High Court G after obrai~g a certificate under s. 66(A) (2) of the Act. ll
The appeal came up for hearing before this Court on February 6, 1969. After heating the Counsel for the parties this Court observed: In the present case how1Wer it is not possible for us
to satisfactorily dispose of this appeal because t!wstate- ment of the case submitted by the Tribunal is incomplete and has omitted to state material facts bearing upon the question referred. For instance, it is not clear as to [1971] 3 S.C.)l.
whether the assessee aduced any evidence as to why it started purchasing the shares of the lessor company about six months after the commencement of the lease. It is also not stated by the Tribunal whether there is any evid- ence of inter-relation between the purchase of shares
and the manufacture of sugar." In view of that conclusion this Court directed the Tribunal to submit a supplementary statement of case on some of the :points formulated ill the order.
The Tribunal accordingly submitted a supplementary state- ment of case. Even after considering that supplementary state- ment; this Court found itself unable to record its opinion on the C question/ referred to.
This Court was also of the opinion that the qU.estion which the Tribunal was directed to and did refer was defective and restricted the scope of the enquiry. It accor- dinglY, reframed the question as follows :
"Whether the business of the company of dealing in shares and the business of manufacturing sugar and other commodities constitute the saMe business within the. meaning of s. 24(2) of the Indian Inoome-tax
Act, 1922, in force m the year of assessment?" It further directed the attention of the Tribunal to the 'decision -of this Court in Commissioner of Income-tax, Madras v. PriJhvi E Insurance Co. Ltd. (1) in order to assist the Tribu1nal to fitid out the relevant points for consideration. ' In the order calling for a further supplementary statement, this Court , observed :
"As pointed out by this Court i)l Commissigner of Inc'ome Tax, Madras v. Prithvi Ins. Co. Ltd. in deter-. mining whether two lines of business constitute the same busines~ within the meaning of s. 24(2) of the
Income-tax Act, the income-tax authorities must con- sider the inter-connection, inter-lacing, inter-depend- ence and unity furnished by the existence of common .management, common business organisation, common
administration, common fund and .a common place of , G ·business." The Tribunal has now submitted the second supplementary ·statement of case called for by this Court.• The facts found by it are as follows :
( 1 ). There is a single trading and profit ond loss account. In the same account the sales of spirit, sugar and molasses as well as stock and shares appear; ———- –]-. 63 I.T.R. 63c.
c STANDARD REFINERY V. C.I.T. (Hegde, /.) ( 2) The share transactions as well as the business has been dealt with by a common organisation, though the sale of shares is a single transaction and the pur·
chase of those shares is also more or Jess of the same character; ( 3) The business of the company as well as the transac- tion relating to the shares were attended to as part and parcel of the business of the assessee company;
( 4) A common fund was utilised both for business pur- poses as well as for the purchase of shares. A part of the over-draft of Rs. 6,80,046/. taken from the bank on December 31, 194 7 has been
discharged from out of the income of the business; and ( 5) the share transaction work as well as the other business of the assessee company were carried on in the same place of, business.
From the facts found by the Tribunal, it is clear that the share trarisaction as well as the other busi,nesses of the company were dealt wtih by a common management, common business organiza- tion, commcm administration, common fund and common place of business.
It was urged by Mr. Mitra, learned Counsel for the Revenue that from the facts found by the Tribunal, it is not possible to conclude that there, was any inter-connection, inter-lacing, inter- dependence and unity between the transactions of the assessee company relating to the shares as well as its other business and therefore the two activities cannot be considered as "the same F business''. He contended that this Court in Prithvi lmurance Co. Ltd's case( 1) has accepted the correctness of the decision of the King's Bench in Scales v. George Thompso11, Co., Ltd. (2 ) and in that case Rciwlatt J. had held that before two or more businesses can be coinsidered as 'the same business' they should not be easily separable and there must be, a dovetailing o~ the one. with the other. According to Mr. Mitra the transanct1ons relatmg. to the shares could have been easily separated ~rom the oth~r busmess of the company and t~erefore there is no mter-c~n!lectton; equal!~ there is no i;nter-lacmg because the s.hare transaction busmess does not dovetail itself into the other busmess o{ the as~essee company. Further there is neither inter-dependence or ll:mty bet\yeen the two businesses.
The concepts of inter-connectmn a~d ~nter-lac· · , inter-dependence and unity are n6t free of amb1gm1¥· But mth~, Court has laid down certain objective tests for :!indmg out 1s (l) 63 l.T,R, 632,/
(2) ll TH CISCS 83. (1971] 3 S.C.R. the existence of inter-connection, inter:.lacing · inter-dependence and unity between two or more businesses. In Commissioner of Income-tax, Madras v. Prithvi Insurance C_o. Ltd.( 1), this Court rqled that inter-connection, inter-lacing,
inter-dependence and unity were furnished by the existence of common management, common business organisation, common administration, common fund and a common Pface of business. This conclusion was re~ iterated by this very bench Jn Produce Exchange Corporation Ltd. v. Commissioner of I~ome-tax, (Central Calcutta) (2). Therein · the assessee company carried on business as a dealer in diverse commodities and also stock .and shares.
In the year of account 1949, it had suffered loss ofRs. 3,71,700/- in the sale of shares which the company claimed to carry forward and set off against / C the profits of subsequent years from transactions in other com- modities.
The Tribunal found that there was complete unity of control and shares were one of a number of commodities in which the . company dealt in t!\e ordinary course of business and that ·.there was no element o'f' diversity or distinction or separateness_ about the transaction in shares, and accordingly upheld the claiin. On a reference the High Cou.rt he.I~that the essential matter to be considered was the nature of the two lines of business and not merely their unity of control and that therefore the Tribunal erred in holding that the whole trading activity formed Ol)e business. Reversing the decision of the High Court this Court !J®d that the decisive .test was unity of control and-.neHhe nature of the two lines of business.
For the reasons mentioned above we allow this appeal, dis- ·charge the answer given by the High Court and answer the re- framed question in the affirmative and in favou( of the assessee: The Revenue shall pay the costs of the assessee both in this Co11rt and in the High Court.
.V.P.S. Appeal allowed. (I) 631,T,R: 632. , ,, (2) 77 I. T.R. 739.