Standard Refinery & Distillery
Ltd. Vs. Commissioner of Income-Tax, Calcutta  INSC 16 (18 January 1971)
CITATION: 1971 AIR 2293 1971 SCR (3) 378
Income-tax Act (11 of 1922), s. 22(4)-Same
business', 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 transaction 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 assessment
But the assessee's claim to set off the loss
pertaining to the share business against the profits in the 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 business of manufacturing sugar etc. constituted the same
business within the meaning of s. 24(2) of the Act,' and directed the Tribunal
to submit a supplementary statement of case. 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 in 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 interconnection, inter-lacing
interdependence and unity furnished by the existence of common management,
common business Organisation, common administration, common fund and a common
place of business. Applying those tests the share transaction as well as the
other business of the assessee should be considered as the 'same business.'
[380 F-G] C.I.T., Madras v. Prithvi Insurance Co. Ltd., 63 I.T.R. 632, S.C. and
Procedure Exchange Corpn. Ltd. v. C.I.T. Central Calcutta, 77 I.T.R. 739 S.C.
Satabganj Sugar Mills Ltd. v. C.I.T., Central
Calcutta, 41 I.T.R., 72 S.C. and Scales v. George Thompson & Co. Ltd., 13
Tax Cas. 83, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1585 of 1968.
Appeal from the judgment and order dated July
23, 1963 of the Calcutta High Court in Income-tax Reference No. 64 of 1958.
S. C. Manchanda, Gobind Das and D. N. Gupta,
for the appellant.
S. Mitra, S. K. Aiyar and R. N. Sachthey, for
the respondent379 The Judgment of the Court was delivered by Hegde, J. This is
an assessee's appeal. The assessee is a public limited company and the appeal
relates to the assessment for the assessment year 1949-1950, corresponding to
the accounting year which is the calendar year ending on December 3 1, 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 Gur
Refining Co. During the period from January 29, 1946 to April 23, 1946, the
assessee company purchased 41,300 shares of the said company for Rs.
12,17,006/-. On April 30, 1947 the entire block of shares was sold to Produce
Exchange Corporation Ltd. for Rs. 8,46,750/-. The transaction resulted in a
loss of Rs. 3,70,356/This loss was treated by the assessee as a trading loss
for the assessment year 1948-49. After setting_ 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 Incometax Act, 1922 (to be hereinafter referred to as the
Act) to the year 1949-50 and later years. The assessee claimed to set off this
unabsorbed loss pertaining to the 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 Commissioner confirmed the
order of the Income-tax Officer. In a further appeal, the Appellate Tribunal
agreed with the conclusion reached by the Income-tax Officer. Thereafter at the
instance 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 sugar manufacturing and
distillery?" By 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 of the High Court after obtaining a certificate
66(A) (2) of the Act.
The appeal came up for hearing before this
Court on February 6, 1969. After hearing the Counsel for. the parties this
Court observed :
In the present case however it is not
possible for us to satisfactorily dispose of this appeal because the statement
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 380 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 evidence 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 in the order.
The Tribunal accordingly submitted a
supplementary statement of case. Even after considering that supplementary.
statement, this Court found itself unable to record its opinion on the question
referred to. This Court was also of the opinion that the question which the
Tribunal was directed to and did refer was defective and restricted the scope
of the enquiry. It accordingly 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
Income-tax Act, 1922, in force in 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. Prithvi Insurance Co. Ltd.(1) in order to
assist the Tribunal to find out the relevant points for consideration.
In the' order calling for a further
supplementary statement, this Court observed "As pointed out by this Court
in Commissioner of Income Tax, Madras v. Prithvi Ins. Co.
Ltd. in determining whether two lines of
business constitute the same business within the meaning of s. 24(2) of the
Income-tax Act, the income-tax authorities must consider the inter-connection,
interlacing, inter-dependence and unity furnished by the existence of common
management, common business Organisation, common administration, common fund
and a common place of 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 and
loss account. In the same account the sales of spirit, sugar and molasses as
well as stock and shares appear;
1. 3 I.T.R. 632.
381 (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 purchase of those shares is also more or
less of the same character;
(3) The business of the company as well as
the transaction 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 purposes 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,
1947 has been discharged from out of the income of the business; and (5) the
share transaction work as well as the other business of theassessee company
were carried on in the same place of business.
From the facts found by the Tribunal, it is
clear that the share, transaction as well as the other businesses of the
company were dealt with by a common management, common business organization,
common 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, interdependence
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 business". He contended that this Court in
Prithvi Insurance Co. Ltd's case(1) has accepted the correctness of the
decision of the King's Bench in Scales v. George Thompson, Co., Ltd. ( 2 ) and
in that case Rowlatt J. had held that before two or more businesses can be
considered as 'the same business' they should not be easily separable and there
must be a dovetailing of the one with the other. According to Mr. Mitra the
transanctions relating to the shares could have been easily separated from the
other business of' the company and therefore there is no inter-connection;
equally there is no interlacing because the share transaction business does not
dovetail itself into the other business of the assessee company. Further there
is neither interdependence or unity between the two businesses. The concepts of
inter-connection and inter-lacing, interdependence and unity are not free of
ambiguity. But this Court has laid down certain objective tests for finding out
(1) 63 I.T.R. 632.
(2) 13 Tav. Cases 83..
382 the existence of inter-connection,
inter-lacing interdependence arid unity between two or more businesses. In
Commissioner of Income-tax, Madras v. Prithvi Insurance Co. Ltd.(1), this
Court ruled that inter-connection, interlacing, inter-dependence and unity were
furnished by the existence of common management, common business Organisation,
common administration, common fund and a common place of business. This
conclusion was reiterated by this very bench in Produce Exchange Corporation
Ltd. v. Commissioner of Income-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 of Rs. 3,71,700/in the sale of shares which
the company claimed to carry forward and set off against the profits of
subsequent years from transactions in other commodities. 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 the ordinary course of business and
that there was no element of diversity or distinction or separateness about the
transaction in shares, and accordingly upheld the claim On a reference the High
Court held 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 one business.
Reversing the decision of the High Court this Court ruled that the decisive
test was unity of control and not the nature of the two lines of business.
For the reasons mentioned above we allow this
appeal, discharge the answer given by the High Court and answer the reframed
question in the affirmative and in favour of the assessee. The Revenue shall
pay the costs of the assessee both in this Court and in the High-Court.
V.P.S. Appeal allowed.
(1) 63 I.T.R. 632. (2) 77 I.T.R. 739.