Produce Exchange Corporation Ltd v. Commissioner Of Income Tax

Meza Utada BATT fafate TATA —MTTRT WIA (Produce Exchange Corporation Lfd. The Commissioner of Income-tax)(27 Axa, 1970) ("Ato Ho to ME, Ho To RWI WT Yo Ao Maz) gfisaa enn daa Dee, 1922 (1922 HT 11)—aret 24(2) —feat faaticat et arcane & arat waar afaarat ay arf gaaa faatfedt sro waat ara & sa arf Bt AST BTA BT tarfrat sit faaticet gerer wea at gwar go aaifH HIATTFRMAT AA, SAINT Ansa, HAaTA, waar fafa ate cara cH gt.AIA BH BT FA FeAl HITATT ATAT ATA|: fraifedt ca ofan fafats aeadtoft, of fafa aeqai atkgare ate Ta A at eatarad F wT A Hreare ae A ATBar. as1949 8 arody ay ofean fafateasrofeal & aati faaa F arfgi1950-1951 ay & frater & fey artarfedt FH arazae aferarettee alfa al feara Ha a gare He fearsaat wa 4 afe ariaamp egrare-gifawa A ara fear ara a)xara, faaifedt ay arear<qa % fae qua aét fear ar aear ar adits ara aad 4 vaadeqagre F gs 8, TUS Hearas Tea ews s FM ara aeqal #BTUATT& att fraiey S OfHea ayS 1 Hvac BT TAT TT efiems fH grep sar arta cae Bt Nae, feara 1922 F BY far ATE aT 24(2) aHAT* ade gaafear ar ana g, ate age aya FH qaafta aaa wat fre} atta afewet A aad BH ary at edtare far pane faa atta fra TA Tt Bea MIATA[A][ Tae][ fear]ea TAT*facig & fees Bear araTaa A atta al TE 1 atta AAT HU ge,afafaatfca—fraifedt qora 3 fare Evert aT| _ frafer & gdae ag FH saa efisar saa cea Uae, 1922 atare 24 (2) ae ageara weet et fe ag eft fart soaret (1) %aia ar aia. faeg quia: gar sel far AT AAT AT, ATe agal ayaa at at andl f AI ag val Hreare S FT ay ate afaaryafe arg at, § fara a gataom aadoi ae aaafawet atfia aur dat arcane UH A HrLaTe HT TST HW SZ, cH aga dl sfaaa ayfaa watat ag 2 fe aot oa ata aTeaT A TY TRENT AaaTTT aT aTTee aes F ar Tat ae THAT Aait we HS ET A1 (Fz 6)- adara aaa Foe Ma YT IT BTA TT RAH HE Gag aTWe Hat fe TTT ATT KeTH BILAT A HITATT H He SAT BT UH eTTHATTA AT, ATTN ASAT at uma, arate a at HAAaTe, cH& warad, wm gt fats ate ww at carat aT) (Gr6) faface fruia fafa actet afeearicat: 1966 at fafa acta deat 2538 wie 2539. 1961. & maar fadedear1208 wawat seq aaa. Fade 26 art, 1965 are facia ate arta H favs fare ets THTat re otter|| 7rararaa at facie arnfaata So ato ame & Fear | ratatferata g— afrart we ofsra fafres aradt2%,st faferaeqait akgee ale Fadl 8 at ow cated BETH sree He MITABETAwast at H ATA ATA Sar cadet Jsar ay 1949 F Brat aTqfan fafats arafaat & Sat B fess F 3,71,700 ea at aft eSfaater at 1950-51 & fac amar % faaten & fa wratarfeatqraat afrard 1 sa ag A ary aeqall F eeaaga & gu ara F faegarf Ha HA Bl ata ATAKAT HT featails agay ayta Faaa BEA By TE ater frowe gag1 farg ata shears F seatHT STAT ARIA TAT |aa. 2. eat dhera aT1951-52HF fa feateger at Tar ar wizaera ay ae BY1,00,777 Ba Te aaa at TE AYfrat ag1952-53 & fau arafaster at araarfeal F arrwe afsarth 33,39,899 &oFH BANCFear Ht ary st aaa st AT Barcoral Haat at ge arte at fears Aaa A ware He feararnt atrarat at ua tafe af at aricefa Fey a wmafaat ste at weedy B Hreare a ara-F favs Fa Ga seal feat aTwaar aT anita aft daw Aka aeragrel & gs at, fas WA HreareBT TST GAT AT A weraFarce gra Fi_° 3. ater aglaw WIAA F eT H faegatta F mrawr afrera H area at gfe wz at we 1 ater aaeT orgaa a ag afafaaifer Fratfar gwar daa tae, 1922, dar fe ag ga aaa vac at, AT ATE 24(2)metAaa 1oarar TIT ag F ne HTRATT aT fee oH ae at sey Ts,” aeqall at H aterm, arzare uM wm gt et HTATe aarate ue A arearcafeat ag saerfea wea H fears sgl 2 fe zafraifeat grat feu at we ate Praraerdt & wa Ql,PITAL AIST FAHPRAT BT TST Tar Ft Bare HY Tala A Ger aea sar & ake Tatqa aa saat ait Tia Het TT eo ate arrarcat safe fara,“aet feat at aaa aa afafaatfea adt fear ot amar fragfsaa aay 230 Uae st are 24 (2) F yaaa F fae Fae cHaUHH TTS HWM F | Section: CONCLUSION PRODUCE EXCHANGE CORPORATION LTD. COMMISSIONER OF INCOME TAX April 27, 1970 [J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ] Indian Income-tax Act, (II of 1922) s. 24(2) Loss sufjered-C/aun or set off by the assessee fro1n its income-Whether assessee entitled-"Sa1ne business", tests · The assessee was a public limiiei!'company doing business as a ·dealer in diverse commodities and also in stocks and shares. In the year of account 1949 the company suffered loss in the sale of shares of public limited companies. In proceedings for assessment 'for the year 1950-51 the Income-tax Officer declined to take into account the loss suffered. In his view if the loss be taken as a tr.ading loss it could not be set off against the business income of the assessee because the Joss resulted· from transactions in shares which constituted a busi·ness distinct from the busi-ness in other commodities. On the question whether the loss could be taken into. account and the set off given under ·s. 24(2) of the Indian Income-tax Act, 1922 in force in the year of assessment; this Court, HELD : The assessee was entitled to the set off. Section 24(2) of the Indian Income-tax Act, 1922 in force in the relevant year of assessment contemplated that the loss which. could not be wholly set off against the other income under sub-s. (I) could be carried forward to the following year and set off only against the profits and gains, if any, from the same business. A fairly adequate 'test for deter-mining whether the two constitute the same. business is 'was there any inter-connection, any interlacing, any inter-dependence, any unity at a1l embracing those two business?' [385 H. 386 A-DJ Applying this test in the present case there was no doubt that there was .a common management of the share and stock business and other lines df business, unity of trading organisation, common employees, com-mon administration. common fund and a common Place of business. Place of business. • [386 E-F] Com1nissioner of /ncorne-tax, Madras v. Prithvi Insurance Co1npany Ltd .. 63 I.T.R. 632 followed. Scales v. George Thompson & Co. (1927) 13 Tax Cases 83 applied. Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax 64 I.T.R. 317 doubted. CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2538 and 2539 of 1966. Appeals by special leave from the judgment and order dated March 26, 1965 of the Calcutta High Court in Income-tax Refer-ence No. 120 o.f 1961. D. Pal, T. A. Ramachandran and D. N. Gupta, for the appel- c lant (in both the appeals). B. Sen, S. K. Aiyar and B. D. Sharma, for the respondent (in both the appeals). D The Judgment of the Court was delivered by Shah, J. The appellant is a public limited company doing business as a dealer in diverse commodities, and also in stocks and shares. The Company maintains its accounts according to the calendar year. In the year of account 1949 the Company suffered a loss of Rs. 3,71.700 in the sale of share of public limit-ed companies. In proceedings for assessment of income-tax for · ;he assessment year 1950-51, the Income-tax Officer disallowed the claim to set off loss against the profits from transactions in other commodities in that year. The appeal filed before the Ap-pellate Assistant Commissioner was unsuccessful. But the Ap-pellate Tribunal upheld the claim of the Company. 4, afin atta agarn agar & aagaa atafew ar agma ot fe farm at qua. gwar aft ate dat tat ate aeqat Fa oH%, fraar aad a areaangel agar F qeqaere fat ariatest at efee t aad A deren at aaa fafarar ar faxaarar gra wt ary aca Tel aT| Taqare, afsencoy F achat saat arat aeret Cat ate ag face fear fe efosqa gepq dag dae a} acaATTAT AT, BT ATT 24 (2) F aelts arftwr yore Far aT 5. afaarn at aKa Sea aTTAaZa ane feafefad serfrafara fare -—: aaa & weal ate ofa & arc gt eeBIT Taal FearHet Tare A Peraqere aie Hater BR areaxT we Ta F att fess “afawal F ara aeaaerx fearSar cra HN INT 24 (2) F galeria we A wrest er asaHead = 2”| Sea raTaTET F aft Tae wien fara fafads aary arrEe aTaea! aemae Haat facta ar aqaeT HW eu ve afafratica frat fe a aa Bt Taare HA H fs aor faatfedd are sare srw Dat Hreara& um A arcaneaT T8a Slat 8, X arae faa oe faare fear sat Bai aeqat ay vale F art He ah ag Ala faat s qarq arS att aa ai vaarag aa at fH faa Haar gaeraa FT CHAT,ca a at aaa faa ar aTaT TAT, UF et HVAT TAT aT TAFat gat afgat F daragrtt & et afar ar sehr fava SAT, 2amaa & faa ox Raa oat faare rar sem wa fH ag TAT are fH aon dt safe ® A wrart 1 ara ae ae a fe Tae F aoaaar Fgaia oer aegat H, fa dt, ata anfe &, exaaretart A fanaaare aa afeafaa &, aal fearmarat & art & ag afafaaifer adh fearat amar fr 3 areare H oH At HH aT wet weaF aleaefaafaaca % agafufaaifea wet F ye at & fH aatfa fata atqoa: wnat oft afte Fat tet atw aegal & art wT gs fara frattet% eaterx feat ar, Gor aTTTe ara PRarHarT STH gt BIT FTTSA gat gf| 6. efeaa gran daa daz, 1922 aare 24(2) sar fH aegaara auf FH vat at, fara wart B—_ suset frat fratfedt at feat a ad F feat ary waeafmara Ft arfe aa &, ot dar ga ad SM SITAR F ATAaz afwara, afe ar sastfaar ate & afta at Ae, 1940 %308 fear at aarca AA area aedFrater F fae ga ae Veyat 2, afte soare (1) ¥ ata agate gad wr & quer séat ot aadt at tar arr at ge sare gare selfears, * gas Fag qa sare F— “‘Where any assessee sustainsalossof profitsor;gainsin any year, being a previous year not earlier thanthe previous year for the assessment for the year endingon the31st day of March, 1940, under the head “Profits“and gains of business,professionor vocation” and the‘Joss cannot e “wholly set off under sub-section (1), the araat & far aata fear sem ak va at & far set° areare, afe ar sasitfgar & fratfedt at ey ara ake afar,afe arg at, H fase Boa fHar area ate afe ae THA TH wTST THT FAT Tal Bt ST gaat aT aft al az cay faa gawart ga aat fear qa es amet ad F faq aarta at seatate art Ht gat ware Bt oat VST” gq HT Fag aerag fe ag aria wt saara (1) F ata aaaa & fag quia: gare aval at a aadt ht, aa ag F far artaat at abt ate sat areare & ga ara ate afaara, afe are at, Ffang a FAT BY ar gaat a‘et ara AsalBF ae BT STAT_ Sea argraat HaraHF aaa aT)Sa ASTBT Geeta: HATaasaH TatS| SA TATA FT AAHT Ma, ARTA TATA FeAl RATAraat fafazs! ae arma t ag aanfea wet % fae cero fatedfeat ar fp ear areaTe HT AYAferatF gaa aT Ie ge 24(2)areata TH st HIATT FI TSA MAT~1 WS 636 TW AZ AT Atfear Tat aT—a vag aaaifca wet & fa fe zor dat & cH xt BAT FT.Tar Sars, UH aga a shea ThearT saa srg Bar FW FSrato Uae F PRCA AAT AT ATEGAT YS eae fafats[ (1927) 13 €7a Fat 83] Fwer e- fe—wva BatMIATA BTS TET AFA AT TWIT TSA AT AT SF TEAR* @ravarfra & ar tat ate car A TT SS TS TTP portion not soset off shall be carried forward to thefollowing year and set off againsttheprofitsandgains,ifany, of the assessee from the same business, professionor vocation for that year, and if it cannot be wholly goset off, the amount of loss not so set off shallbecarriedforward to the following year, and so on.”- 163 argo ho azo 632. [1974] 3 THe fo qo Gea, ee ATA HoH et cares, oH et HITaTVanaT, UH eeTae, TH et fafa ake areas Fe aH A ema a feeaaarer arfaaat aa & 1” aaara araH, STTTaT AT HT TT EMH AE ade a WCFaT fe Aare att CerH aay a HVaTe at aT Afra aT owal saerara & att SAT araeit ast al waa &, F A HAarét,UH gt wares, wa et fate ate arcane at cH gt caraBp7 In the meanwhile assessment for the year 1951-52 was coin-pleted, and the income of the Company was computed at Rs. 1,00,777. In proceedings for assessment of income for the &S-sessment year 1952-53 the Income-tax Officer computed the in-come of the Company from its business at Rs. 3,39,899 and dec-lined to take into account the loss suffered by the Company in the share transactions. I.n the view of the Income-lax Officer, even if the loss be treated as a trading loss it could not be set off against the business income of the Company, because the loss resulted from transactions in shares which constituted a business distinct from the business in other commodities. In appeal against the order to the Appellate Assistant Com-missioner, the order of the Income-tax Officer was confirm~<.!. Th~ Appellate Assistant Commissioner held that the business in shares and the business in other commodities were not the "same bmi · ness" within the meaning of s. 24(2) of the Income-tax Act. I. 912, as then in force. He observed that a common capital, a common set of employees and a common set of accounts o ,1f1 common busi-ness premises are not "the deciding factors ;,, determining whether the various activities carried on by the assessee constituted one business or separate businesses : " it is the nature of the business which is "the main factor" and where separate prn5ts or loss was ascertainable and the nature of the business 'Vas different. the acti-vities could not be held to form one and single unit for the pur-poses of s. 24(2) of the India11 Income-tax Act. Tht: Tribu·nal disagreed with the Appellate Assistant Commis-sioner. The Tribunal observed that there was complek unity of control and shares were one of a number of commodities in which the Company dealt in the ordinary course of business. There was, in the view of the Tribunal "no element of diversity or dis-tinction or separateness about the transactions in shares". Ac-cordingly, the Tribunal upheld the claim of the appeJlant Com-pany and directed that the lnss be set off under s. 24(2) of the Indian Income-tax Act then in force. The Tribunal referred the following question to the High Court of Calcutta : "Whether on the facts and in the circumstances of the case, the business activities of the company to wit, dealings in shares and its dealings in other commodities and selling agency on commission basis constituted the same business within the meaning of section 24(2) of the Indian Income-tax Act?" The High Court held, following their judgment in Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income tax(') that the "es-sential matters to be considered in determining whether the two businesses carried on by the assessee constitute the same business, is about the nature of the two commodities, the manner in which (I) 641.T.R. 3!7. they are conducted being a secondary consideration". They ob-served that "unity of control or management, the employment of the same or common fjnance, the user of the same business pre-mises and the record of the transactions in the· same set of books of accounts are matters to be considered only when it is found that two businesses of the same nature. Merely because the trae-sactions in shares consist of sales and purclrase as to dealings in other commodities like sugar, molasses etc. the two activities can-not be held to form one unit of business", and that the Tribunal erred in holding that because there was complete unity of control and shares formed a part of number of commodities in which the assessee dealt with, the whole trading activity formed one busi-ness. Section 24(2) of the India.n Income-tax Act, 1922. as in D force in the relevant years, read as follows : eter7. at Fa aa Te fare Hey at arazerwar Tal 8 fH ot Teaerate fara fafats ae. arae ¥ seq arma ar fafaearfraateratettat tat A arvarel fear an foal mart war at safe ar,& wag wetgs fe ag & 1| arene fey canta sea a Taq wae aaa| ala far F @, ga fe fararaa gad a areanz Titer|8. gardwa ¥, afirremag afafraifor at FH wer at featrareataerdt art AATaT We AAT HIVATT AK aN HTTATUTJ are24 (2)& gataue A sreart at mst Mar3% satfe aq ara va aaaa1Ta& gd ot, safe caer 1955 H aatea Fre fafed9. WPT HT WF Hae A ag actaa fe argaa 3 fares. sat 3% faqa & frac & ga are aT fare dart & fac -Ser TATA HY aT 66(2) F aftr eraeq feat ar—:: RTfa fataat gorR Ha H ga fonst ate ae & fe aaa tat Ha RAe Vat aeqail oer F aTWT FT Tst gat @, free faathedt wrod aot arvareFwae agaeFH ofa ag fafa wr 8 aeqaere Het 2 1” aq saree A ee Tae Te Ae aT aT AMA ATI MATT ITHay HM A FRX ot fear fe sere get cater ST a qe oT atx Nea TIAA ate To ATRL MTART [FAT Me] Soh arate sentra get at aaa UH are aft afenfiaa ft 1 gardferetwa # afiren & fafreasar va aren & aig | & gada Alar 2,afraco & area H seta feat aa) afe set veraTar at A Hae BT faa Hint aT ar, fet wt eae saa: aforeTX ale THs Tel TBAT1| 10. frafre seq ar sat waTaeAH wTAT 11. 3 arta AAe at aet F | ATH WGA sa MATA aC- Tea Tae Fara& aT BaroH gaarg at Ga A ores | ait Hox at TE | go [Fe Tarun Mehra "Where any assessee sustains a loss oi 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, under the head "Profits and ga~ns of business, profession or vocation" and the loss cannot be wholly set off under sub-section ( 1 ) , the portion not so set off shalJ be carried forward to the fol-lowing year and set off against the profits and gains, if any, of the assessf:'e from the same business, profession or vocation for tbat 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, ~nd so on; The section contemplated that the loss which could not be wholly set off against the othei income ulider sub-s. ( 1) could be carried forward to the following year and ~et off only against the profits and gains, if any, .from the same/ b!1siness. There was differ-ence of opinion among the High C-o~s as to the meaning of the words· "same business". It is unnecessary to refer to those autho-rities. This Court in Commissioner of Income-tax Madras v. Prithvi Insurance Company Ltd.(') set out the test for determining whether two lines of business constitute "same business" within the meaning of s. 24( 2) at the relevant time. It was cibse1 ved at p. 636: "A fairly adequate test for determining whether the two constitute the same business is furnished by what Rowlatt, J., said in Scales v. George Thompson & Co. Ltd.-· [(1927) 13 Tax Cases 83) 'Was there any inter-conneciion, any inter-ladng, any inter-dependence, and unity at all embracing those two businesses ?' "That inter-connection, inter-lacing, inter-depend-ence and unity are furnished in this case by the existence of common manageoent, common business organisa-tion, common administration, common fund and a com-mon place of business." Applying that test in the present case there is no doubt that there is a common management of the share and stock business and other lines of business, unity of trading organization, common employees; common administration, a common fund and a com-mon place of business. We need not consider whether the ultimate decision of the High Court in Shree Ramesh Cotton Mills Ltd.'s case(') on which reliance was placed is correct, but we are unable to agree wi.th the High Court that the decisive test for determining whether the two lines of business constitute the same business is the nature of the two businesses. In our judgment, the Tmunal was right in holding that the share business and other businesses carried on by the appellant Company constituted the same business within the meaning of s. 24(2) as that section stood before it was amended in 1955. Counsel for the Commissioner contended that the Commis-sioner had applied under s. 66(2) to the High Court for calling (I) 63 J.T.R.'632. (2) 64 J.T.R. 317. A for a statement of the c'se from the Tribunal on the following question : --· "Whether there was any evidence in support of the Tribunal's finding that there was complete unity of con-trol and that shares formed a part of the commodities in which the assessee company deals regularly from year B to year in the ordinary course of its business ?" The High Court declined to make an order on that application calling for the statement cf the case on the ground that the first question was "sufficiently comprehensive" and included inquiry into the question proposed. In our judgment the decision of the c Tribunal is amply supported by the evidence which is referred to in the order of the Tribunal. Even if the question had been raised and statement of the case had been called for, it could not affect the ultimate result. The answer to the question referred will be in the affirmative.