MANCHANDA J. - (1.) THIS is a case stated under section 66(1) of the Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred is : Whether the inference of the Tribunal that the activities of textile manufacture and share dealings did not constitute the same business within the meaning of section 24(2) of the Income-tax Act is justified ?
(2.) THE material facts are thes : THE assessee is a public limited company. It runs a cotton spinning and weaving mills at Kanpur and also deals in share business. THE relevant assessment year is 1950-51. In the preceding assessment year i.e., 1949-50 the total loss was determined by the Income-tax Officer at Rs. 14,66,364. Out of the said total loss, the loss in share dealing in that year as per the assessees books of account was Rs. 13,46,628 inclusive of the loss of Rs. 86,171 suffered in tea shares. THE assessee conceded that the loss in tea shares could not be set off against the income from business. It, however, claimed that the loss in respect of other share dealings i.e., Rs. 12,60,457 (Rs. 13,46,628 minus Rs. 86,171), suffered in the preceding assessment year and carried forward should be set off against the profits from the textile mills determined in the relevant assessment year because both the activities of dealing in stocks and shares and textile manufacturing constituted one and same business, as the capital, staff and business premises employed were common and these transactions were entered in the same account books and incorporated in one profit and loss account and balance-sheet. THE Income-tax officer disallowed the claim of the assessee and shares was not the same business. THE Appellate Assistant Commissioner and the Tribunal affirmed this view. Hence, this reference at the instance of the assessee. The relevant provision that falls to be considered is section 24(2) of the Act, prior to its amendment by the Finance Act of 1955. The material portion reads : 24. (2) 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... 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. The question that has to be determined in such a case is whether the business in which the loss was incurred was the same business against which the loss is sought to be carried forward and set off in the subsequent assessment year. In other words, what has to be determined is, whether, on the facts and circumstances of this case, the business of manufacturing textiles and the business of dealing in stocks and shares by the assessee constituted one and the same business to enable the loss of the latter to be carried forward and set off against the profits of the former.
(3.) THIS question has come up for consideration before the various High Courts and the Supreme Court and it has not been possible to evolve a test which might be universally applicable. The broad tests however, laid down by Rowlatt J. in Scales v. George Thompson & Co. Ltd., have generally been accepted. The difficulty, however, has been in applying those tests to the facts of a particular case. Rowlatt J. was so clear in his mind as to the test that were to be applied that he did not even consider it necessary in that case to call upon the counsel for the revenue to reply. That was a case where the question was whether the business of the company in under writing as well as running a fleet of steamers was the same business or two separate and distinct businesses. Rowlatt J. observed : I cannot conceive two businesses that could be more easily separated than those two. They both have something to do with ships; that is all that can be said about them. One does not depend upon the other; they are not inter-laced; they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the under-writing; it does not affect the ships. They might stop the ships and it does not affect the under writing. Rowlatt J., after laying down the above tests, considered that the method of book-keeping or the drawing up of a profit and loss account would not throw any light upon this matter at all. He again reiterate : I think the real question is, was there any inter-connection, any inter-lacing, any inter-dependence, any unity at all embracing those two businesses; and I should have thought, if it was a question for me, that there was none. But I do not think it was a question of law. I think the Commissioners had ample evidence upon which they could decide, and they did so decide.;