- (1.) The questions referred under Section 66(2) of the Act are as follows: (1) Whether on the facts found the Tribunal was justified in holding that the business carried on by the Assessee during the relevant accounting period was the same as carried on by it during the preceding years ? (2) Was the Tribunal justified in allowing set-off in respect of the loss carried forward and the unabsorbed depreciation against the profits of the assessment year 1955-56 ? The facts, as recorded in the statement of the case, are as follows: The assessment year in question is 1955-56, the corresponding previous year ended on July 31, 1954. The Assessee's business is to earn money by letting ships to freight. It started its business in the year of account relevant for the assessment year 1948-49. For the first year it plied two vessels which it had bought secondhand. In the second year the Assessee sold one of the ships and purchased another for the same business. In the third year of business the Assessee sold one of the two ships it had bought in the first year and plied its business with the only ship left. In the fourth year the Assessee operated only the vessel left with it. In the fifth year of business (relevant for the assessment year 1952-53) the vessel went aground and was sold as a wreck. Thereafter the company had no vessel of its own and chartered another vessel and plied it for freight. This vessel was also sub-chartered to a third party for profit. The company sustained loss in the years previous to the assessment year and was allowed depreciation on vessels which it had previously owned but the depreciation had remained unabsorbed. In the previous year relevant for this reference the company made a profit of Rs. 72,858 by sub-charter of the vessel. The company wanted to set off the loss carried forward and the unabsorbed depreciation against the profits of the assessment year under consideration. The claim was disallowed by the Income-tax Officer who found that the loss as well as the unabsorbed depreciation related to the business carried on by the company with its own ships in the preceding years while the profits against which the loss and unabsorbed depreciation were sought to be set off, had been earned by the company in a business with a hired vessel. The Income-tax Officer took the view that the two businesses were different and as the business in which the loss was incurred and depreciation allowed did not exist in the relevant accounting year, the set-off claimed could not be entertained. The Appellate Assistant Commissioner concurred with the Income-tax Officer that the business carried on by the Assessee company previously by operating its own vessel was materially different from the business of making profit by sub-chartering in the years of account and he dismissed the appeal. On further appeal, the Tribunal held that the material question for consideration was whether the business carried on by the Assessee for the relevant year with the hired vessel was the same as the business which the Assessee had carried on previously with its own vessel or vessels. The Tribunal found that the nature of activity in either case was the same and the organisation for the conduct of the business also remained the same. By its appellate order dated April 27, 1960 the Tribunal found that the business in the year of account was the same as that of the preceding years when the Assessee had vessels of its own.
(2.) In my opinion, the Tribunal came to the correct conclusion. In order to find out whether the business carried on by an Assessee in a particular year is the same as that carried on previously by it, one must consider the essential characteristics of the business carried on during the different periods. In this case we find that the business of the Assessee was earning freight from ships. Whether the ships belonged to it exclusively or whether the Assessee had the ships on charter from others does not appear to make any difference so far as earning freight by the use of the ships is concerned. The Tribunal rightly held that the business of the Assessee was one of making profit by the use of ships and that nothing turned on the ownership of the ships. The illustration given by the Tribunal is quite apt. The Tribunal considered the case of an Assessee carrying on business of transport with a fleet of motor trucks some of which might be owned by the Assessee while some might have been hired from others. The Tribunal held that in such a case the business carried on by the Assessee with his own trucks was the same as the one carried on by him with hired ones. The Tribunal also relied on the well-known dictum of Rowlatt, J. in Scales v. George Thompson and Co. Ltd, 13 TC 83, that the real question was whether there was any inter connection, any inter-lacing, any inter-dependence or any unity embracing the two businesses." Judged by this text, it is not possible to say that the Tribunal went wrong in its conclusion.
(3.) So far as the second question is concerned, it has already been held by a division bench of this Court in Jaipuria China Clay Mines (P.) Ltd. v. Commissioner of Income-tax, Calcutta, 1962 46 ITR 707, that "the Assessee must first set off the business loss carried forward from the previous year against the income, profits or gains of the same business in the following year and if after doing this there is a surplus the same can be utilised for meeting the unabsorbed depreciation of the previous years which under Section 10(2)(vi), proviso (b) becomes depreciation for the said following year." In the result, the answers to both the questions are in the affirmative and in favour of the Assessee who will have the costs of this Reference. Masud, J. I agree.;