MITTER, J. - (1.) THE question referred to us under s. 66(2) is : "Whether, on the facts and in the circumstances of the case, the business activities of the company, to wit, manufacture and business in cotton textiles of the assessee and in earning profits in forward transactions in hessian, sacking, bullion and castor seeds constituted the same business within the meaning of s. 24(2) of the Indian IT Act, 1922, so that the losses in the former year amounting to Rs. 5,60,854 could be set off against the profits in the latter year amounting to Rs. 3,57,356."
(2.) THE facts taken from the statement of the case are as follows : THE assessment year concerned is 1952-53, the corresponding accounting year ending on 31st Dec., 1951. THE assessee is a manufacturer of yarn and cloth. It also enters into forward transactions in hessian, sacking, bullion and castor seed. In the accounting year ending 31st Dec., 1951, it sustained a net loss of Rs. 1,36,090 in the manufacture of yarn and cloth and made a net profit of Rs. 4,93,446 in forward transactions in bullion, castor seed, hessian, etc. After setting off the above loss against the profit, the balance of Rs. 3,57,356 was assessed as business income of the assessee. THE assessee wanted to set off the losses in the manufacture of yarn and textiles brought forward from the preceding years to the extent of Rs. 5,60,854 against the profits made in the forward transactions in the year of account, on the ground that they constituted the same business within the meaning of s. 24(2) as it stood before its amendment in April, 1953. THE claim to set off was not allowed by the ITO. THE appeals to the AAC and the Tribunal were also unsuccessful. Before the Tribunal the assessee relied on the following factors in order to establish that it was carrying on the same business in the year ending 31st Dec., 1951, as it was doing before : (a) One set of accounts was maintained for the several activities which were incorporated in the ordinary course of day to day transactions ; (b) THEre was common finance ; (c) THE several activities were carried on under the same roof ; and (d) THEre was a common staff and common ownership of the assets. The Tribunal held, relying on the decision of the Bombay High Court in Manilal Dahyabhai vs. CIT (1959) 37 ITR 398, that the above factors did not necessarily lead to the inference that the several activities of the company must be regarded as constituting one and the same business for the purpose of s. 24(2). According to the Tribunal, "the correct test to be applied was whether one of the two businesses conducted by the assessee could be stopped without affecting the texture or framework of the other." Judging by this test the claim of the assessee was negatived. The relevant portion of s. 24(2) of the Act, as it stood before the amendment in 1955, ran as follows : "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-s. (1), so much of the loss as is not so set off, or the whole loss where the assessee had no other head of income 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 . . . . ."
(3.) AN assessee who has business activities of different kinds may in a particular year suffer loss in some and make profits in the others. For income-tax purposes only the result of the whole year's activities is to be taken into consideration under s. 10 of the Act. If he reaps profits in some and incurs loss in others, he can only be assessed under s. 10 on the balance of the profits over the losses. If he suffers a loss as a net result, he is allowed to carry it forward. Sec. 24(2) determines how losses which are brought forward from a previous year can be set off towards profits of the business in a subsequent assessment year. The section lays down that the assessee's claim to set off a loss against profits is to be confined to the profits of the same business as that in which the loss was incurred. If an assessee has two businesses and makes profits A in one and loss B in the other, he is allowed to carry forward the loss B minus A to the next year, but this loss cannot be set off against the profits made in the first business. The question which arises in all such cases is whether the business in the subsequent year is the same business as that in the earlier year. It may be that the assessee carries on his different business activities under one roof and under one management. It may again be that a part of the staff employed for business X also looks after business Y. The assessee may or may not maintain a common set of account books. He may or may not use finance employed in one activity when the occasion arises for it in the other activity. Various tests have been laid down from time to time to find out whether the business in the two years is the same. In my opinion, the activities of the assessee and his modus operandi in carrying them out must be examined as a whole. If the nature of the different activities or ventures is such and they are so conducted as to lead to an inference that the whole thing is one unit, the business must be considered as the same business notwithstanding the fact that a particular activity may be discontinued in one year. For instance, we may take the case of a big Departmental store which sells goods of many and various kinds like furnishing material, textile goods, furniture, wearing apparel, household utensils, cosmetics and toilettry in one building and also runs a restaurant or a tea shop for the convenience of its customers : the business must be considered as the same business notwithstanding that the restaurant or the tea shop is discontinued for lack of patronage or other difficulty. The assessee may in the same building and as a part and parcel of the whole organization carry on a tailor's shop. From this one would not be justified in saying that its business in tailoring, in running the tea shop or as a restauranteur is different from that of the sale of furniture, furnishing materials, cosmetics, etc. But if the same assessee carries on a venture of dealing in petrol in a part of the same building or a workshop for effecting repairs to cars, it will be difficult to hold that his activity of dealing in petrol or of running the repair shop forms an integral part of the entire business and, notwithstanding the fact that he closes the workshop because of loss suffered, his business in the next year is the same as that in the previous year. Again, if the assessee deals in landed property either as land agents or as sellers of plots of land in a large block held by it, it will not be right to say that his activity of running the Departmental store and as a dealer in land constitute the same business as that pursued in the next year although he has closed the land dealing business. Again, although shares are goods, I would hold that dealing in shares along with other commodities was not the same business in the next year when the share dealing activity is discontinued. Similarly, having forward transactions in bullion, hessian, sacking and castor seed constitute activity of a kind entirely different from manufacturing textiles or dealing in textile goods, although there might be unity of control or a considerable measure of unity of management of the two different kinds of activities. Coming to decided cases, it would appear that the fountain- head is the judgment of Rowlatt, J. in Scales vs. George Thompson and Co. Ltd. (1927) 13 Tax Cases 83 There the company, the assessee, was established, inter alia, (1) to acquire and take over as a going concern the business then being carried on under the name and style of George Thompson and Co. with all its assets or any of the assets, with or without all or any of the liabilities of the proprietors of that business in connection therewith, (2) to carry on all or any of the business of shipowners, merchants, ship- builders, etc., (3) to insure the whole or any part of the property of the company and to accept the whole or any part of the marine risk and liability of the company as underwriters and also to carry on the business of marine insurance in all its branches.;