BANERJEE, J. - (1.) THE question of law referred to us, under s. 66(2) of the Indian IT Act, 1922, is : "Whether, on the facts and circumstances of the case, the business activities of the company, to wit, manufacture and sale of sugar and sale and purchase of gunnies, jute and mustard seeds constituted the same business within the meaning of s. 24(2) of the Indian IT Act, 1922 ?"
(2.) THE circumstances in which the aforesaid reference was made are hereinafter stated in brief : THE assessee is a public limited company and was incorporated, on 27th Aug., 1934, primarily to take over certain sugar mills, which were being run under the managing agency of M/s Surajmull Nagarmull. THE memorandum of association of the assessee-company also authorised it to carry on the business as buyer, seller and dealer of jute, hemp, oil seeds, etc. Since the time the assessee took over the sugar mills and upto 31st Aug., 1944, it carried on the business of manufacture and sale of sugar only. During the accounting year ending with 31st Aug., 1945, the assessee-company carried on certain speculative transactions in gunnies and earned a profit of Rs. 84,383. Again, in the accounting year ending with 31st Aug., 1946, the assessee-company made a profit of Rs. 2,49,281 in gunny business and Rs. 13,501 in jute business. THEre is no dispute that the transaction in gunnies and jute were both speculative transactions. In the next accounting year ending with 31st Aug., 1947, the assessee-company did some dealing in mustard seeds and also carried on speculative transactions in gunnies and hessians. All these transactions resulted in a profit of Rs. 6,14,018. THE assessee-company, however, discontinued the speculative business mentioned above and also the dealings in mustard seeds during the accounting year, ending with 31st Aug., 1948 and 31st Aug., 1949, and concentrated upon manufacture and sale of sugar only. Thus, the nature of the business activity of the assessee-company was, for about the first ten years since its incorporation, manufacture and sale of sugar only. During the next three years however, ending with 31st Aug., 1945, 31st Aug., 1946 and 31st Aug., 1947, the assessee carried on certain speculative transactions and made some profits. THEreafter, the assessee again ceased to have any business other than manufacture and sale of sugar. For the relevant accounting year ending with 31st Aug., 1947, the ITO found that there was a net loss of Rs. 2,09,306 in sugar business and set off the amount of loss under s. 24(1) of the Indian IT Act against the profit of Rs. 6,14,018, made in respect of the other transactions mentioned above. The assessee-company wanted to set off profit, namely, Rs. 4,04,712, against the loss in the sugar business brought forward from the preceding year, on the ground that all the businesses of the assessee-company constituted one business. The ITO, however, held that the assessee's business in sugar was different from the other businesses and, therefore, he refused to set off the loss that had been brought forward from the previous year against the profit made by the assessee-company in other activities. The assessee appealed to the AAC who, however, differed from the findings of the ITO. The conclusion which the AAC arrived at is hereinafter quoted : "On a perusal of accounts and evidence I find that in earlier years also the appellant used to make profits on sale of gunnies purchased for its own consumption at mills. Besides this sale of gunnies, transactions in other commodities were also made out of its capital and thereby making some profits which were being regularly shown in the profit and loss account of the mill. During the last three years, finding the upward trend in the market, it made heavy purchases of gunnies and made profit to the extend of Rs. 88,388 in the year ended 31st Aug., 1947, while in this year of account Rs. 5,46,588 on the total purchase of Rs. 12,19,756. As I have mentioned above, these transactions have been made along with the transactions of the mill........... and the purchases to the extent of Rs. 10,74,278 on account of stores and other materials on behalf of the mill was made. Thus, these purchases and sales of hessian were effected from the same office with common staff and common capital." In the view that he took, the AAC held that the several activities of the assessee-company formed part of the same business. He, therefore, directed the ITO to revise the assessment and to give relief to the assessee under s. 24(2) of the Indian IT Act.
(3.) AGAINST this decision the ITO appealed before the Tribunal. The only question before the Tribunal was whether the business of the assessee-company relating to the manufacture and sale of sugar and dealings in other commodities constituted one business or separate businesses. The Tribunal found that the sugar factory of the assessee-company was in Pakistan while its head office was in Calcutta. The results of the sugar mill business were incorporated in the account books maintained in the head office at Calcutta. The results of the assessee's activities relating to other businesses were also recorded in the same books. The Tribunal also found that there was one common staff at the head office for all the businesses and that the banking account for all the businesses was the same. The Tribunal, however, relied on a decision of this Court in CIT vs. International Industries Ltd. (1952) 22 ITR 44 (Cal) : TC45R.437 and observed that if the accounts of each of the activities were kept separate and not dovetailed and if the businesses were not interlaced, the activities might constitute separate businesses, but if the accounts of the various activities were all lumped together, then the various activities might form part of one business. In that view, the Tribunal found, as a fact, that although the objects of incorporation authorised the assessee-company to carry on business in jute, hemp and oil seeds also, the manufacture and sale of sugar constituted the main business for which the assessee-company had been floated. The other activities in gunnies, hessian and mustered seeds, which were commenced some years later and again given up, were not auxiliaries or branches of the main business, there being no organic unity so as to make a corporate whole of the various activities, though there were some common features such as unity of ownership, common banking account and common staff. The Tribunal, however, noted that the gunnies purchased for packing sugar manufactured by the sugar mill of the assessee- company were purchased independently and the transactions of these purchases did not form part of the transactions in gunnies in which a profit had been earned. The Tribunal further noted that the accounts relating to the gunnies used for packing sugar were kept separate from the accounts of gunnies relating to the speculative transactions. On these facts, the Tribunal held that the business of manufacture and sale of sugar was entirely different from the business relating to the other activities and did not constitute the same business of the assessee-company. The Tribunal, therefore, reversed the order of the AAC and affirmed the order made by the ITO. As against the judgment of the Tribunal, the assessee asked the Tribunal to make a reference to the High Court on certain questions of law including the question whether the business of the assessee in sugar and in gunny, etc. constituted the same business. The assessee-company next moved the High Court, under s. 66(2) of the IT Act, for calling upon the Tribunal to state a case on those questions but that application was also summarily dismissed. Thereafter, the assessee- company appealed before the Supreme Court with special leave of that Court. The Supreme Court was pleased to allow the appeal. The judgment of the Supreme Court is reported in Setabganj Sugar Mills Ltd. vs. CIT (1961) 41 ITR 272 (SC), and hereinbelow we quote relevant extracts from that judgment : "The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed question of law and fact, Certain principles are applied to determine whether, on the facts found, a legal inference can be drawn that the different ventures constitute separate businesses or, viewed together, can be said to constitute the same businesses. These principles were stated by Rowlatt J. in Scales vs. George Thompson and Co. Ltd. (1927) Tax Cases 83 The learned judge observed : '........ the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses.' The learned judge also observed that what one had to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principals have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one. No doubt, findings of fact are involved, because a variety of matters bearing on the unity of the business have to be investigated, such as unity of control and management, conduct of the business through the same agency, the inter-relation of the businesses, the employment of same capital, the maintenance of common books of account, employment of same staff to run the business, the nature of the different transactions, the possibility of one being closed without affecting the texture of the other and so forth. When, however, the true facts have been determined, the ultimate conclusion is a legal inference from proved facts, and it is one of mixed law and fact, on which depends the application of s. 24(2) of the Act. In our opinion, a question of law did arise in the case, on which the High Court should have asked for a statement of the case." ;