Patanjali Sastri, J - (1.) This reference arises out of an assessment to income-tax for the year 1940-41 made on one S.N.A. Al. Ct. Chidambaram Chettiar (hereinafter referred to as the assessee), a Nattukottai Chetti money lender and banker carrying on business at Karaikudi in British India, his headquarters (Oorkadai), and at Penang and Butterworth in the Federated Malay States.
(2.) In the assessment for the year 1939-40 the assessee suffered a loss of Rs. 41253 at Karaikudi, where he also bought and sold securities on his own account. After setting off the loss against the profits of the business abroad, there was a net loss of Rs. 21,522, which was carried forward to the next year. In the assessment for that year (1940-41) it was found that there was again a loss of Rs. 23,125 at Karaikudi, but the business at Penang resulted in profits. The assessee claimed that not only the loss of Rs. 23,125, but also the unadjusted balance of loss carried forward from 1939-40, viz., Rs. 21,522, should be set off against the foreign profits. The Income-tax Officer disallowed the claim so far as it related to the sum of Rs. 21,522, but allowed the loss of Rs. 23125 suffered in the year of account and computed the net profits at Rs. 34,109. An appeal to the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, Madras Bench, on this point having proyed unsuccessful, the assessee applied to the Tribunal under Section 66(1) of the Income-tax Act to state the case and refer it to this Court as a point of law was involved, and the Tribunal has accordingly referred the following question for decision by this Court: Whether in the facts and circumstances of this case the inference drawn by the Bench that the sum of Rs. 21,522, viz., the loss carried forward in British India in 1939-40, cannot be set off against the profits of the business abroad for 1940-41 under Section 24(2) of the Indian Income-tax Act is a correct inference in law. Section 24(2)(so far as it is material here) runs as follows: Where any assessee sustains a loss of 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 31 day of March, 1940, under the head Profits and gains of business, profession or vocation, and the loss cannot be wholly set off under Sub-section (1), the portion 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; 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, and so on; but no loss shall be so carried forward for more than six years, and a loss arising in the previous years for the assessment for the years ending on the 31st day of March, 1940, the 31 day of March, 1341, the 31 day of March, 1942, the 31 day of March, 1943, and the 31 day of March, 1944, respectively, shall be carried forward only for one, two, four and five years, respectively. It will be seen that the right to carry forward and set off loss against the profits of the following year or years allowed under this provision is subject to the condition that the profits against which the set off is claimed should have arisen out of the same business as the one which resulted in the loss. The point at issue accordingly is whether the business carried on at the assessee's headquarters, Karaikudi, which made the loss in question can be said to be the same business as the one carried on at Penang, which yielded the profits against which the set off is claimed. The assessee contends that his Penang shop is but a branch of the business carried on by him at Karaikudi, which is his head office, and that the two together constitute one and the same business. The Income-tax authorities have rejected the contention and disallowed the claim holding that the assessee's operations at Karaikudi and at renang, are two different trading businesses.
(3.) Now, whether different trading operations constitute asingle business or different businesses is largely a question of fact, but, as recognised by the referring authority, the proper legal inference from proved facts is essentially a matter of law. Theques-tion really is, in the words of Rowlatt, J., in Scals V/s. George Thompson and Co., Ltd. 13 T.C. 83, "was there any inter-connection, any interfacing, any inter-dependence, any unity at all embracing the two businesses." It has been found by the Income-tax Appellate Tribunal that the money lending and dealing in shares at Karaikudi formed one business and this is not disputed before us. But it is said that the money lending at Penang is a different business. The only reasons for this conclusion are thus stated by the Tribunal: The affairs of the two are not so inter-woven as to constitute one single business; the mere record of the remittance to and from Penang or the incorporation of the final trading result at the end of the year would not be enough to constitute the two activities one single business. We cannot accept this as a conclusive finding of fact. The first part of the statement mentions no facts, but only records a conclusion of law, and the rest is merely concerned with rejecting certain facts relied on by the assessee as " not enough " to justify an inference in his favour. If there was no other material before us we should have referred the case back to the Tribunal for a proper statement of the case, but this course is rendered unnecessary as the material facts appear in the orders of the Income-tax Officer and the Appellate Assistant Commissioner to which our attention has been drawn. There is no dispute in regard to these facts which are entirely in accordance with the customary features of the usual Nattu- kottai Chetti business of banking and money-lending. The business operations abroad are conducted by agents appointed for fixed periods, usually three years, and the lending of money is left largely to their discretion. A separate set of accounts is maintained there but copies of the day book are periodically (usually once in a month) despatched to the headquarters to keep the proprietor informed of the state of the business. There is, besides, a frequent correspondence between the agent and the proprietor, who asks for particulars and explanations and issues instructions regarding the conduct of the business. There is a flow of remittances both ways according to the needs of the business; and the final trading result is brought into the headquarters accounts at the end of the year. These facts present, in our view, the picture of a trading organisation inter-connected as head office and branch, with financial inter-dependence and unity of control.;