1959 (6) TMI 27 - HC - Income Tax

Court rules cloth and speculation businesses separate, disallows setting off losses. Commissioner of Income-tax prevails.

Manilal Dahyabhai Versus Commissioner of Income-Tax, Bombay City

The court held that the cloth business and speculation business conducted by the assessee were not considered the same business. It was determined that ... - Issues Involved:1. Whether the cloth business and the speculation business conducted by the assessee constituted the same business under Section 24(2) of the Income-tax Act.2. Whether there was evidence to justify the Tribunal's finding that the speculation business and the cloth business were two separate businesses.3. Whether the assessee was entitled to set off the losses from the speculation business against the profits from the cloth business for the assessment year 1949-50.Issue-wise Detailed Analysis:1. Whether the cloth business and the speculation business conducted by the assessee constituted the same business under Section 24(2) of the Income-tax Act:The primary issue was whether the cloth business and the speculation business conducted by the assessee could be considered the same business for the purpose of setting off losses under Section 24(2) of the Income-tax Act. The Tribunal members were divided on this issue. Mr. Aggarwal, the Judicial Member, believed that the two businesses constituted the same business, citing factors such as maintaining one set of accounts, conducting both businesses from the same shop, using the same staff, employing the same capital, utilizing receipts from one business for the other, and sharing overhead expenses. However, Mr. Malhotra, the Accountant Member, and the President of the Tribunal disagreed, concluding that the businesses were separate due to the lack of inter-connection, interlacing, inter-dependence, or unity between them. The court emphasized that merely maintaining one set of books or using the same capital does not necessarily indicate that the businesses are the same. The test for determining whether two lines of business are the same was articulated by Mr. Justice Rowlatt in Scales v. George Thompson & Co., Ltd., focusing on inter-connection, interlacing, and inter-dependence.2. Whether there was evidence to justify the Tribunal's finding that the speculation business and the cloth business were two separate businesses:The court found that there was sufficient evidence to support the Tribunal's finding that the speculation business and the cloth business were separate. The Tribunal's conclusion was based on the fact that the two businesses had different natures and could be conducted independently without affecting each other. The court noted that the nature of the businesses was entirely different, with the cloth business involving the purchase and sale of ready commodities and the speculation business involving forward dealings in various commodities. The court also highlighted that the closure of one business would not affect the other, indicating a lack of inter-dependence or unity.3. Whether the assessee was entitled to set off the losses from the speculation business against the profits from the cloth business for the assessment year 1949-50:The court concluded that the assessee was not entitled to set off the losses from the speculation business against the profits from the cloth business for the assessment year 1949-50. This decision was based on the finding that the two businesses were separate and distinct. The court referred to Section 24(2) of the Income-tax Act, which allows for the carry-forward and set-off of losses only against the profits from the same business. Since the cloth business and the speculation business were not considered the same, the losses from the speculation business could not be set off against the profits from the cloth business.Conclusion:The court answered the questions referred as follows:1. The business in speculation and the cloth business conducted by the assessee did not constitute one and the same business.2. There was evidence to justify the Tribunal's finding that the speculation business and the business in cloth were two separate businesses, and the Tribunal did not misdirect itself in law in coming to that conclusion.3. On the facts and in the circumstances of the case, the assessee was not entitled to set off against the profits from the cloth business in the year of account the losses in the speculation business brought forward from the preceding years of account.The assessee was ordered to pay the costs of the reference to the Commissioner of Income-tax.