Composite business test governs business loss set-off where activities are interconnected and share common management and funds.

For carry forward and set off of business loss under section 72(1) of the Income-tax Act, the decisive inquiry is whether the assessee's activities form one composite business, judged by interconnection, interlacing, interdependence and unity. Relevant indicators include common management, business organisation, administration, funds and place of business; the mere cessation of one activity does not by itself negate continuity where the composite concern continues. Common books of account and a common source of funds were treated as material supporting unity of control and management, and the loss set-off was accordingly admissible.

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Issues: (i) Whether the assessee's two activities constituted the same business for the purpose of carry forward and set off of business loss under section 72(1) of the Income-tax Act, 1961. (ii) Whether unity of control and management, supported by common books of account and common source of funds, was sufficient to sustain the finding that the same business continued.

Issue (i): Whether the assessee's two activities constituted the same business for the purpose of carry forward and set off of business loss under section 72(1) of the Income-tax Act, 1961.

Analysis: The governing test is whether the businesses are interconnected, interlaced, interdependent and united, with relevant indicators such as common management, common business organisation, common administration, common fund and a common place of business. The nature of the activity by itself is not decisive, and the mere fact that one activity has ceased does not, by itself, negative the existence of the same business where the composite business continues.

Conclusion: The activities constituted the same business and the carry forward and set off of the loss was admissible.

Issue (ii): Whether unity of control and management, supported by common books of account and common source of funds, was sufficient to sustain the finding that the same business continued.

Analysis: The finding of unity of control and management was supported by the maintenance of a single set of account books and the common source of funds for the two activities. Those circumstances furnished adequate material to support the conclusion that the businesses formed one composite concern.

Conclusion: The finding of unity of control and management was supported by material on record.

Final Conclusion: The reference was answered in favour of the assessee, and the Revenue's challenge to the carry forward and set off of the loss failed.

Ratio Decidendi: For carry forward and set off of business loss, the decisive inquiry is whether the activities form one composite business, judged by interconnection, interlacing, interdependence and unity as evidenced by common management, organisation, administration, fund and place of business.

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