1966 (8) TMI 82 - HC - Income Tax

Tax Court: Textile Manufacturing & Share Dealing Not Same Business

The court held that the textile manufacturing and share dealing activities of the assessee did not constitute the same business under section 24(2) of the ... - Issues Involved:1. Whether the activities of textile manufacture and share dealings constituted the same business within the meaning of section 24(2) of the Income-tax Act, 1922.Issue-wise Detailed Analysis:1. Determination of 'Same Business' under Section 24(2):The primary issue in this case is whether the activities of textile manufacturing and share dealings by the assessee constituted the 'same business' as per section 24(2) of the Income-tax Act, 1922. This determination is crucial for deciding if the loss from share dealings can be set off against the profits from textile manufacturing.Facts of the Case:The assessee, a public limited company, runs a cotton spinning and weaving mill in Kanpur and also deals in shares. For the assessment year 1950-51, the assessee sought to set off the carried forward loss from share dealings against the profits from the textile mills, arguing that both activities constituted one business due to the common capital, staff, business premises, and unified accounting records.Legal Precedents and Tests:The court examined various precedents and tests laid down by different High Courts and the Supreme Court. The key test, as propounded by Rowlatt J. in Scales v. George Thompson & Co. Ltd., involves determining whether there is any 'inter-connection, inter-lacing, inter-dependence, or unity' between the two activities. This test has been widely accepted but is challenging to apply universally.Application of Tests:The court reviewed several cases to understand the application of these tests:- In South Indian Industrials Ltd. v. Commissioner of Income-tax, different businesses like spinning, weaving, and rice mills were held to be separate.- In Govindram Brothers Ltd. v. Commissioner of Income-tax, speculation in cotton and silver was considered the same business.- In Ganga Glass Works Ltd. v. Commissioner of Income-tax, manufacturing glass and sugar in the same premises was held to be separate businesses.- In Commissioner of Income-tax v. Pfaff Sewing Machine Co. (India) Ltd., share dealing and sewing machine sales were considered one business due to the circumstances of war.Tribunal's Conclusion:The Tribunal, after considering the cumulative effect of all facts and circumstances, concluded that the business of manufacturing textiles and dealing in shares were not the same business. It noted that the mere commonality of capital, staff, and premises did not establish an inter-connection or inter-dependence between the two activities.Supreme Court's View:The Supreme Court in Setabganj Sugar Mills Ltd. v. Commissioner of Income-tax emphasized that the question of whether different ventures constitute the same business is a mixed question of law and fact. The court must consider various factors such as unity of control, management, capital, and the possibility of one business affecting the other.Final Judgment:The court held that the Tribunal had correctly applied the principles and tests to the facts of the case. The proper legal inference drawn by the Tribunal was that the two activities did not constitute the same business. Therefore, the loss from share dealings could not be set off against the profits from textile manufacturing.Additional Observations:The court also noted that the burden of proving that the businesses are the same lies initially on the assessee, especially when the nature of the businesses is prima facie different. The court agreed with the Tribunal's finding that the assessee did not discharge this burden.Conclusion:The question was answered in the affirmative, against the assessee. The assessee was ordered to pay the costs of the Commissioner, assessed at Rs. 200, with counsel's fee also assessed at Rs. 200. The court's detailed analysis reaffirmed the importance of considering the inter-connection, inter-lacing, and inter-dependence of business activities in determining whether they constitute the same business under section 24(2) of the Income-tax Act, 1922.