1978 (4) TMI 11 - HC - Income Tax

High Court denies set-off claim for loss against income under 'Business' head for distinct businesses.

The High Court upheld the decision that the loss of Rs. 19,783 was not eligible to be set off against the assessee's income under the 'Business' head for ... Same Business, Set Off Of Loss Issues:Whether the loss of Rs. 19,783 was liable to be set off against the income of the assessee under the head 'Business' in the two years under referenceRs.Analysis:The case involved the assessment of an individual assessee for the years 1958-59 and 1959-60, concerning a claimed loss of Rs. 19,783 from a business carried out at Jhelum. The assessee had submitted a tender to supply boundary stones to the Government, but due to political unrest, he couldn't fulfill the contract. After migrating to India, he sought compensation for the unfulfilled contract. The assessee later entered a partnership for a new business of constructing Government buildings. The Income Tax Officer (ITO) initially rejected the loss claim, considering it a capital loss or from an extinct business. The Appellate Assistant Commissioner (AAC) upheld the ITO's decision, stating the businesses were distinct. The Appellate Tribunal acknowledged the loss as a trading loss but deemed the businesses separate, leading to the rejection of the deduction claim.The legal heir of the assessee appealed to the High Court, arguing that the businesses were the same. The High Court applied the indicia suggested by Rowlatt J. to determine business unity, emphasizing factors like unity of control, common capital, and common staff. The Court noted the absence of evidence showing continuity between the old and new businesses, as they had different nature, organization, and ownership structures. The Court rejected the argument that common capital indicated business unity, explaining that sequential use of funds did not establish business identity. It also dismissed the claim that similar Government contracts linked the businesses, highlighting the distinct nature of the operations - selling materials versus construction.The Court also addressed an argument regarding the timing of the loss, pointing out that the issue was not raised before the Tribunal and thus not considered in the reference. Ultimately, the Court concurred with the Tribunal's finding that the businesses were distinct, leading to the denial of the deduction claim. The judgment favored the revenue, denying the set-off of the loss against the assessee's income. The parties were directed to bear their own costs in the case.