1978 (5) TMI 3 - SC - Income Tax

Set-off allowed for importing & exporting profits under Indian Income-tax Act

The court held that the appellant could set off the unabsorbed loss from importing goods against profits from exporting goods as they constituted the ... Business of import and sale was closed by the appellant - there was a common control and common management of the same board of directors' of the business of import and export. Thus, the unity of control and the other circumstances adverted to above show that there was dovetailing or inter-lacing between the business of import and the business of export carried on by the assessee and that they constitute the same business - that the appellant is entitled to set off the unabsorbed loss Issues Involved:1. Whether the business of importing and selling goods is the same as the business of exporting goods for the purposes of setting off unabsorbed losses under Section 24(2) of the Indian Income-tax Act, 1922.2. Interpretation of the term 'same business' under Section 24(2) of the Indian Income-tax Act, 1922.3. Applicability of the tests for determining whether two businesses constitute the 'same business.'Issue-wise Detailed Analysis:1. Whether the business of importing and selling goods is the same as the business of exporting goods for the purposes of setting off unabsorbed losses under Section 24(2) of the Indian Income-tax Act, 1922.The appellant, a public limited company, claimed that the loss of Rs. 56,488 incurred from the import and sale of goods should be set off against the profits made in subsequent assessment years from its export business. The Income-tax Officer and the Appellate Assistant Commissioner rejected this claim, stating that the import and export businesses were distinct and separate. Consequently, the unabsorbed loss from the import business could not be set off against the profits from the export business as they did not constitute the same business.2. Interpretation of the term 'same business' under Section 24(2) of the Indian Income-tax Act, 1922.Section 24(2) of the Indian Income-tax Act, 1922, allowed for the carry-forward of unabsorbed losses to be set off against profits from the 'same business' in subsequent years. The court emphasized that the term 'same business' should be interpreted by considering whether there is inter-connection, inter-lacing, inter-dependence, and unity between the two businesses. The court cited previous cases, including Scales v. George Thompson & Co. Ltd., Commissioner of Income-tax v. Prithvi Insurance Co. Ltd., and Produce Exchange Corporation Ltd. v. Commissioner of Income-tax, which established that common management, administration, fund, and place of business are indicative of the same business.3. Applicability of the tests for determining whether two businesses constitute the 'same business.'The court applied the tests of inter-connection, inter-lacing, inter-dependence, and unity to determine whether the import and export businesses of the appellant constituted the same business. The Commissioner had argued that the nature of goods and the procedures involved in import and export were different, thus making the businesses distinct. However, the court held that these factors were not decisive. Instead, the court found that the appellant's businesses had common management, organization, administration, fund, and place of business, indicating that the businesses were inter-laced and inter-dependent.The court concluded that the Commissioner was wrong in holding that the businesses were not the same. It was noted that the Income-tax Officer had acknowledged the common control and management of the businesses. Therefore, the appellant was entitled to set off the unabsorbed loss against the profits of subsequent years.Conclusion:The court set aside the orders of the Commissioner and held that the appellant is entitled to set off the unabsorbed loss of the assessment year 1953-54 against the profits of the assessment years 1954-55, 1955-56, and 1956-57. The appeals were allowed, and the appellant was awarded costs.