Back
1963 Supreme(Cal) 158
HIGH COURT OF CALCUTTA
S.P.MITRA, K.C.SEN, JJ.
Standard Refinery And Distillery - Appellant
Versus
Commissioner Of Income Tax Central Calcutta – Respondent
Decided on : July 23, 1963
B.L.Pal, Debi Pal, Sabyasachi Mukherji, Sachin Chaudhary,
In order to claim relief under section 24(2) of the Indian Income Tax Act, 1922, the assessee must prove that the loss was suffered in respect of the "same business" as contemplated by the section.
Headnote:
INCOME TAX - Same business - Loss in share transaction - Whether can be set off against profits of assessee's business in succeeding year - Indian Income Tax Act, 1922, sec. 24 (2).
Fact of the Case:
The assessee, a public limited company, purchased shares of a company in 1946 and sold them in 1947, resulting in a loss. The assessee claimed to set off this loss against the profits of its business in the succeeding year under section 24(2) of the Indian Income Tax Act, 1922. The Income Tax Officer and the Appellate Assistant Commissioner disallowed the claim, holding that the share transaction was not part of the assessee's business.
Finding of the Court:
The Tribunal held that the share transaction was not part of the assessee's business and dismissed the assessee's claim. The High Court upheld the Tribunal's finding, holding that the assessee had not discharged the onus of proving that the share transaction was part of its business.
Issues: Whether the loss in the share transaction could be set off against the profits of the assessee's business in the succeeding year under section 24(2) of the Indian Income Tax Act, 1922.
Ratio Decidendi: The court held that the assessee had not discharged the onus of proving that the share transaction was part of its business. The court noted that the assessee had not adduced any evidence as to why it started purchasing the shares of the lessor company more than six months after the commencement of the lease, why the manufacture of sugar by the assessee was benefited by the purchase of the shares, or why the entire block of shares was sold in April 1947 to the Produce Exchange Corporation.
Final Decision: The court answered the question in the affirmative, holding that there was evidence before the Tribunal on which it could hold that the business in dealing with shares was distinct and separate from the business of sugar-manufacturing and distillery.
1. This is a Reference under sec. 66 (2) of the Indian Income Tax Act, 1922. The assessee is a public limited company. The assessment year is 1949-50, the corresponding accounting year being the calendar year ending on December 31, 1948. The assessee company was incorporated in 1942. It was then owning and working a Distillery in U. P. It acquired a Refinery in 1943. With effect from June 1, 1945 it obtained on lease, the sugar factory belonging to the New Savan Sugar and Gur Refining Co. Ltd., and started manufacturing sugar. During the period between January 29, 1946, and April 23, 1946, the assessee purchased 41,300 shares of the New Savan Sugar and Gur Refining Company Ltd., for Rs. 12,17,096/ -. On April 30, 1947 the entire block of 41,300 shares were sold to the Produce Exchange Corporation Ltd. for Rs. 8,46,750/- resulting in a loss, which was determined to be Rs. 3,70,356k This loss was accepted by the Appellate Tribunal as a trading loss. It fell to be considered in the immediately preceding year and after setting off the loss against the year's income, there remained a resultant loss of Rs. 2,27,085/ -. This loss was carried forward under sec. 24 (2).
2. The unabsorbed loss of Rs. 2,27,085/-in the share transaction was claimed for set off against the profits of the assessee's business in the succeeding year. The Income Tax Officer refused to allow the loss. This view of the Income Tax Officer was also accepted by the Appellate Assistant Commissioner. The assessee's contentions were (1) that the purchase of shares of the aforesaid company was intimately connected with the lease of the sugar mill ; (2) that the business in the shares was carried on during the preceding accounting year by the same staff and with the same capital. Therefore, it was submitted that the share business was an inseparable part of and interconnected with the manufacture of liquor, sugar and molasses ; (3) that the capital with which the business in shares was carried on was supplied from the business of Refining Sugar; and (4) that the management of the two [businesses was also by the same staff. It was further argued that the Memorandum of Association of the applicant company authorised it to carry on the business of purchase and sale of shares. The Tribunal held that common ownership or common management of the businesses or the common staff and the same capital would not be the true test to find out whether they constitute the 'same business'. It further observed that what was required was interlacing, inter-dependant or dove-tailing or in other words, the essential condition to be satisfied was that the discontinuance of one business may affect the other, or the existence of one must depend upon the continuance of the other. The fact that the sugar mill was obtained on lease in 1945 and shares purchased in 1946, would not make the two businesses, according to the Tribunal, the "same business". The Tribunal has pointed out that the evidence on record does not show that the two businesses were inter-connected or were inextricably connected with each other to constitute the "same business" within the meaning of sub-sec. (2) of sec. 24 of the Indian Income Tax Act. The Tribunal, therefore, dismissed the assessee's claim.
On the above facts and in the circumstances, the following question of law has been framed by this court. "was there any evidence before the Tribunal on which it could hold that the business in dealing with shares was distinct and separate from the business of sugar-manufacturing and distillery?" at a very outset it is necessary to set out the relevant
3. Provisions of sub-sec. (2) of sec. 24 of the Act as they stood at the material time. These were:
"where any assessee sustains a loss of profits or gains in any year. . . . . . in any business, profession or vocation, and the loss cannot be wholly set off under sub-sec. (1), so much of the loss as is not so set off or the whole loss where the assessee had no other head o
