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Gupta Brothers Private Ltd. v. Commissioner Of Income-Tax, U.P (And Connected References).
Summary of Opinion — Manchanda, J.
Factual and Procedural Background
This opinion arises from statements of case referred to this court by the Income‑tax Appellate Tribunal, Allahabad Bench. The Tribunal formulated two central questions in the primary reference and a practically identical question in connected references concerning whether (1) a speculative loss of Rs. 21,881 in "Tata deferred shares" is an admissible deduction in computing business income under section 10 of the Income‑tax Act, and (2) whether dealings in shares, cotton waste and money‑lending (and, in connected references, cloth, shares, brokerage and money‑lending) constitute the "same business" within the meaning of section 24(2) of the Act.
The assessee, a private limited company, carried on multiple activities across assessment years 1948‑49 to 1953‑54, including share dealing, brokerage, money‑lending (interest), dividends, trade in cloth, and trade in cotton waste. The opinion reproduces a statement of income/loss for those years showing large losses in some years (e.g., Rs. 96,793 in 1948‑49; Rs. 58,069 in 1949‑50) and a speculative loss of Rs. 21,881 in 1953‑54 arising from speculative purchase and sale of deferred shares where delivery was neither taken nor given. The assessee sought to deduct or carry forward and set off these losses against profits from other businesses; the Tribunal disallowed various set‑offs, prompting the references to this court.
Legal Issues Presented
- Whether, on the facts of the case, the loss of Rs. 21,881 in Tata deferred shares is an admissible deduction in the determination of the net income, profits and gains from "business" under section 10 of the Income‑tax Act?
- Whether, on the facts and in the circumstances of the case, dealings in shares, cotton waste and money‑lending (and, in connected references, dealings in cloth, shares, brokerage and money‑lending) constitute the "same business" within the meaning of section 24(2) of the Income‑tax Act?
Arguments of the Parties
Appellant's Arguments (Assessee)
- The learned counsel for the assessee, Mr. Brij Lal Gupta, contended that the legal inference drawn by the Tribunal — that the different activities did not constitute the "same business" under section 24(2) — was unjustified and that the Tribunal erred in law in arriving at that conclusion from the facts found.
- He further contended that the Bombay High Court decision relied on by the Tribunal (Manilal Dahyabhai) did not state the correct law as to the tests for determining whether two activities are the same business, arguing that the Supreme Court decision in Setabganj Sugar Mills Ltd. v. Commissioner of Income‑tax affected the relevance of the tests relied upon.
The opinion does not contain a detailed account of the respondent's oral arguments on the merits beyond the legal positions recorded and the reliance on Tribunal findings and precedents.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Keshavlal Premchand v. Commissioner of Income‑tax [1957] 31 I.T.R. 7 | Authority relied on by the Tribunal that losses from speculative dealings could not be set off against profits from other heads (as applied by Tribunal). | The Tribunal followed this decision to hold that the Rs. 21,881 speculative loss could not be set off against profits from other heads. The court records this reliance and then considers subsequent Division Bench authority that resolves Q1 differently. |
| Commissioner of Income‑tax v. Ramgopal Kaniyalal [1960] 38 I.T.R. 193 | Authority relied on by the Tribunal concerning treatment of speculative losses (similar application as above). | The Tribunal followed this authority in disallowing set‑off of the speculative loss; the court notes this and contrasts it with later Division Bench authority. |
| M/S. Jagannath Mahadeo Prasad v. Commissioner of Income‑tax (Div. Bench No. 130 of 1960, decided April 14, 1964) | Division Bench decision of this court holding that loss from speculative dealings can be set off against profits from other business for computing profits and gains under section 10(1), and that the proviso to section 24(1) has no application for this purpose. | The court treats this Division Bench decision as concluding Question No. 1 in favour of the assessee and answers Q1 affirmatively on that basis. |
| Scales v. George Thompson & Co. (principles of Rowlatt J.) | Statements of principle on how to decide whether different activities constitute the "same business" (tests applied by tribunals and courts). | The Tribunal applied the principles laid down by Rowlatt J. as guiding tests in deciding whether the dealings constituted the same business; the court accepts that those principles were properly borne in mind by the Tribunal. |
| Manilal Dahyabhai v. Commissioner of Income‑tax, Bombay [1959] 37 I.T.R. 398 | A decision containing tests/factors for determining when separate activities amount to the same business; facts said to be parallel to the present case. | The Tribunal followed this Bombay High Court decision and, on similar factual materials, held that cotton/waste business and share dealing/jobbering were not the same business. The court found the Tribunal's reliance on this decision appropriate. |
| Setabganj Sugar Mills Ltd. v. Commissioner of Income‑tax (Supreme Court) | Supreme Court authority cited by counsel for the assessee in an attempt to challenge the relevance or weight of tests relied on in Manilal Dahyabhai. | The court considered the argument that Setabganj altered the legal landscape but rejected the contention that Manilal Dahyabhai's approach was thereby invalidated; the court held that the Bombay decision did not claim to lay down infallible tests and that Setabganj did not diminish its force as applied here. |
Court's Reasoning and Analysis
The court divided its analysis according to the two referred questions.
On Question 1 (speculative loss of Rs. 21,881): the court observed that this question had been concluded by a Division Bench decision of this court (M/S. Jagannath Mahadeo Prasad). That decision held that losses from speculative dealings can be set off against profits from other businesses for computing business income under section 10(1), and that the proviso to section 24(1) does not apply for that purpose. Relying on that Division Bench authority, the court answered Question 1 in the affirmative and in favour of the assessee.
On Question 2 (whether the different activities constitute the "same business" under section 24(2)): the court framed the issue as whether the Tribunal's factual findings were supported by material on record and whether the legal inference drawn (that the businesses were not the same) was one which the Tribunal could lawfully draw.
The court reviewed the Tribunal's approach and findings. The Tribunal proceeded on the pre‑1955 version of section 24(2) and applied established principles (including those articulated by Rowlatt J. in Scales v. George Thompson & Co.). The Tribunal made explicit findings of fact, including that:
- The assessee's main business was dealing in shares;
- The cotton/waste business could not be said to be the same as the main share dealing business;
- The cotton/waste business was not even ancillary to the share dealing business;
- The two businesses could be separated or discontinued independently of each other.
The Tribunal also considered that common capital and common staff were used, and it explicitly considered the Bombay High Court decision in Manilal Dahyabhai (which had broadly similar facts) in arriving at its conclusion that the businesses were distinct.
The court stressed its limited role on a reference: it must examine whether there was any material supporting the Tribunal's findings of fact and whether the legal inference drawn could reasonably have been drawn by the Tribunal. It is not the court's function on a reference to reappraise the entire evidence and substitute its own finding. The court concluded that there was material for the Tribunal's findings and that the legal inference (that the businesses were not the same for the purposes of section 24(2)) was one that the Tribunal could lawfully draw.
The court addressed the assessee's contention that Manilal Dahyabhai did not state the correct law in the light of the Supreme Court's Setabganj decision, and rejected that contention: the Bombay decision did not claim to set out an infallible test and merely indicated that certain tests may be more important in some cases; Setabganj did not undermine the Bombay Court's approach as applied here.
Holding and Implications
Core Ruling: The reference is answered as follows:
- Question 1: Answered in the affirmative and in favour of the assessee — the loss from speculative dealings (Rs. 21,881) is to be treated as admissible for the purpose of computing business income under section 10(1), in the light of the Division Bench decision relied on by this court.
- Question 2: The Tribunal's factual findings and the legal inference that dealings in shares/jobbering and dealings in cloth/cotton waste and money‑lending are not the "same business" under section 24(2) are upheld; the answer is given against the assessee.
Consequences and practical effect:
- The assessee succeeds on Question 1 and therefore, as a matter of law under the authority of the Division Bench decision, the specified speculative loss is allowable in computing business income under section 10(1).
- The assessee fails on Question 2: losses from share dealing/jobbering in the years in question cannot be carried forward and set off against profits from the cloth/cotton waste business on the basis that they form the "same business" under section 24(2) (on the facts and findings in this case).
- No new broad test or rule was laid down; the court affirmed the approach that the question whether activities constitute the "same business" depends on the cumulative effect of facts and circumstances, and that established principles must be applied to the particular facts.
- Costs: both parties are directed to bear their own costs of the reference generally, but the Commissioner of Income‑tax is awarded costs in Income‑tax References Nos. 169 and 170 of 1962, assessed at Rs. 100 in each case.
This summary has been prepared solely from the content of the opinion provided and does not add facts or inferences beyond what the court recorded in that opinion.
Manchanda, J.:— This and the connected references arise out of statements of the case submitted to this court by the Income-tax Appellate Tribunal, Allahabad Bench. The questions that have been formulated by the Tribunal in this reference are:
“1. Whether on the facts of the case, the loss of Rs. 21,881 in Tata deferred shares is an admissible deduction in the determination of the net income, profits and gains from ‘business’ under section 10 of the Income-tax Act?
2. Whether, on the facts and in the circumstances of the case, dealings in shares, cotton waste and money-lending constitute the ‘same business’ within the meaning of section 24(2) of the Income-tax Act?”
2. The question formulated by the Tribunal in each of the connected references is:
“Whether, on the facts and in the circumstances of the case, dealings in cloth, shares, brokerage and money-lending constituted the same business within the meaning of section 24(2) of the Income-tax Act?”
3. This question is practically the same as question No. 2 formulated in this reference. The assessee is the same in all the three references, it being a private limited company deriving income from business in shares, brokerage, money-lending, dividends, business in cloth and business in cotton waste. The instant reference relates to the assessment year 1953-54 and the connected references relate to the assessment years 1950-51 and 1952-53. The assessment for the assessment year 1951-52 is not in dispute. The income derived or the loss suffered by the assessee in the assessment years 1948-49 to 1952-53 from various heads of income will appear from the following statement:
Particulars 1948-49 1949-50 1950-51 1951-52 1952-53 1953-54 1 2 3 4 5 6 7 Rs. Rs. Rs. Rs. Rs. Rs. Share dealing —1,41,494 —38,983 —11,846 4,661 3,727 —5,423 Brokerage 36,385 11,385 3,226 721 1,670 25 Interest on money lending 35,405 -6,725 16,923 8,774 7,014 12,789 Dividend 5,344 1,447 3,398 2,460 923 (net) 1,632 (net) 4,099 (net) 1,017 — (net) 1,845 (net) 680 1,204 Cloth — 7,677 38,878 — — — Cotton waste — — — — 64,189 90,032 Sales of braces — — — — 218 — Total —64,360 —23,199 50,579 16,616 77,723 99,055 Less Expenses —32,433 —34,270 23,412 17,742 11,201 7,787 Net income/loss —96,793 —58,069 27,167 —1,126 66,522 91,258 Loss Loss Profit Loss Profit Profit
4. It will be noticed that in the assessment years 1948-49, 1951-52 and subsequently the assessee did not do any business in cloth and any business in cotton waste in the assessment years 1948-49 up to 1951-52. In the assessment year 1948-49 it suffered a loss of Rs. 96,79300, in 1949-50 a loss of Rs. 58,069-00 and in 1951-52 a loss of Rs. 1,12600; it made a profit in the other assessment years. In the assessment year 1953-54 it also carried on a business in speculation by purchasing and selling deferred shares of a certain company; it did not take and did not give delivery of the shares. It suffered a loss of Rs. 21,881.00 in the transaction.
5. The assessee claimed the right to deduct the above-mentioned losses suffered by it from the profits of the assessment years in question and it is this claim that has given rise to the questions submitted to this court for its opinion.
6. In respect of the loss of Rs. 21,881 in speculative business, the Tribunal, following the decisions in Keshavlal Premchand v. Commissioner of Income-tax [1957] 31 I.T.R 7. and Commissioner of Income-tax v. Ramgopal Kaniyalal [1960] 38 I.T.R 193., held that it could not be set off against the profits from other heads of income. As to whether the loss of Rs. 96,793, Rs. 58,669 and Rs. 1,126 in the assessment years 1948-49, 1949-50 and 1951-52 in the share business could be carried forward and set off against the income from cloth and waste cotton business was answered in the negative by the Tribunal, upon a consideration of various factors, and it was held that this could not be done as the two businesses, i.e, the share and jobbering business, were not the same business as cloth and cotton waste.
7. Upon a reference being asked, the aforesaid two questions have been referred to this court.
8. The first question now stands concluded by a Division Bench decision of this court in M/S. Jagannath Mahadeo Prasad…Applicant; v. Commissioner Of Income Tax…. No. 130 of 1960 decided on April 14, 1964), where it was held that the loss from speculative dealings can be set off against the profits from other business for the purpose of computing the profits and gains under section 10(1) of the Act and that, for the purpose of computing the profits and gains from business under section 10, the proviso to section 24(1) has no application. In this view of the matter, question No. 1 is answered it the affirmative and in favour of the assessee.
9. The answer to the second question will depend solely on whether the finding of the Tribunal that the dealing in shares and the dealing in cotton waste and money-lending do not constitute the “same business” is supported by material on the record and the legal inference drawn could have been drawn.
10. The case before the Tribunal proceeded on the ground that section 24(2) as it stood before its amendment in 1955 was applicable to these proceedings. In other words the essential condition for the application of section 24(2) was that the business in which the loss was incurred and which loss required to be carried forward and set off against the profits of business should be the “same business”. The Tribunal, therefore, rightly considered this question, bearing in mind the principles which were laid down by Rowlatt J. in Scales v. George Thompson & Co. and have since been followed by courts not only in England but also in India. The Tribunal found:
(1) That the main business of the assessee was that of a dealer in shares.
(2) That the business in cotton or waste could not in any sense be said to be the same as the main business in share dealing.
(3) That the cotton or waste business could not even be said to be ancillary to the main business.
(4) That the two businesses could be easily separated and discontinued without in any way affecting the other.
11. The fact that common capital was employed for the two businesses or that the staff employed was the same was duly considered and on the decision of the Bombay High Court in Manilal Dahyabhai…Applicant; v. Commissioner Of Income-Tax, Bombay,…. [1959] 37 I.T.R 398., the facts of which case were said to be more or less parallel to the present case, the Tribunal held the two businesses of cotton and waste not to be the same business as share dealing and jobbering.
12. Mr. Brij Lal Gupta, the learned counsel for the assessee, has contended that the legal inference drawn by the Tribunal from the facts found that the two businesses did not constitute the same business was unjustified. This cannot be acceded to. There was undoubtedly material before the Tribunal for the facts found by it. As set out hereinabove, various factors and circumstances were taken into consideration and the legal inference drawn therefrom that the two businesses were not the same business cannot be said to be erroneous or one which the Tribunal could not possibly have drawn. What Mr. Brij Lal Gupta wants this court to do, in a matter arising upon reference, is to reappraise the entire evidence and then to arrive at a finding whether the two businesses constitute the “same business” within the meaning of section 24(2) of the Act. That is not the function of this court. What this court has to see in the first instance is whether there was any material for the findings of fact arrived at by the Tribunal and then to see whether the legal inference which the Tribunal has drawn could have been drawn by it. It is manifest that no single factor or circumstance can be said to be decisive in determining the question whether it is the “same business” or two separate businesses. It is the cumulative effect of all the facts and circumstances of the particular case which will have to be considered. It is not possible nor is it desirable to attempt to lay down categorically the circumstances in which the conclusion that the two businesses were the same would necessarily follow. The principles are well settled and, so long as those principles have been borne in mind and applied to the facts of the particular case and the Tribunal has not misdirected itself, it will not be possible tp say that the legal inference which the Tribunal has drawn is one that it could not have done.
13. Mr. Brij Lal Gupta, the learned counsel for the assessee, urged that the decision of the Bombay High Court, which the Tribunal had followed in Manilal Dahyabhai…Applicant; v. Commissioner Of Income-Tax, Bombay,…., does not lay down the correct law because the two tests which were considered to be important were not necessarily so in view of the decision of the Supreme Court in Setabganj Sugar Mills Ltd. v. Commissioner of Income-tax. The contention is without force. The learned judges of the Bombay High Court have nowhere said that they were laying down an infallible test for determining whether the two businesses are the same business or not. All that was said was that certain tests may be more important than others. It is, therefore, not correct to say that the force of the Bombay decision has in any way been watered down by the decision of the Supreme Court.
14. As already observed, it is the cumulative effect of all the facts and circumstances of the particular case which have to be taken into consideration in coming to a finding whether the two businesses are one or separate and distinct. In the present case all the material on record was duly con sidered in arriving at the findings of fact and the well-settled principles having been kept in mind by the Tribunal in drawing the legal inference from proved facts, it is not possible to say that the conclusion arrived at that the business of cloth and cotton waste was not the same as share and jobbering business was one which it could not possibly have arrived at. For the reasons given above, the second question is also answered in the affirmative (sic) but against the assessee.
15. The reference is answered accordingly. As both parties have partly succeeded in this reference, they are left to bear their own costs. The Commissioner of Income-tax will however get his costs in Income-tax References Nos. 169 and 170 of 1962 which we assess at Rs. 100 in each case.
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