The Judgment of the Court was delivered by

Banerjee, J.:— The question of law referred to us, under section 66(2) of the Indian Income-tax Act, 1922, is:

“Whether, on the facts and circumstances of the case, the business activities of the company, to wit, manufacture and sale of sugar and sale and purchase of gunnies, jute and mustard seeds constituted the same business within the meaning of section 24(2) of the Indian Income-tax Act, 1922?”

2. The circumstances in which the aforesaid reference was made are hereinafter stated in brief: The assessee is a public limited company and was incorporated, on August 27, 1934, primarily to take over certain sugar mills, which were being run under the managing agency of Messrs. Suraj-mull Nagarmull. The memorandum of association of the assesseeecompany also authorised it to carry on the business as buyer, seller and dealer of jute, hemp, oil seeds, etc. Since the time the assessee took over the sugar mills and up to August 31, 1944, it carried on the business of manufacture and sale of sugar only. During the accounting year ending with August 31, 1945, the assessee-company carried on certain speculative transactions in gunnies and earned a profit of Rs. 84,383. Again, in the accounting year ending with August 31, 1946, the assessee-company made a profit of Rs. 2,49,281 in gunny business and Rs. 13,501 in jute business. There is no dispute that the transactions in gunnies and jute were both speculative transactions. In the next accounting year ending with August 31, 1947, the assessee-company did some dealings in mustard seeds and also carried on speculative transactions in gunnies and hessians. All these transactions resulted in a profit of Rs. 6,14,018. The assessee-company, however, discontinued the speculative business mentioned above and also the dealings in mustard seeds during the accounting years, ending with August 31, 1948, and August 31, 1949, and concentrated upon manufacture and sale of sugar only. Thus, the nature of the business activity of the assessee-company was, for about the first ten years since its incorporation, manufacture and sale of sugar only. During the next three years however, ending with August 31, 1945, August 31, 1946, and August 31, 1947, the assessee carried on certain speculative transactions and made some profits. Thereafter, the assessee again ceased to have any business other than manufacture and sale of sugar. For the relevant accounting year ending with August 31, 1947, the Income-tax Officer found that there was a net loss of Rs. 2,09,306 in sugar business and set off the amount of loss under section 24(1) of the Indian Income-tax Act against the profit of Rs. 6,14,018, made in respect of the other transactions mentioned above. The assessee-company wanted to set off the balance of profit, namely, Rs. 4,04,712, against the loss in the sugar business brought forward from the preceding year, on the ground that all the businesses of the assessee-company constituted one business. The Income-tax Officer, however, held that the assessee's business in sugar was different from the other businesses and, therefore, he refused to set off the loss that had been brought forward from the previous year against the profit made by the assessee-company in other activities. The assessee appealed to the Appellate Assistant Commissioner who, however, differed from the findings of the Income-tax Officer. The conclusion which the Appellate Assistant Commissioner arrived at is hereinafter quoted:

“On a perusal of accounts and evidence I find that in earlier years also the appellant used to make profits on sale of gunnies purchased for its own consumption at mills. Besides this sale of gunnies, transactions in other commodities were also made out of its capital and thereby making some profits which were being regularly shown in the profit and loss account of the mill. During the last three years, finding the upward trend in the market, it made heavy purchases of gunnies and made profit to the extent of Rs. 88,388 in the year ended 31st August, 1947, while in this year of account Rs. 5,46,588 on the total purchase of Rs. 12,19,756. As I have mentioned above, these transactions have been made along with the trans actions of the mill………………and the purchases to the extent of Rs. 10,74,278 on account of stores and other materials on behalf of the mill was made. Thus, these purchases and sales of hessian were effected from the same office with common staff and common capital.”

3. In the view that he took, the Appellate Assistant Commissioner held that the several activities of the assessee-company formed part of the same business. He, therefore, directed the Income-tax Officer to revise the assessment and to give relief to the assessee under section 24(2) of the Indian Income-tax Act.

4. Against this decision the Income-tax Officer appealed before the Tribunal. The only question before the Tribunal was whether the business of the assessee-company relating to the manufacture and sale of sugar and dealings in other commodities constituted one business or separate businesses. The Tribunal found that the sugar factory of the assessee-company was in Pakistan while its head office was in Calcutta. The results of the sugar mill business were incorporated in the account books maintained in the head office at Calcutta. The results of the assessee's activities relating to other businesses were also recorded in the same books. The profit or loss of each business was determined separately and they were shown separately in the consolidated profit and loss account. The Tribunal also found that there was one common staff at the head office for all the businesses and that the banking account for all the businesses was the same. The Tribunal, however, relied on a decision of this court in Commissioner Of Income-Tax, West Bengal… v. International Industries Ltd. Calcutta…. [1952] 22 I.T.R 44. and observed that if the accounts of each of the activities were kept separate and not dovetailed and if the businesses were not interlaced, the activities might constitute separate businesses, but if the accounts of the various activities were all lumped together, then the various activities might form part of one business. In that view, the Tribunal found, as a fact, that although the objects of incorporation authorised the assessee-company to carry on business in jute, hemp and oil seeds also, the manufacture and sale of sugar constituted the main business for which the assessee-company had been floated. The other activities in gunnies, hessian and mustered seeds, which were commenced some years later and again given up, were not auxiliaries or branches of the main business, there being no organic unity so as to make a corporate whole of the various activities, though there were some common features such as unity of ownership, common banking account and common staff. The Tribunal, however, noted that the gunnies purchased for packing sugar manufactured by the sugar mill of the assessee-company were purchased independently and the transactions of these purchases did not form part of the transactions in gunnies in which a profit had been earned. The Tribunal further noted that the accounts relating to the gunnies used for packing sugar were kept separate from the accounts of gunnies relating to the speculative transactions. On these facts, the Tribunal held that the business of manufacture and sale of sugar was entirely different from the business relating to the other activities and did not constitute the same business of the assessee-company. The Tribunal, therefore, reversed the order of the Appellate Assistant Commissioner and affirmed the order made by the Income-tax Officer.

5. As against the judgment of the Tribunal, the assessee asked the Tribunal to make a reference to the High Court on certain questions of law including the question whether the business of the assessee in sugar and in gunny, etc., constituted the same business. The Tribunal declined to make a reference. The assessee-company next moved the High Court, under section 66(2) of the Income-tax Act, for calling upon the Tribunal to state a case on those questions but that application was also summarily dismissed. Thereafter, the assessee-company appealed before the Supreme Court with special leave of that court. The Supreme Court was pleased to allow the appeal. The judgment of the Supreme Court is reported in [1961] 41 I.T.R 272, and hereinbelow we quote relevant extracts from that judgment:

“The question whether, on the application of the settled tests, different ventures carried on by an individual or a company form the same business is a mixed, question of law and fact. Certain principles are applied to determine whether, on the facts found, a legal inference can be drawn thatthe different ventures constitute separate businesses or, viewed together, can be said to constitute the same business. These principles were stated by Rowlatt J. in Scales v. George Thompson & Co. Ltd. 1927 13 Tax Cas. 83, 89. The learned judge observed:

‘…………the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses.’

The learned judge also observed that what one had to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one. No doubt, findings of fact are involved, because a variety of matters bearing on the unity of the business have to be investigated, such as unity of control and management, conduct of the business through the same agency, the inter-relation of the businesses, the employment of same capital, the maintenance of common books of account, employment of same staff to run the business, the nature of the different transactions, the possibility of one being closed without affecting the texture of the other and so forth. When, however, the true facts have been determined, the ultimate conclusion is a legal inference from proved facts, and it is one of mixed law and fact, on which depends the application of section 24(2) of the Act. In our opinion, a question of law did arise in the case, on which the High Court should have asked for a statement of the case.”

6. On the view taken, their Lordships of the Supreme Court directed this court to call for a statement of the case from the Tribunal on the question of law as indicated in the judgment. Their Lordships, however, refrained from expressing any opinion on the rival contentions by the assessee and the income-tax department and took the precaution of stating:

“We, however, express no opinion either way, because we are satisfied that a question of law did arise in the case, and have, therefore, allowed the other appeal, so that the matter may be examined by the High Court in the first instance, on a statement of the case by the Tribunal.

7. After the matter came back to this court, this court called for a statement of case from the Tribunal and the point of law, as hereinbefore quoted, was referred to this court.

8. It is necessary for us, at this stage, to recite the material portion of sub-section (2) of section 24 of the Indian Income-tax Act, as it stood before the amendment in 1955:

“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-section (1), so much of the loss as is not so set off, or the whole loss where the assessee had no other head of income, shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year….”

9. Explaining the meaning of the section, a Division Bench of this court observed in Income-tax Reference No. 144 of 1960 (Shree Ramesh Cotton Mills Ltd. v. Commissioner Of Income-Tax, Calcutta):

“An assessee who has business activities of different kinds may, in a particular year, suffer loss in some and make profits in the others. For income-tax purposes only the result of the whole year's activities is to be taken into consideration under section 10 of the Act. If he reaps profits in some and incurs loss in others, he can only be assessed under section 10 on the balance of the profits over the losses. If he suffers a loss as a net result, he is allowed to carry it forward. Section 24(2) determines how losses which are brought forward from a previous year can be set off towards profits of the business in a subsequent assessment year. The section lays down that the assessee's claim to set off a loss against profits is to be confined to the profits of the same business as that in which the loss was incurred. If an assessee has two businesses and makes a profit A in one and loss B in the other, he is allowed to carry forward the loss B minus A to the next year but this loss cannot be set off against the profits made in the first business. The question which arises in all such cases is whether the business in the subsequent year is the same business as that in the earlier year. It may be that the assessee carries on his different business activities under one roof and under one management. It may again be that a part of the staff employed for business X also looks after business Y. The assessee may or may not maintain a common set of account books. He may or may not use the finance employed in one activity when the occasion arises for it in the other activity. Various tests have been laid down from time to time to find out whether the business in the two years is the same. In my opinion, the activities of the assessee and his modus operandi in carrying them out must be examined as a whole. If the nature of the different activities or ventures is such and they are so conducted as to lead to an inference that the whole thing is one unit, the business must be considered as the same business notwithstanding the fact that a particular activity may be discontinued in one year.”

10. Dr. Pal, who appeared for the assessee, submitted that, on the facts found by the Tribunal, the proper legal inference should have been that the businesses in gunny, jute and mustard seeds were the same business as the sugar manufacturing business of the assessee. He laid stress, in particular, upon the following finding of the Tribunal:

“The head office is in Calcutta. The results of the sugar mill business are incorporated in the account books maintained in the head office at Calcutta. The activities relating to the other business referred to above are also recorded in the same books. The profit or loss of each business is determined separately and they are also shown separately in the consolidated profit and loss account in which the profit or loss of the sugar business is also included. There is one common staff at the head office for all the businesses. The banking account for all the businesses is the same.”

11. He also relied upon another finding of fact arrived at by the Appellate Assistant Commissioner of Income-tax, namely:

“Along with this running of the mill the appellant-company made certain transactions in gunnies, jute and mustard seeds. These transactions were recorded in the same set of books and the profit therefrom was transferred to the profit and loss account of the mill.”

12. Dr. Pal submitted that the Tribunal must be deemed to have impliedly affirmed this finding because in the judgment of the Tribunal this finding was not found to be incorrect.

13. Mr. Sabyasachi Mukherji, learned counsel for the Commissioner of Income-tax, relied on the following findings of fact in trying to repel the contention of Dr. Pal, namely, (a) the business of the assessee was primarily started, in the year 1934, to take over certain sugar mills, although the memorandum of association of the assessee-company authorised the company to carry on the business of buying, selling and dealing in jute, hemp and oil seeds, (b) for the first 10 years, between 1934 and 1944, the company concentrated upon sugar business only and did not carry on the business of buying, selling or dealing in jute, hemp or oil seeds. It was only during the years ending on August 31, 1945, to August 31, 1947, that the assessee-company carried on certain speculative transactions in gunny and earned some profit. Also, in the year ending August 31, 1948, the assessee-company carried on speculative business in mustard seeds and earned some profit, (c) thereafter, the assessee-company gave up speculation in gunny and mustard seeds and again concentrated upon sugar business, (d) the activities of the assessee-company in gunny, hessian and mustard seeds were not auxiliaries or branches of the main business of the assessee-company, (e) there was no evidence that the stoppage of the business in the gunny, hessian and mustard seeds affected the sugar business of the assessee-company nor did it appear that such business aided the main business of the assessee-company, (f) the gunnies and hessians, in which the assessee-company speculated, were not gunnies or hessians purchased for packing sugar in the sugar mill of the assessee-company; those were purchased independently of the gunny and hessian required for packing and were sold at a profit, (g) the account relating to gunnies purchased for packing sugar were kept separate from the account of gunnies purchased for speculative transaction, although both were entered under different heads in the same set of books of account.

14. Relying on the aforesaid facts, Mr. Mukherji contended that there was no organic unity between the speculative transactions in gunny, hessian and mustard and the business of manufacture of sugar and both must not be treated as the same business.

15. Now, what is necessary to constitute the same business has been or was sought to be explained in several decisions, all of them drawing inspiration from an English decision in Scales v. George Thompson & Co. Ltd., in which Rowlatt J. made the following observation:

“The real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing those two businesses.”

16. In the case of Setabganj Sugar Mills Ltd. v. Commissioner Of Income-Tax., the Supreme Court approved of the observation of Rowlatt J. in the following language:

“The learned judge also observed that what one had to see was whether the different ventures were so interlaced and so dovetailed into each other as to make them into the same business. These principles have to be applied to the facts, before a legal inference can be drawn that a particular business is composed of separate businesses, and is not the same one.”

17. Dr. Pal did not quarrel with the aforesaid statement of law, as he could not after the authoritative statement by the Supreme Court. He, however, sought to take advantage of the language employed in laying down the law, which is somewhat metaphorical in character although felicitous in expression and submitted that the facts found by the Tribunal which he emphasised upon, as hereinbefore indicated, were sufficient for an inference that the sugar business and the speculative businesses in gunny, hessian and mustard constituted one and the same business.

18. Mr. S. Mukharji, on behalf of the Commissioner of Income-tax, however, submitted that the facts relied upon by Dr. Pal were wholly neutralised by some of the other facts found by the Tribunal on which he relied and which we have hereinbefore quoted.

19. A number of decisions were cited before us by the learned counsel appearing on both sides. Dr. Pal relied upon the following decisions:

Govindram Brothers Ltd. v. Commissioner of Income-tax, Rekhabchand Sarogi v. Commissioner of Income-tax [1947] 15 I.T.R 465., K.S.S Soundarapandia Nadar and Brothers v. Commissioner of Income-tax [1950] 18 I.T.R 163. and Commissioner Of Income-Tax, West Bengal… v. International Industries Ltd. Calcutta…. [1952] 22 I.T.R 44.

20. Mr. S. Mukharji cited before us the following decisions in support of what he wanted to argue, namely, Manilal Dahyabhai…Applicant; v. Commissioner Of Income-Tax, Bombay,…. [1959] 37 I.T.R 398, Standard Refinery and Distillery v. Commissioner of Income-tax [1965] 55 I.T.R 139., Mundulpoor Coal Co. Ltd. v. Commissioner Of Income-Tax, Calcutta. [1965] 58 I.T.R 199., Commissioner of Income-tax v. B.C Muniratnam Naidu [1966] 59 I.T.R 492., Gupta Brothers Private Ltd. v. Commissioner of Income-tax [1966] 59 I.T.R 640. and the unreported judgment in Income-tax Reference No. 144 of 1960 (Shree Ramesh Cotton Mills Ltd. v. Commissioner Of Income-Tax, Calcutta Since reported in [1967] 64 I.T.R 317..

21. My learned brother, Masud J., was a member of the Bench which decided Mundulpoor Coal Company's case and the unreported decision in Income-tax Reference No. 144 of 1960, Shree Ramesh Cotton Mills Ltd. v. Commissioner Of Income-Tax, Calcutta.

22. It is not necessary for me to examine the authorities cited, from the bar in detail. I have already observed that most of the decisions drew inspiration from the observations of Rowlatt J. hereinbefore quoted and thereafter sought to elaborate upon the observations and apply the observations to the particular facts involved in the case.

23. In the case of K.S.S Soundrapandia Nadar, Satyanarayana Rao J., with his usual clarity, observed:

“It is not easy to formulate a test applicable to all cases in order to determine whether two dealings in different commodities or the carrying on of different lines of business would constitute the same business or not, within the meaning of section 24(2) of the Act. One thing, however, seems to be definite, and that is that common ownership alone would not constitute different lines of business the same business, nor the mere fact that two businesses are of a distinct nature would make them separate businesses. An individual may run multiple stores like the Spencer and Co., at Madras and yet the business may be only one business, though there are different lines. In the case of insurance companies investment of their funds for the purpose of earning income is an ordinary incident of the business of insurance and, though insurance business and money lending are two different lines of business, yet the business is treated as one and entire.”

24. I respectfully agree with the observations by his Lordship that it is not easy to formulate one test applicable to all cases in order to determine whether two distinct lines of transactions can be considered as the same business. In each case an inference will have to be drawn from several proved facts and if it appears that there was an interdependence or inseparable interconnection between the two lines of businesses, predominantly apparent, then notwithstanding that there are some elements from which it may appear that they were different businesses, the two businesses can be taken as one and the same business.

25. In the unreported judgment of this High Court in Shree Ramesh Cotton Mills Ltd. v. Commissioner Of Income-Tax, Calcutta, G.K Mitter J. considered some of the decisions cited before us from the bar, viz., Scales v. George Thompson & Co. Ltd., Setabgunj Sugar Mills Ltd. v. Commissioner of Income-tax, Manilal Dahyabhai…Applicant; v. Commissioner Of Income-Tax, Bombay,…. and Standard Refinery & Distillery Ltd. v. Commissioner of Income-tax and came to the following conclusion:

“In my opinion the essential thing to be considered is the nature of the business in the two different years and the way it is conducted in each year. As the question can only arise in the case of one assessee, factors like employment of same capital or same management or the ventures being carried on under the same roof are not matters of much importance. The principal thing to consider is whether the activities are of such nature and are so linked as to appear to be one unit. As I have said,. an assessee carrying on a business of a departmental store may trade in many and diverse classes of commodities in one building as parts of the same establishment. It may even run a tea shop or a restaurant as noted, for the convenience of its customers. In such a case, if one department is closed, say, the tea shop or the restaurant or the cosmetic department or the tailoring department, the business does not become a different business but is carried on with the help of the same or a depleted staff. But if the assessee were also to carry on business as land agents or share brokers or enter into forward contracts in bullion and hessian, I would find it extremely difficult to hold that the share-dealing line or the activity in forward contracts or the agency in land transactions were part and parcel of the departmental store. The conduct of the business is certainly to be considered but the more important matter is the nature of the ventures. An assessee who is a dealer in cloth may have several shops in different localities in the same city. The mere fact that different staff are employed in the different shops or that profit and loss of the different shops are separately recorded in different books of account would not go against their being part and parcel of one unit. Again, an assessee, which is a manufacturing concern, may have two factories in two different places but if the capital employed is one, if the profit and loss account is made up of the working at the two factories and the shareholders get their dividends as a result of the computation of the profit or loss in the two factories together, there would be only one business. If, however, an assessee carries on business in cloth at one place and in sweetmeat at another with his own funds, it would be impossible to hold that he is carrying on the same business in two years if he decided to close one of the ventures at the end of a particular year.”

26. In the case in which G.K Mitter J. made the aforesaid observation, a manufacturer of yarn and cloth entered into forward transaction in hessian and castor seeds. In that case also the finance was common and common staff was employed to carry on the two businesses. One set of books of account was maintained to keep the accounts of the two businesses. Notwithstanding all that, no essential unity between the two businesses could be found. The evidence of employment of common finance, common staff and common account book was rejected as subordinate tests and, in the absence of any dominating nexus between the two businesses, they were held to be separate businesses.

27. In general, I find myself in respectful agreement with the observation made by G.K Mitter, J. Dr. Pal, in his fairness, did not dispute that there must be some unmistakable or dominating indication that the two businesses are the one and the same business. He did not dispute that it was not impossible to carry on two different businesses in the same building or office with the same staff and with the same set of books of account in which the transactions of the two businesses were separately entered. What he submitted was that the fact that the profits of the gunny, jute and mustard seeds transactions were transferred to the profit and loss account of the mill of the assessee supplied that dominant indication that the sugar business and the speculative business in jute, hessian and mustard seeds constituted one business. I am unable to agree with him. For only several years the assessee indulged in some speculative business in addition to its primary business as a sugar manufacturer. It was not necessary for it to purchase so much of gunny and hessian for the purposes of its business as a sugar manufacturer. The Tribunal expressly found that the gunny and hessian in which the assessee speculated were not the gunny and hessian which it had purchased for packing, sugar. Such purchases were separately made and separately accounted for. Only for a few years, the assessee-company indulged in speculative transactions in gunny, hessian and mustard seeds and thereafter gave it up and continued to concentrate upon sugar manufacture, as it used to do at the beginning. The fact that the profit made in the jute, gunny and mustard seeds speculation was transferred to the profit and loss account of the mill of the assessee is not such a dominant characteristic as would make its speculative businesses part of its normal business of sugar manufacture. I do not find any interlacing, any dovetailing or any fundamental unity in the two businesses except that the assessee took money out of its sugar mill business to speculate and to earn and that it returned the speculative earnings to the funds wherefrom the capital for speculation was taken. In the result, I do not think that the inference made by the Tribunal from the facts found was an erroneous inference. I, therefore, answer the question referred to us in the negative. The respondents are entitled to costs of this reference which is assessed at 7 G.

Ms. Masud, J.:— I agree.

28. Question answered in the negative.