JUDGMENT
Ratnam J.
1. The assessee is a registered firm. It came into being under the terms of an instrument of partnership dated August 15, 1949 (annexure “H” to the stated case), and its partners were one R M Maruthai Naidu and his three sons. The firm was originally carrying on business in the manufacture and sale of scented tobacco and cigars under the name and style of M/s. R. M. Maruthai Naidu and Sons. Some time thereafter the firm purchased buses and carried on transport business under the name and style of Bagavathi Transport, as could be seen from the assessment order for the assessment year 1952-53 (annexure ‘J’ to the stated case), From annexure “L” to the stated case, it is seen that, in the accounts of the firm relating to cigar business, a folio had been set apart for Bagavathi Transport and, in the accounting period 1951-52, amounts from the cigar business had been utilised for purposes of the transport business. Some time in 1967, a fresh deed of partnership was entered into between R M Maruthai Naidu and his three sons and therein, the business of the partnership had been stated to be the purchase, sale and manufacture of cigars, scented tobacco and any other business as the partners may decide to carry on from time to time. In due course, the assessee borrowed funds and a part of the funds so borrowed found its way into the transport business. In the folio of the transport business in the cigar shop account, there were a number of transfers to the cigar business. In 1963-64, the amounts transferred were over one lack of rupees and lesser amounts had been transferred in the subsequent years. Eventually. The transport business owed the cigar business in 1972, about 3.74 lakhs of rupees, which went up by the end of April, 1973, to 4.13 lakhs of rupees odd, as seen from annexure “D” to the stated case, and the increase was owing to the discharge of certain loans of the transport business with funds of the cigar business. The firm, after running all the businesses for several years, sold the buses with the route permits in the accounting period relevant to the assessment year 1969-70 and the employees were all retrenched after payment of retrenchment compensation. In the course of the assessment proceedings for the assessment year 1973-74, the assessee claimed an amount of Rs. 1,42,024 as loss from Bagavathi Transport and that amount represented interest on the borrowings which appeared in the account. The Income-tax Officer found that there was a heavy debit balance in the current account of the four partners of over 16 lakhs of rupees and though the assessee claimed that those debit balances were directly attributable to losses incurred over a period of years, yet as there were heavy drawing as well, the amount of drawings by the partners was determined at four lakhs of rupees and the interest payment attributable thereon to the extent of Rs. 50,000 was disallowed. Initiating proceedings under section 263 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), the Commissioner took the view that the assessment order was prejudicial to the Revenue in that interest in respect of a defunct business had been allowed, as the transport business and the other businesses carried on by the firm were not integrated and inter-linked businesses, but were separate. Ultimately, the Commissioner directed the addition of Rs. 92,000 to the total income of the firm for the assessment year 1973-74 and the modification of the assessment of the firm and the partners accordingly. On appeal by the assessee before the Tribunal, it found the following facts :
(1) All the businesses had been managed by the four partners of the firm and there was unity of management; (2) There was a common fund with inter se transactions between the cigar business and the transport business; (3) Advances in respect of the cigar business were received from the transport business
2. loans of the transport business were repaid out of the funds of the cigar business; and (4) The business organisation was one and common and there was unity of control by all the partners. On the aforesaid factual findings, the Tribunal concluded that the transport business as well as the other businesses of the assessee formed one business and the interest on the amounts borrowed for purposes of the business (though at a time when the transport business was in existence) should be held to relate to the business activity of the assessee constituting an admissible deduction. Accepting the view of the Income-tax Officer and disallowing a portion relating to borrowings for anon-business purposes, the Tribunal deleted the disallowance of the balance of Rs. 92,024 by the Commissioner and restored the assessment order passed by the Income-tax Officer. That is how, at the instance of the Revenue, under Section 256(2) of the Act, the following question of law had been referred to this court for its opinion :
“Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the interest paid on the capital borrowed for the transport business which has now been discontinued should be allowed on the ground that the transport business as well as the other businesses carried on by the assessee formed on single business ?”
3. Initially, the business of the assessee was the manufacture and sale of scented tobacco and cigars. However, even during the accounting period relevant to the assessment year 1952-53, the firm had carried on transport business. That is clearly established by the assessment DIX order for the assessment year 1952-53 enclosed as annexure ‘J’ to the stated case. Later, as seen from annexure “I” to the stated case, the partners had entered into another partnership deed where under, the firm was at liberty to carry on any other business as may be decided by the partners from time to time. From the other annexures “D” to “G”, “K” and “L” which are extracts from the books of account of the firm, it is clearly seen that amounts have been transferred from the cigar business account to the transport business account and vice versa. In other words, the funds for the conduct of the different lines of business activity have proceeded from the firm. Regarding the management of the different business activities of the firm, be it transport or cigar or scented tobacco, all that had been done by a single management, viz., all the four partners. The organisational set up was one and the same in respect of all the business activities of the firm. The control over the business activities of the firm in all its facets was by the same persons, viz., the four partner. The accounts also reflected that advances had been received from the transport business for the cigar business and loans of the transport business had been discharged from out of the funds of the cigar business. In other words, there had been interconnection, interlacing, interdependence and unity embracing the different lines of business activities pursued by the firm with common management, common business organisation, common administration, common fund and a common place of business as well. On the facts found by the Tribunal, the conclusion arrived at that the transport business as well as the other businesses of the firm formed one business, cannot be taken exception to.
4. We may also in this connection make a brief reference to three decisions of the Supreme Court laying down the principles applicable in cases of this kind. In CIT v. Prithvi Insurance Co., Ltd., , the assessee, a public limited company, carried on business in life and general insurance. For the assessment year 1951-52, the assessee claimed the benefit of carry forward of the loss from the previous year in respect of life insurance business against the profits of the general insurance business. The departmental authorities did not countenance this claim. But, on a reference, it was answered by the High Court in favour of the assessee. On appeal by the Revenue before the Supreme Court, the Supreme Court pointed out that the question whether two or more lines of business may be regarded as the same business or different businesses, depended not upon the special methods prescribed by the Income-tax Act for computation of the taxable income, but upon the nature of the business, the nature of their co-organisation, management, source of the capital fund utilised, method of book-keeping and a host of other related circumstances which stamp them as the same or distinct business and that the test was, whether there was any interconnection, any interlacing, any interdependence and any unity at all embracing the two businesses. It was further pointed out that the existence of common management, common business organisation, common administration, common fund and a common place of business furnished such interconnection, interlacing, interdependence and unity. Considering the question whether the closure of one business, without affecting the conduct of the other business, would be a decisive test in determining whether the two businesses constitute the same business, it was pointed out by the Supreme Court that if one business cannot conveniently be carried on after the closure of the other, that would be a strong indication that the two businesses constituted the same business, but no decisive inference may be drawn from the fact that, after the closure of one business, another may conveniently be carried on. Ultimately, the Supreme Court held that the life insurance and the general insurance business were carried on by the assessee without any distinction, with common administrative organisation and expenses and that they would constitute the same business within the meaning of section 24(2) of the Indian Income-tax Act, 1922, entitling the assessee to set-off the unabsorbed loss in the life insurance business against the profits from the general insurance business. Again, in Produce Exchange Corporation Ltd., v. CIT , the Supreme Court reiterated the test for determining whether two lines of businesses constitute the same business or not. The assessee in that case was a public limited company carrying on business in diverse commodities and also in stocks and shares. In the year of account 1949, it sustained a loss in the sale of shares and, in the course of the assessment proceedings for the assessment year 1950-51, the Income-tax Officer disallowed the claim to set off loss against the profits form transactions in the commodities in that year, but the Tribunal upheld the claim of the assessee. Meanwhile, the assessment for the year 1951-52 was completed and, for the assessment year 1952-53, the Income-tax Officer declined to take into account the loss suffered by the assessee in the share transactions and this was confirmed by the Appellate Assistant Commissioner on the view that the business in shares and the business in other commodities were not the same business within the meaning of section 24(2) of the Indian Income-tax Act, 1922. However, the Tribunal upheld the claim and directed that the loss be set off under section 24(2) of the Indian Income-tax Act, 1922. The High Court, however, answered the reference against the assessee. The Supreme Court, while considering the tests to be applied to ascertain whether it is the same business or different business, referred to CIT v. Prithvi Insurance Co., Ltd., , and the test propounded by Rowlatt J., in Scales v. George Thompson and Co., Ltd., [1927] 13 TC 83 (KB), and found that as there was common management of the share and stock business and other lines of business, unity of trading organisation, common employees, common administration, a common fund and a common place of business, the Tribunal was right in holding that the share business and the other businesses carried on by the assessee constitute the same business. In Standard Refinery and Distillery Ltd., v. CIT , the Supreme Court referred to Cit v. Prithvi Insurance Co. Ltd., and Produce Exchange Corporation Ltd., v. CIT and observed that certain objective tests for finding out the existence of interconnection, interlacing, interdependence and unity between two or more businesses are furnished by the existence of common management, common business organisation, common administration, common fund and a common place of business and that the assessee-company which was carrying on distillery business and sugar and gur refining should be regarded as having carried on the same business, even when it purchased shares of the sugar and gur refining company and sold the block of shares incurring loss which was claimed to be set-off against the profits in the sugar business. In so holding, the Supreme Court took into account that there was a single trading and profits and loss account, that all transaction were dealt with by a common organisation, that the sugar as well as the share transactions were attended to as part and parcel of the business of the assessee, that a common fund was utilised for both the businesses, that part of the overdraft taken form the bank had been discharged from out of the income of the business and that all the transactions were carried on in the same place of business, to hold that the business of dealing in shares and the business of manufacture of sugar and other commodities constituted the same business within the meaning of section 24(2) of the Indian Income-tax Act, 1922. On the facts found by the Tribunal and referred to in detail earlier, we do not have the slightest hesitation in upholding the legal inference drawn by the Tribunal that the transport business as well as the other businesses carried on by the assessee formed one single composite business. We may observe that our attention was drawn to certain the decisions, but we are of the view that none of those decisions would be of any assistance to the Revenue, on the factual finding recorded by the Tribunal and referred to earlier. We, therefore, answer the question referred to us in the affirmative and against the Revenue. There will be, however, no order as to costs.