JUDGMENT
Kantawala, C.J.
1. At the instance of the assessee, the following question has been referred to us for our determination :
“Whether, on the facts and in the circumstances of the case and on a proper construction of Sections 24(2)(ii) and 24(2), the assessee is entitled to set off the carried forward share of loss from Hind Vijay against the business income of the material year, and share income from Vijay Chitra Mandir ?”
2. At the relevant time, pertaining to the assessment year 1959-60, the firm, Messrs. Vijay Chitra Mandir, Poona, was doing film exhibition business. This firm (hereinafter referred to as Chitra Mandir) had four partners till March 11, 1958, the assessee having one-fourth share. One of the partners died on March 11, 1958, and the surviving partners established a new firm in which the assessee had one-third share. For the material assessment year, one-third share of profits came to Rs. 10,692.
3. There was another firm by name Vijay Enterprises alias Hind Vijay at Poona, also doing film exhibition business. For the sake of convenience that firm is called Hind Vijay. It was running in loss and was dissolved on September 6, 1955. The assessee was a partner of Hind Vijay till its dissolution. After September 6, 1955, one of the other partners took over the business.
4. In the immediately preceding assessment year, i.e., 1958-59, the ITO
allowed against the assessee’s share from Chitra Mandir, a part of the car
ried forward loss allocated to the assessee in Hind Vijay. For the material
assessment year also, similar set-off was claimed of the following amounts
of unabsorbed loss of Hind Vijay :
Rs.
Assessment year 1955-56
9,574
Assessment year 1956-57
16,869
26,383
5. The ITO rejected the contention of the assessee to allow set-off, inter alia, holding that the business in respect of which the loss was carried forward was not carried on in the material accounting year. In an appeal preferred by the assessee, the AAC reversed the decision of the ITO. According to him, the ITO misconstrued the provisions of Section 24(2) of the Indian l.T. Act, 1922. If the assessee suffered loss from the business of film exhibition in one firm and derived profit from film exhibition in another firm, the source, viz., the film business, remained in existence during the year. He took the view that the decision of the ITO disallowing set-off was erroneous and he directed the ITO to permit the assessee a set-off in respect of the carry forward losses from Hind Vijay.
6. In a further appeal by the revenue before the Tribunal, the Tribunal accepted the contention urged on behalf of the revenue. According to the Tribunal, the real point arising for determination would turn on whether the assessee continued to carry on in the material years the business in which the losses were incurred in the assessment years 1955-56 and 1956-57. The Tribunal held that a firm is a taxable unit under the I.T. Act and the question whether the two firms carry on the same business would depend on the facts of the case. The Tribunal pointed out that the two firms in which the assessee was a partner do not even have the same constitution and they were clearly different entities. They did the same type of business, but cannot be doing the same business, even though there was a common manager for both the cinemas and there was some co-ordination in the arrangement for obtaining films from distributors, and also some financial transactions between them. According to the Tribunal, the business carried on by two different firms cannot be one and the same business. If the two firms were carrying on separate business, according to the Tribunal, it goes without saying that the common partners of these firms were also carrying on separate business. In other words, it held that the assessee did not carry on in the accounting year the business in which he incurred losses as a partner in the assessment years 1955-56 and 1956-57.
7. It is from this order of the Tribunal that the above question has been referred to us for our determination.
8. Mr. Pandit, on behalf of the assessee, submitted that the view that has been taken by the Tribunal is contrary to the view that has been taken later on by the Supreme Court in the case of CIT v. A. Dharma Reddy [1969] 73 ITR 751. He submitted that the principle laid down by the Supreme Court in this case is directly applicable to this case and the view that has been taken by the Supreme Court is entirely contrary to the one that commended itself to the Tribunal. He, therefore, submitted that the
question that has been referred to must be answered in favour of the assessee.
9. Mr. Joshi, on the other hand, on behalf of the revenue, did not concede that the contention urged on behalf of the assessee was right and justified, and drew our attention to the,decision of the Supreme Court in B. R. Ltd. v. V. P. Gupta, CIT [1978] 113 ITR 647. He submitted that the test that has been laid down by the Supreme Court does not justify the contention that has been sought to be urged on behalf of the assessee.
10. So far as the facts are concerned, there is no controversy. Both the firms, viz., Chitra Mandir and Hind Vijay, carry on film exhibition business. So far as the business of Hind Vijay was concerned, there were unabsorb-ed losses to the extent of Rs. 26,383 as stated above, while so far as the business of Chitra Mandir was concerned there were profits. Both of them were partnership firms, in which the assessee was one of the partners. From the order of the Tribunal it is quite apparent that it was not even controverted that both the firms did the same type of business, had a common manager, had co-ordination in the arrangement for obtaining films from distributors and some financial transactions. When such is the case, if regard be had to the decision of A, Dharma Reddy’s case [1969] 73 ITR 751 (SC), relied upon by Mr. Pandit, there is no doubt whatsoever that the view that has been taken by the AAC was true and justified and both the ITO as well as the Tribunal were in error in taking a contrary view. In A. Dharma Reddy’s case [1969] 73 ITR 751 (SC), the respondent (assessee) was an individual, whose only sources of income were his shares in several firms. Apart from the firms which carried on other businesses there were two firms, A and B, which carried on business in bidi leaves. Firm A consisted of two partners and firm B of four. Firm A was dissolved on March 31, 1955, but firm B continued during the accounting year relevant to the assessment year 1956-57. The respondent sustained a loss in firm A for the assessment year 1955-56 which after adjustment against his other income for that year came to Rs. 24,532. This amount he claimed to set off under Section 24(2)(ii) of the I.T. Act, 1922, as amended in 1955, against his share of the income from firm B for the assessment year 1956-57. The contention urged by the assessee in the case was accepted by the Supreme Court. The Supreme Court held that the respondent (the assessee) carried on the business in bidi leaves, apart from other businesses. This business he was doing in partnership. Nevertheless the business was of taking contracts in respect of or dealing in bidi leaves and this business he could do either individually or in partnership with someone else. The fact that firm A was dissolved on March 31, 1955, did not mean that his business in bidi leaves came to an end so long as he continued to do that business either individually or in partnership with others. The business of the respondent which consisted of
dealing or taking of contracts in bidi leaves did not depend on the constitution of a partnership through which it was carried on nor could it come to an end so long as the respondent carried on the same systematic course of activity. The business in which the loss had been sustained by the respondent when he was a partner of firm A which was dissolved on March 31, 1955, continued to be carried on by him in partnership with three other persons during the assessment year 1956-57. He did not stop doing that business in the assessment year 1956-57. The respondent was, therefore, entitled under Section 24(2) to set off his share of the unabsorbed loss of Rs. 24,532 from firm A brought forward from the assessment year 1955-56, against his business income for 1956-57.
11. The ratio of this decision is directly applicable to the facts of the present case. It will be quite apposite to say that the facts in both the cases are almost similar. Thus, the Tribunal was in error when it rejected the contention of the assessee that the loss suffered in the business of Hind Vijay cannot be a loss to be set off against the profits made in the business of Chitra Mandir, even though the business of both the firms was film exhibition business. In our opinion, the view that has commended itself to the Tribunal in the present case did not find favour with the Supreme Court in the case of A. Dharma Reddy [1969] 73 ITR 751, and if the ratio of this decision of the Supreme Court is applied, then the view that has been taken by the AAC has to be restored.
12. Reliance was sought to be placed by Mr. Joshi upon the decision of the Supreme Court in the case of B. R. Ltd. v. V. P. Gupta, CIT . In this case the Supreme Court has taken the view that under Section 24(2) an unabsorbed loss could be carried forward to be set off against the profits of a subsequent year or years, only if such profits accrued to the assessee from the same business. The question whether an assessee is carrying on the same business is a mixed question of law and fact as it has to be decided on the application of various tests in so far as they may be applicable. The words “same” and “similar” connote different concepts and, therefore, the carrying on of a similar business will not meet the requirements of the section. If one business cannot be conveniently carried on after the closure of the other, there would be a strong indication that the two businesses constituted the “same” business ; but no decisive inference could be drawn from the fact that after the closure of one business another may conveniently be carried on. The real test would be : was there any inter-connection, interlacing, inter-dependence, and unity embracing the two businesses ? Such inter-connection, inter-relation, interdependence and unity exist when there is common management, common business organisation, common administration, common fund and a common place of business. In this case the Supreme Court was concerned with the
question: whether the business of import and the business of export carried on by the assessee constituted the same business.
13. In the case before us it is not even controverted, on the other hand it is found as a fact, that the business of Chitra Mandir as well as that of Hind Vijay was film exhibition business. There was also inter-connection by reason of the fact that there was a common manager, co-ordination in the management and obtaining films from the same distributors and some financial transactions between them. When such is the case, the test that has been laid down by the Supreme Court in A. Dharma Reddy’s case [1969] 73 ITR 751 is applicable and the loss suffered in one business can be set off against the profits made in the other.
14. Accordingly, the assessee was entitled to set off the carried forward share of loss from Hind Vijay against the business income of the material year and share income from Vijay Chitra Mandir. The question referred to us is, therefore, answered in the affirmative and in favour of the assessee. The revenue shall pay the, costs of the assessee.
