JUDGMENT
MANOHAR LALL, J. – This is a reference under Section 66 (1) of the Indian Income-tax Act by the Appellate Tribunal to this Court for a decision on the following question :-
“Whether in the circumstances of the present case the assessee is entitled to a set-off of :-
(a) the loss carried forward from the assessment year 1941-42 against his profit for the assessment year 1942-43 and
(b) the loss carried forward from the assessment year 1942-43 against his profit for the assessment year 1943-44.”
The facts may be shortly stated. The assessee is a nine annas partner in the registered firm of Jokhiram Jagernath who are merchants dealing in hardware, cement, rice, wheat, yarn, salt, grain, hessian and other commodities. They carry on business at Ranchi, which is the head office, with branches in Calcutta and Madras. For the assessment year 1941-42 the registered firm was found to have lost a considerable sum due to speculation in hessian, gunny, jute, silver, linseed, cotton and wheat. The Income-tax Officer originally disallowed the loss in speculation upon his view that the assessee does not carry on any business in speculation and also because he was not satisfied that all the accounts to support the figures of the loss claimed at Rs. 1,28,814 had been produced. This order was set aside by the Assistant Commissioner in appeal. The case was reminded to find out whether the assessee entered into these transactions with a view to make a profit and whether his activity in speculation was so continuous as to amount is carrying on of a business; the Income-tax officer was also directed to ascertain whether any capital had been set apart for speculation purposes. The Income-tax officer on remand after examining the relevant in almost contract papers, bijaks and account books came to the conclusion that the registered firm entered into these transactions frequently and regularly in almost all the months of the accounting year with the object of making profits, but the amount of capital set apart for speculation could not be ascertained as the firm had mixed up the accounts of this business with other businesses, and the firm was found utilising the capital both for speculation business and for the other businesses to the extent that it was required in each of the businesses. These transactions having been found to constitute a business, the Income-tax Officer reduced the loss of speculation by about Rs. 9,000 and as enjoined by section 23, sub-clause 5 (a), of the Act apportioned the loss between the two partners – to the assessee, the nine annas partner, at Rs. 38,332 and the balance Rs. 29,813 to Durgadas, the seven annas partner.
For the year 1942-43 the assessee, the nine annas partner, was found to have an income of Rs. 1,146 from house property and a sum of Rs. 29,998 as his share from the profits of the registered firm, that is to say a total of Rs. 31,144. The assessee, however, contended that he was entitled to a set-off of the loss of Rs. 38,322 which was his share of the loss in the year 1941-42. The Income-tax Officer refused to allow this set-off upon the view that no part of the income of Rs. 29,998 was derived from speculation, and, therefore, under section 24 (2) of the Act the assessee was debarred from claiming a set-off. This view was upheld in appeal by the Appellate Assistant Commissioner on the 15th of December, 1944. The assessee failed to convince the Appellate Tribunal who took the same view on the 19th of July, 1945, and hence at the instance of the assessee, the question already stated has been submitted to us.
For the year 1943-44 the facts are exactly the same, here also the assessee contended that he was entitled to set off the sum of Rs. 38,332 against the assessable income of that year which was found to be Rs. 1,146 from house property and Rs. 34,962 being his nine annas share in the profits of the registered firm. The set-off was disallowed on the same ground as in the year of assessment 1942-43, and the disallowance was affirmed by the Appellate Assistant Commissioner and the Appellate Tribunal and hence the second branch of the question already stated has been referred to us at the instance of the assessee.
It will be noticed that the only question which arises for decision is whether Section 24 (2) forbids claim of set-off.
Section 24 (2) enacts that – so far as is relevant for the present purpose – where an assessee sustains a loss of profits or gains of business, and the loss cannot be wholly set off under sub-section (1), the portion not so set off shall be carried forward to the following year and set of against the profits and gains of the assessee, if any, from the same business, and if it cannot be wholly set off in year, the portion not set off shall be carried forward in the next year and so on. The contention of the Assessee is that the loss sustained by the registered firm was a loss in the carrying on of their business as merchants in 1941-42, and as that business was also carried on in the next year and also in the following year, the assessee is entitled to claim that set-off to the extent that it can be set off against his profits of the next year and the balance, if left, will be carried forward to be set off against the profits of the next year. The contention of the department, on the other hand, is that the loss due to speculation was a loss in a new business started by the registered firm in 1941-42 wholly independent of their business as merchants and, therefore, this loss can only be set off against the income from speculation in the following year or years and as there was no income or negligible income only in the following years under this head, the assessee cannot be allowed to set off this loss against his income from another business. The learned standing counsel contends that the question whether the business in speculation is identical with the main business of the registered firm is a question of fact and, therefore, the answer to the question must be in the negative. The learned Advocate-General on the other hand contend that there is no clear finding of fact that the business in speculation is a different business of the registered firm and further contend that upon the facts found it must be inferred in law that the loss in speculation was loss in the business of the registered firm. He also contend that the orders of the Appellate Assistant Commissioner and the Appellate Tribunal disclose a fundamental misconception of the legal position of a speculator and thus there is no finality to these so called findings of fact.
Both sides have referred us to a number of English decisions and decisions of the Indian Courts is support of their respective contentions.
The learned standing counsel relies upon the case of the Howden Boiler and Armaments Company, Limited, and the oft quoted decision of Rowlatt, J., in Scales v. Thompson, and argues that the question whether the two businesses are separate or one is a question of fact. He also relies very strongly upon the Nagpur case of Seth Ramakrishna Ramnath, where it is said the facts were somewhat similar. I have read several other English cases including William Ransom, a case of manufacturing chemists and herb-growers, Maxse, a case where the assessee was carrying on a profession of a journalist as owner of a magazine and also by editing the magazine, Birt, Potter and Hughes, a case of ship broking company owning steamers jointly with others and also partner in other firms. In all these cases, it has been held that the question whether there are two distinct businesses or the same business is largely a question of degree, and, therefore, a question of fact, but this should be done : Commissioners of Inland Revenue v. Maxse, that cases can be conceived where the two branches of a persons or companys business are so interlaced that it is quite impossible to separate them or disintegrate them and it will be impossible to separate one part of the business from another : Commissioners of Inland Revenue v. William Ransom & Son, Ltd.; see also Scales v. George Thompson and Co. Ltd.
On the other hand the Master of the Rolls, Lord Sterndale, said in Curries case : “Where it is a question of degree there should be an intermediate stage where somebody must make up his mind whether or not it is a question of fact. But there does come a point at on end where there is no evidence to support the proposition, that is, when the affirmative is quarreled with, and, where the negative is quarreled with, there may be cases where the facts are so completely all one may and the state of facts is so clear that the plain legal result can only be that what is established is, to take this present case, the carrying on of a trade.” Rowlatt, J., applied this observation in Copper v. Stubbs, in refusing to accept the finding of the Commissioners that the dealings by way of speculation in buying and selling future in cotton were not carrying on of a trade and thought that what the Commissioners had done was merely to give the wrong name to a state of fact which in law amounted to something else.
I draw attention to two decisions of the Privy Council. In Ramgopal v. Shamskhaton, it was held had the second appellant Court had not exceeded its powers by reversing the decisions of the Court below upon the question whether the defendant had accepted as a binding obligation upon him a mortgage executed by his mother. Sir Richard Couch observed at page 99 : “The facts found need not be questioned. It is the soundness of the conclusions from them that is in question, and this is a matter of law.”
In Nafar Chandra Pal Chowdhury v. Shukur Sheikh, Lord Buckmaster observed at page 195 : “Questions of law of fact are sometimes difficult to disentangle. The proper legal effect of a proved fact is essentially a question of law, so also is the question of admissibility of evidence and the question of whether any evidence has been offered on one side or the other; but the question the fact has been proved, when evidence for and against has been properly admitted, is necessarily a pure question of fact.”
It is well known how troublesome in Income-tax case in the question whether a certain finding is a finding of fact. Finlay, J., in spiers and Son, Ltd., observed : “That is a painfully familiar subject in these cases and it is impossible, I think, to reconcile all the various things that have been said on this question of what is a finding of fact.”
Bearing this is mind I now turn to the order of the Appellate Tribunal. I have read and re-read the whole of the order from pages 17 to 20 and I am unable to discover any clear finding of fact in all the important paragraphs beginning with paragraphs 6 and ending with paragraph 9. The Tribunal has merely discussed a number of cases which were cited before them, but their only finding is in paragraph II in which their conclusions is announced that the saw no difficulty in concluding that the refusal of the Income-tax authorities to allow a set-off was quite correct and legal.
Are there then any conclusive findings of fact ? The findings are that (1) the registered firm is carrying on business in hardware, cement, yarn, salt, (see page 5, line 21) and also in hessian (page 7, line 20) and was carrying on speculation in hessian, jute, silver, cotton, linseed, wheat, etc., and (2) that no amount of capital was set apart for speculation but all the accounts are mixed up (page 8, line 20). There is no finding that the assessee is maintaining a separate staff or a separate office or a separate building for carrying on speculation. It has not even been found whether the speculation is carried on in Calcutta or Madras or at Ranchi. In short, there is no challenge to the statement of the assessee at page 22 that these different departments were only ramifications of the same staff who controlled and managed the business at each centre in the same place.
Now, how does a business man speculate ? Take the case of a future delivery cotton contract. It is stated by high authority in the case of Thacker v. Hardy that “future delivery contracts which are made upon the Cotton Exchange or the contracts which are made upon the Stock Exchange in London are real contracts in the sense that the party with whom they are made is real party, and if the dealer or broker making them should desire at any moment to have the contract implemented he can do so. There is no distinction between contracts which are made forth real purposes of securing the sale or purchase of stock or cotton” – see the observations of the Master of the Rolls in Cooper v. Stubbs. This being the position, I am of the opinion that when the registered firmentered into future delivery contracts it did not embark upon anew kind a business or anew undertaking. It was still carrying on the business of merchants. A merchants may buy and sell goods on taking delivery or may buy these goods with the intention of taking delivery and findings that he can make a profit before taking delivery, he can sell his rights to obtain delivery of those very goods. The matter would have been different if the future contracts related to securities or if the future contracts had been entered not by a registered firm who were not carrying on business as merchants.
But it is argued very strongly by the standing counsel that the Nagpur case of Seth Ramakrishna Ramnath establishes the conclusion arrived at by Income-tax department. The facts in that case, however, were entirely different, namely that the assessee was not a merchant, but he was a manufacturer of biris and in the assessment year he also engaged in speculation dealing in forward cotton contracts. I respectfully agree with the learned Judges that it would be difficult to imagine a clearer case of two separate businesses conducted by the same person. I would draw attention to the observation at page 27 where in dealing with the argument that it may be possible to conduct two separate branches of trade or business under a common roof in which the items of expenditure are so interwoven or the overhead expenses are common that they must be taken to constitute one business, it was observed : “This may be so in the case of merchants (underlined by me), and for instance no one would imagine that in the case of a grocer dealing in matches and dealing in tinned foods, his business would be considered to be two or more separate businesses.” The findings in the present case already referred to may be re-called : the capital employed is the same, the accounts of the businesses are mixed up, the items of expenditure are interwoven and the overhead expenses are common, and the registered firm is carrying on business as merchants. This case, therefore, has no application to the present case where we are dealing with registered firm of merchants.
The Income-tax department has clearly misdirected themselves in law in applying the principle in Scales case and Seth Ramakrishna Ramnaths case to the facts of the present case and, therefore, I am free to conclude as a matter of law that upon the findings of fact arrived at the concluding follows that the registered firm by engaging in speculation did not enter into any different business.
For these reasons, I am of opinion that the assessee is entitled to succeed and is entitled to carry forward the loss against his profit for the year 1942-43.
With regard to the year 1943-44 the factor are exactly the same except that it is stated at page I that the assessees share of the partnership profit was mostly composed of profit from military contracts and the other business being the same, namely hardware, cement, rice etc., and that there was no speculation profit at all.
For the reasons already indicated, the assessee is also entitled to carry forward the loss which could not be completely set off against the profits of 1942-43 and have it set off against the profits of 1943-44. I would answer the question in the affirmative.
The assessee having succeeded is entitled to the costs of this reference. I would assess the hearing fee at Rs. 250.
AGARWALA, AG. C.J. – I agree.
Reference answered in the affirmative.