JUDGMENT
K. Srinivasan, J.
1. The question that stands referred to us is
Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in holding that the several activities of the assessee constituted one business for the purpose of assessment ?
2. The assessment year is 1951-52. The assessee is the owner of a brick works and is also a partner in some other brick works. Besides this business he runs a ration shop, plies lorries for hire, owns a petrol bunk, derives income from various partner-ship concerns and in addition to all of these engages himself in film distribution. For the assessment year in question no return was filed and the assessment was accordingly made under Section 23(4) of the Act on an estimate. In the previous assessment year the assessee had incurred a loss of Rs. 92,140 in film distribution and a loss of Rs. 41,330 in the head-office. The loss of that year was sought to be set-off against the estimated income of the assessment year 1951-52 and that was disallowed by the Income-tax Officer. An appeal was taken to the Appellate Assistant Commissioner. The appellate authority held that the head-office did not transact any separate business being only a controlling office which supplied finance to the various activities of the assessee. The loss in the earlier year relating to the head-office was mainly due to interest paid on loans and overhead expenses. The Appellate Authority thought that the loss allowable to be set-off in this regard must be limited only to the payment of interest during the accounting year and accordingly allowed Rs. 20,000 to be so set-off.
3. In dealing with the question of carry-forward the Appellate Assistant Commissioner took the view that
the business of all the various activities are all carried on in the head-office address where there is the controlling staff, telephone, etc. The rent is also charged only in the head-office account. Having regard to these various aspects I agree that the various activities of the appellant other than the shares in the partnerships constitute one business. The loss of the earlier years amounting Rs. 68,874 is therefore allowable in the assessment under appeal.
Against this decision of the Appellate. Assistant Commissioner the department carried an appeal to the Tribunal. While the Tribunal took note of the fact that there were separate sets of books for each of these individual activities of the assessee, all of them were controlled through the main cash book. The Tribunal stated:
The fact that separate books of account had been opened for each activity should not by itself make each activity distinct and separate from each other nor can we accept the proposition that a centralised cash control or single balance-sheet for all the activities however different in nature must indicate only one business.
4. It rightly thought that each case had to be dealt with on its own peculiar facts. Without any detailed discussion however it proceeded to the conclusion that from the circumstances of the case it followed that all the activities of the assessee including Ratna Pictures (film distribution activity) constituted only one business and that the whole of the carry-forward of loss from the assessment year 1950-51 identifiable with Ratna Pictures was available to be set-off against the total income computed for the assessment year 1951-52. The view taken by the Appellate Assistant Commissioner was accordingly confirmed.
5. The question under reference was directed to be submitted by an order of the Court on an application under Section 66(2) of the Act by the Commissioner of Income-tax.
6. The provision of the Indian Income-tax Act that calls for interpretation in the present case is Section 24(2) which so far as it was in force in the relevant assessment year reads thus:
Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940 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.
7. The rest of the provision is not relevant. Section 24(1) permits an assessee to set-off the loss under any of the heads mentioned in Section 6 against his income, profits or gains under any other head in that year, that is to say, if a loss of profit is sustained in any year under the head of business, it is open to the assessee to have that loss set-off in whole or in part against the income, profits or gains under any of the other heads such as income, profits and gains from salaries or from interest on securities or income from property or income from other sources of that year. If the whole or part of the loss arising from the business cannot be so set-off under Section 24(1) against the income derived under any other head than business, Sub-section (2) permits the carry-forward of the whole or part of the loss not so set-off to the following year and set-off against the profits and gains, if any, of the assessee from the same business. It seems to be implicit in the section that though various activities may be comprised in the business of the assessee, in order to enable the carry forward and set-off in a subsequent year, the same business should be carried on in that subsequent year. If it was the intention of the provision that business in its overall aspect as appearing as a head of income under Section 6 of the Act so referred to, the qualification represented by the word “same” in the expression “same business ” would be redundant. Even at first sight therefore it certainly does appear that what is contemplated in Section 24(2) is that any line of business activity which forms a distinct branch of the business of the assessee which results in a loss should be carried on in the following year and it is only against the profits derived from that distinct line of business that the earlier loss could be set off.
8. The question of the proper interpretation of this provision came up for con-sideration in K.S.S. Soundarapandia Nadar v. Commissioner of Income-tax, Madras (1950) 1 M.L.J. 779 : 18 I.T.R. 163. That was a case where a dealer carried on business in grain and rice at Tuticorin. The dealer was also entering into forward contracts in respect of the commodity through his agents at Rangoon. These transactions were entered in a separate folio in the same account books at Tuticorin. The financing of all the transactions, was from Tuticorin and the control was also under a single management. The question arose whether the loss resulting from the forward contracts in the years 1939-40 and 1940-41 could be carried forward and set-off against the profits of the business of the year 1941-42 though in the later year the dealer did not engage himself in forward contracts. The result of the decision is not important, but the discussion of the learned Judge does throw a flood of light upon the proper method of interpretation of the provision. After observing that the question whether the business is the same or not is essentially one of fact and that 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, the learned Judges observed:
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 business.
They referred to the observations of Rowlatt, J., in Scales v. George Thomson & Co. Ltd. (1927) 13 T.C. 83 which read:
That method of book-keeping does not seem to me to throw any light upon this matter at all. I think the real question is, was there any inter-connection, any inter lacing, any inter-dependence, any unity at all embracing those two businesses….
9. That English decision related to a case where a shipping business and an underwriting business were carried on by a company and it was held that in the absence of any dove-tailing between the two businesses, the cessation of the one not affecting the other, the two had nothing whatever to do with each other and that they did not therefore constitute one trade. No doubt the learned Judges held that inter-dependence was not the sole test. They next referred to Chidambaram v. Commissioner of Income-tax, Madras (1945) 1 M.L.J. 406 : I.L.R. (1946) Mad 94 : 13 I.T.R. 177 which was a case of a Nattukottai Chetty carrying on money-lending and banking business in British India and also at Penang and other places in the Federated Malay States. This decision purported to follow the principles, indicated by Rowlatt, J., in the English decision. The unity of control, the flow of remittances from headquarters to branches and branches to headquarters, the ascertainment of the final trading result at the headquarters, presented as it appeared to the learned Judges who decided the case ” a trading organisation inter-connected as head-office and branch, with financial inter-dependence and unity of control.” At page 177, Viswanatha Sastri, J., noticed:
An individual or a firm or a company may carry on more than one business at the same time. Consequently, the fact of common ownership or proprietorship of the business concerns is not a criterion for determining whether the business activities of individuals, firms or companies constitute a single business. On the other hand, the fact that different lines of business are pursued or different commodities are bought and sold by a single person, firm or company does not necessarily mean that there are different businesses. There are multiple stores … which deal in different and dissimilar lines of goods, but yet the business is one and the same. If two lines of business belong: to the same person and are connected with the same trade, the one being ancillary or subsidiary to the other, if they are owned, controlled and financed in common, if the staff employed and the place of business are the same and if common accounts are kept, it may readily be inferred that the two lines of business are really part of the same business. Observations to this effect are found in the decided cases. But it is not to be assumed that all these features must be present in every case or that the absence of one or more of them is fatal to the claim that the different lines of business-are really parts of the same business.
10. In K. Govindan v. Commissioner of Income-tax, Madras (1955) 2 M.L.J. 583 it was emphasised that the question whether a given business is a separate business or part of another business which the assessee carried on is essentially one of fact. In Manilal Dahyabhai v. Commissioner of Income-tax, Bombay City I.L.R. (1960) Bom. 23 : 61 Bom. L.R. 1359 it was claimed that a cloth business carried on by the assessee and a speculation business in gold, silver, cotton, shares and other commodities should be regarded as the same business within the meaning of Section 24(2). After referring to the various indicia which would lead to a proper inference, the learned Judges based their decision on the test, though not a conclusive test, whether one of the two businesses conducted by the assessee could be stopped without affecting the framework of the other. The Supreme Court in Setabganj Sugar Mills v. Commissioner of Income-tax the principles laid down by Rowlatt, J., in Scales v. George Thompson & Co., Ltd. (1927) 13 T.C. 83 They further observed:
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 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….
11. Mr. Ranganathan, learned Counsel for the Department relies upon the above decisions and claims that on the basis of the principles that are ascertainable therefrom it is impossible to accept the contention of the assessee in the present case that the loss arising in the previous year in respect of the film distribution and the head-office expenses should be regarded as arising, from integral parts of a single business which included also manufacture of bricks, sale of grocery and petrol, etc., and that they should therefore be set-off against the profits relevant to the assessment year 1951-52 though the film distribution business was not carried on in the later year. We have already indicated that the assessee carries on several lines of businesses such as being owner of a brickworks, running a ration shop, plying lorries, selling petrol and also film distribution. It does not require much argument to arrive at the conclusion that these lines of business are totally disconnected and no one venture could be said to be necessary for the carrying on of another venture. It is true that the assessee as the single owner utilises his capital or funds for the purpose of any line of business as and when occasion requires. It is also true that the incomes from the different lines of businesses are dealt with in the head-office for the obvious reason that these businesses are run by the same individual, taking in the incomings and outgoings of all the businesses together. But could it be said that the business which was carried on in the assessment year 1951-52 is the same business as the film distribution business that led to a loss in 1950-51. One of the ingredients to be noticed is undoubtedly the inter-relation of the business, another, the nature of the different transactions and the third, the possibility of one being closed down, without affecting the texture or the fabric of the other. These tests are also indicated in the Supreme Court decision referred to. Both the Appellate Assistant Commissioner and the Appellate Tribunal only adverted to the circumstances that there was a unity of control for the reason that all the individual activities of the assessee were controlled through the main cash book maintained at the head-office. It is not pretended by the assessee that this film distribution business, which was apparently engaged in for a single year only, constituted such a vital and integral part of his business structure that the entirety of the business should be regarded as a single and indivisible one. No single feature to the exclusion of the rest can be relied upon in determining the question. It seems to us that applying the tests indicated by the decisions referred to, which in our opinion should be cumulatively applied, the result is that that business in which the loss was incurred in the assessment year 1950-51 was not carried on in the following assessment year 1951-52. The question is therefore answered in the negative and against the assessee. The assessee will pay the costs of the department. Counsel’s fee Rs. 250.
