Hon'ble Shashi Kant,J.
(By Hon'ble Rajes Kumar,J) Heard Sri RK Upadhayay, learned Senior Standing Counsel and Sri Ashish Bansal appearing on behalf of the respondent.
This is an appeal under section 260 (A) of the Income Tax Act (herein after referred to as "the Act") relating to the assessment year 1988-89 raising the following substantial questions of law:
(1) whether, on the facts and in circumstances of the case, the Tribunal is justified in holding that the business of the assessee remained the same, because the criterion is not the nature of business but the unit of control and common management?
(2) whether in view of the proviso to clause (i) of sub section (1) of Section 72 of the Act, the Tribunal is justified in holding that the assessee is entitled to claim of set off of past losses against the income of the current assessment year 1988-89?
Brief facts of the case are that for the assessment year in dispute, the respondent assessee (herein after referred to as ?the assessee?) filed the return showing the loss of Rs. 2, 46, 856. 80 Naye Paise. The assessee has claimed the brought forward loss amounting to Rs. 4,49,868/-. It appears that upto the assessment year 1984-85 the assessee was running steel mill and was also deriving commission from M/s Rohtas Industries. During the assessment year 1985-86 there was no manufacturing activity and the source of income of the assessee was commission from M/s Rohtas Industries. During the assessment year 1986-87 plant and machinery of the steel mill was closed and the only source of income of the assessee was the commission from M/s International Electrical Industries, Lucknow. During the assessment year 1986-87 the assessee started a new business of Rake handling of M/s U.P. State Cement Corporation and earned commission.
The assessing authority had disallowed the brought forward loss amounting to Rs. 4,49, 868/- on the ground that the carried forward loss relates to such business, which was not carried on during the year under consideration in view of the proviso to Clause (i) of sub section (I) of section 72 of the Act. Against the assessment order, the assessee filed an appeal before the Commissioner, Income Tax (Appeal) which has been rejected. The assessee filed second appeal before the Income Tax Appellate Tribunal, Allahabad (which is herein after referred to as ?the Tribunal?). The Tribunal vide impugned order allowed the appeal. The Tribunal relied upon the decision of the Apex Court in the case of Produce Exchange Corporation Ltd. V Commissioner of Income Tax [(1970) 77 ITR 739 (SC)] wherein the Apex Court has not agreed with the view of the High Court that the decisive test for determining as to whether the two lines of the business constitute the same business is the nature of the two businesses. The Apex Court has held the view of the Tribunal that the share business and other business carried on by the company constituted the same business within the meaning of section 24 (2) of the Act. The Tribunal has also relied upon the decision in the case of B.R. Ltd v V.P. Gupta, Commissioner of Income Tax [(1978) 113 ITR 647 (SC)].
On the facts and circumstances, the Tribunal has recorded the categorical findings that mere fact that one of the several adventures of the business activities of the assessee was closed will, in our opinion, make no difference if other conditions, the common management, Unity of Control or common control of the business continues. The Tribunal recorded finding that the business of the assessee remained the same as there was unity of control and common management.
Sri RK Upadhayay, learned counsel for the appellant submitted that carried forward loss is allowable under section 72 of the Act. The proviso of sub-section 72 says that business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year. In the present case the loss was suffered by the manufacturing unit, which was closed in the assessment year 1985-86 and no business activity has been carried on. In the year under consideration source of the income of the assessee was the commission from M/s International Electrical Industries, Lucknow and the business of Rake handling of M/s U.P. State Cement Corporation which was different to the business carried on in the earlier year in which the loss has been suffered and therefore such carried forward loss cannot be allowed. The reliance has been place on the decision of the Bombay High Court in the case of Khandelwal Industries Pvt. Ltd. V Commissioner of Income Tax reported in 2003 ITR page 925 and the decision of Punjab & Haryana High Court in the case of Tara Devi Behl v Commissioner of Income Tax reported in [(1996) 218 ITR, page 541].
Sri Ashish Bansal, learned counsel for the respondent submitted that in the cases of Khandelwal Industries Pvt. Ltd. V Commissioner of Income Tax (supra), the decision of the Apex Court in the case of B.R. Ltd v V.P. Gupta, Commissioner of Income Tax (supra) and in the case of Produce Exchange Corporation Ltd. V Commissioner of Income Tax (Supra) have not been considered and the Bombay High Court has just affirmed the view of the Tribunal without giving any reasoning. In the case of Tara Devi Behl v Commissioner of Income Tax (supra) the business has been discontinued by the firm and the assessee became partner in another firm. The Punjab & Haryana High Court has held that if the assessee ceases to carry on the business then the loss suffered in the said business cannot be carried forward in the subsequent assessment years to be set off against the profits earned in some other business, such situation does not exist.
It is submitted that the issue is squarely covered by the decision of the Apex Court in the case of Produce Exchange Corporation Ltd. V Commissioner of Income Tax (supra) and B.R. Ltd v V.P. Gupta, Commissioner of Income Tax (supra). Reliance has also been placed on the decision of the Karnataka High Court in the case of Karnataka Light Metal Industries (P) Ltd v Commissioner of Income Tax [(1997) 225 ITR 947 (Kar) and the decision of the Gujrat High Court in the case of Commissioner of Income Tax v Amarsinghji Mills Ltd [(2006) 286 ITR 129 (Guj)].
It is submitted that in the proviso the ?business or profession? should be given a meaning that in the earlier year the loss has been suffered was from the business and the same is claimed to be set off with the business income and not against any other income. It is not in dispute that the loss which has been suffered was from the business and the same was being carried forwarded in the year under consideration and was being set off against the business income.
We have considered the rival submissions and perused the record. It would be appropriate to refer section 72 of the Act, which runs as follows:
?72. Carry forward and set off of business losses (1) Where for any assessment year, the net result of the computation under the head Profits and gains of business or profession is a loss to the assessee, not being a loss sustained in a speculation business, and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and
(i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ;
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on :
Provided that where the whole or any part of such loss is sustained in any such business as is referred to in section 33B which is discontinued in the circumstances specified in that section, and, thereafter, at any time before the expiry of the period of three years referred to in that section, such business is re-established, reconstructed or revived by the assessee, so much of the loss as is attributable to such business shall be carried forward to the assessment year relevant to the previous year in which the business is so re-established, reconstructed or revived, and
(a) it shall be set off against the profits and gains, if any, of that business or any other business carried on by him and assessable for that assessment year ; and
(b) if the loss cannot be wholly so set off, the amount of loss not so set off shall, in case the business so re-established, reconstructed or revived continues to be carried on by the assessee, be carried forward to the following assessment year and so on for seven assessment years immediately succeeding.
(2) Where any allowance or part thereof is, under sub-section (2) of section 32 or sub-section (4) of section 35, to be carried forward, effect shall first be given to the provisions of this section.
3.No loss (other than the loss referred to in the proviso to sub-section (1) of this section) shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.?
Prior to 1955 there was section 24 (2) of the Income Tax Act 1922, which deals with set off of loss.
Section 24 (2) reads as under:
"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, under the head "Profits and gains of business, profession or vocation" 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 off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year, and if it cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following year, and so on;
The section contemplated that the loss which could not be wholly set off against the other income under sub-s. (1) could be carried forward to the following year and set off only against the profits and gains, if any, from the same business.
In said case of Produce Exchange Corporation Ltd. V Commissioner of Income Tax (supra), the company has suffered the loss in the sale of shares in the Public Limited Company. The assessing authority has disallowed the set off of loan against the profit of transaction in other company. The matter went to the Apex Court. The said disallowance of the loss has been affirmed by the High Court. Reliance has been placed on the decision of the Appex Court in the case of CIT v Prithvi Insurance Co., Ltd [(1967) 63 ITR 632 (SC)], relevant portions of the judgement runs as under:
?This Court in Commissioner of Income-tax Madras v. Prithvi Insurance Company Ltd [(1967) 63 (SC) : TC 45 R. 349 set of the test for determining whether two lines of business constitute "same business" within the meaning of s. 24(2) at the relevant time. It was observed : "A fairly adequate test for determining whether the two constitute the same business is furnished by what Rowlatt, J., said in Scales v. George Thompson & Co. Ltd.-(1927) 13 Tax Cases 83 (KB):
'Was there any inter-connection, any interlacing, any inter-dependence, and unity at all embracing those two businesses ?' That inter-connection, inter-lacing, inter- dependence and unity are furnished in this case by the existence of common management, common business organisation, common administration, common fund and a common place of business."
Applying that test in the present case there is no doubt that there is a common management of the share and stock business and other lines of business, unity of trading organization, common employees, common administration, a common fund and a common place of business.
We need not consider whether the ultimate decision of the High Court in Shree Ramesh Cotton Mills Ltd 's case (supra), on which reliance was placed is correct, but we are unable to agree with the High Court that the decisive test for determining whether the two lines of business constitute the same business is the nature of the two businesses.
In our judgment, the Tribunal was right in holding that the share business and other businesses carried on by the appellant Company constituted the same business within the meaning of s. 24(2) as that section stood before it was amended in 1955.?
Section 24 (2) was under consideration before the Apex Court in the case of B.R. Ltd v V.P. Gupta, Commissioner of Income Tax (supra). In the said case, the loss from the imported business was observed to be loss for the assessment year 1953-54 from the business of import has been carried forward to the subsequent year and the set off has been claimed in the assessment years 1954-55, 1955-56 and 1956-57 against the income of export. The assessing authority disallowed the set off loss on the ground that the loss was not from the same business. The Apex Court held as follows:
?13. In support of his conclusion that the two businesses are different, the CIT relies on the circumstances that "there is a distinct and marked difference in the nature of goods dealt with" by the appellant and, "the procedure involved in the import of articles from foreign countries and the export of articles manufactured in India to different foreign countries is entirely different". These circumstances are not by themselves sufficient to establish that the business of import which the appellant was doing is not the same business as that of export. The decisive test, as held by this Court in Produce Exchange Corporation, (Supra) is unity of control and not the nature of the two lines of business. The CIT also fell into the error of supposing that, apart from the fact that the two activities must form an integral part of the entire business, the "main consideration which has to prevail is" whether, "notwithstanding the fact that the assessee may close one activity, it does not interfere in carrying on of the other activity". The fact that one business cannot conveniently be carried on after the closure of the other may furnish a strong indication that the two businesses constitute the same business. But the decision of this Court in Prithvi Insurance Co., (Supra) shows that no decisive inference can be drawn from the fact that after the closure of one business, another may or may not conveniently be carried on, The CIT also overlooked that in the revision applications filed by the appellant, it was expressly stated that it was true that "there was a common control and common management of the same Board of Directors" of the business of import and export. Thus, the unity of control and the other circumstances adverted to above show that there was dovetailing or interlacing between the business of import and the business of export carried on by the assessee and that they constitute the same business.?
In the case of Karnataka Light Metal Industries (P) Ltd v Commissioner of Income Tax (supra), the assessee company was engaged in the job work of flattening of wires supplied by M/s Karnataka Steel & Wire Products (herein referred to as ?KSWP?). The KSWP was closed in the year 1975. Thereafter the assessee could not get any job work. The loss has been suffered in the business of job work and flattening of wires. The same has been carried forward to the assessment year 1982-83. The assessee claimed set off of such loss suffered in the earlier years with the income earned by purchase and sale of M/s Wires and Sodalime. The loss has been disallowed on the ground that that the loss relates to the business of flattening of wires, which had been discontinued and the present business carried on with business carried out by it earlier. The first appeal and the second appeal has been rejected. The matter went to High Court. The Division Bench of the Karnataka High Court held as follows:
? In order to get the benefit of set off or carry forward of business loss of earlier years against the income for the relevant year is that the business must be continued and such business must be of such nature which has been carried on by the assessee. Therefore, what we have to see in the present case is whether the assessee had adopted to different lines of businesses altogether which could never be said to be of similar nature nor it could be said that the two businesses are one and the same. It may be useful to refer to a few decisions to understand the nature of the problem. In Produce Exchange Corporation Ltd. vs . CIT : [1970]77ITR739(SC) the question of carry forward and set off of loss arose in a case of a company which was carrying on business as a dealer in diverse commodity and also in stocks and shares. In that case the High Court had taken the view that the essential matter to be considered was the nature of the two lines of business and not only their unity of control and, therefore, it could not be held that the whole trading activity formed one business. The Supreme Court did not agree with the view of the High Court and held that the decisive test was unity of control and not the nature of the two lines of business. It is also noticed by the Supreme Court that the share business and the other business carried on by the assessee constitutes the same business within the meaning of s. 24(2) of the Indian IT Act, 1922 which is akin to s. 72 of the IT Act, 1961. In Standard Refinery & Distillery Ltd. vs . CIT : [1971]79ITR589(SC) the assessee was carrying on the business of manufacture of sugar and distillery as well as business of dealing in shares. The Supreme Court held that the share transactions as well as the business of manufacture of sugar and other commodity constitutes the same business within the meaning of s. 24(2) of the Indian IT Act, 1922. Referring to the decision of the King Bench in Scales vs. George Thompson & Co. Ltd. (1927) 13 TC 83 (KB) Rowlatt J., had observed that before two or more businesses can be considered as 'the same business' they should not be easily separable and there must be a dovetailing of the one with the other. Adverting to the concepts of interconnection, interlacing, interdependence and unity, the Supreme Court observed, they are not free from ambiguity but certain objective tests have been laid down for finding out the existence of inter-connection, interlacing, interdependence or unity between two or more businesses. If a person is engaged in one activity of business and for some reason or the other that activity had to be closed down and wants to take up a new line of business it must be said that he is not carrying on business as long as the same person is carrying on both the businesses. As a person carries on two lines of business at two different points of time, may be in some cases the same person may carry on several activities right from the inception or in the course of carrying on business he may change over to another line, that by itself does not constitute a separate business. What is to be seen in this case is business unity of control so far as the business is concerned. In this case it is clearly established. Because the same person has carried the job work of flattening of wires and also trading in purchase of sodalime, M. S. wire etc.?
In the case of Commissioner of Income Tax v Amar Singhji Mills Ltd (supra), the Gujrat High Court examined the provision of section 72 (1)(i) of the Act. In the said case the assessee showed its entire textile unit and subsequently started unit of purchasing grey cloth, getting it processed and then selling the same in the market. The assessee claimed the set off of the loss suffered in the textile unit against the business income from purchasing grey cloth, getting it processed and then selling the same in the market. The said loss has been disallowed by the assessing authority. However, the Tribunal has allowed the said loss. In the reference filed at the instance of the revenue, the Division Bench of the Gujrat High Court has held as under:
?Applying the tests to the facts found by the Tribunal, it, can be seen that the Tribunal has recorded that the assessee had common management, and common control of business. That there was no difference in the business carried on by the assessee in two different accounting periods considering the unity of control. Nothing has been pointed out on behalf of the applicant-Revenue to even suggest that these findings of fact recorded by the Tribunal are not correct, except for making a faint effort that the Tribunal had not found that there was common place of business. As can be seen from facts on record, the decision in the case of B.R. Ltd. (supra) had been pressed into service on behalf of the assessee even before the CIT(A) as well as the Tribunal. None of the authorities have been invited to render any such finding. Therefore, at this stage, it is not possible to raise a presumption that the place of business was not common, nor is it necessary to send the matter back for this limited purpose, considering the period which has elapsed, the accounting period being year ended on 30th June, 1982.?
On the consideration of the decisions of the Apex Court referred herein above, the law laid down is that the decisive test is the unit of control, common management and common control of business and not the nature of the two line of the business. The main consideration which has to prevail is notwithstanding the fact that the assessee may close one activity and to carry on the other activity, if there is unity of control, common control and common management who carried out the business earlier and in a subsequent year it amounts to carry on the same business in the year under consideration. In the present case, the set off of the loss has been claimed against income from the business which accrued from the business activity. The two nature of business is wholly irrelevant. The Tribunal has categorically recorded the finding that there was common management, unity of control and common control of business continued. The finding of the Tribunal is the finding of fact and there is no ?...this Court as well.
In view of the above, we do not find any error in the order of the Tribunal. The view taken by the Tribunal is accordingly affirmed.
Coming to the decisions cited by the learned counsel for the appellant, the case of Khandelwal Industries Pvt. Ltd. V Commissioner of Income Tax (supra) the Bombay High Court has simply affirmed the order of the Tribunal without considering the decision of the Apex Court and without giving any reason. Therefore, no reliance can be placed on such decisions. In the case of Tara Devi Behl v Commissioner of Income Tax (supra), the partnership firm was carrying on business and suffered loss, has been closed. The partner of the said firm has become a partner in the other firm. The loss suffered by the partnership firm has claimed the set off of the loss of the partnership firm against the share income from the other partnership firm. The same has been disallowed and has been confirmed by the High Court. This case is distinguishable on the facts and is not applicable.
In view of the above, the appeal is dismissed. The aforesaid questions of law are answered in affirmation in favour of the assess and against the revenue.
Order Date :- 23.4.2014 shailesh