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Reference Case No. 274 of 1960, decided on 25th January 1963.

Income‑tax Act (XI of 1922), S. 24 (2)‑Loss from business of buying and selling wholesale textile goods‑Set‑off and carry forward‑Not admissible against profit from textile "industry" Business, on facts, held, not same.

Scales v. George Thompson & Co. Ltd. 13 T C 83 rel.

Howden Boiler and Armaments Company Limited v. Steward 9 T C 205 and K. S. S. Soundrapandia Nadar & Brothers v. Com missioner of Income‑tax, Madras 18 I T R 163 distinguished.

Ali Athar for Applicant.

Noorul Arifin for Respondent.

Date of hearing : 11th January 1963.

The Income‑tax Appellate Tribunal, Karachi has, under section 66 (1) of the Income‑tax Act, referred the following question for the opinion of this Court;

"Whether in the facts and circumstances of the case the finding of the Income‑tax Appellate Tribunal that the business of Messrs Haji Abdul Rahim Abdul Qayum in the years prior to 1954‑55 and in the year 1954‑55 were not the same within the meaning of the word under section 24 (2) based on any material or evidence "

2. The material facts, as stated in the statement of the case, are these. The assessee is a partner in the firm of Messrs Haji Abdul Rahim Abdul Qayum ; the firm had branches at Peshawar, Lahore and Karachi. The relevant assessment year is 1954‑55 corresponding to the account period ending on 3ist March 1954. A loss of Rs. 20,310 was worked out for the assessment year 1953‑54 while for the year following (1954‑55) there was a profit of Rs. 99,212. The assessee carried on wholesale business in textile goods at all the three branches and also owned a tea polishing factory at Peshawar. The wholesale cloth concern at Karachi was closed down early in 1952 ; a textile mill set up at Karachi on the 25th April 1952 under the name of the "Qayum Textile Mill". No dealings in cloth at Karachi were carried on during the assessment years 1953‑54 and 1954‑55 but in this period the mill was being run ; only the goods manufactured were sold. The wholesale cloth shop at Lahore was closed down on the 3ist August 1951 ; there was no income from cloth here either in the assessment year 1953‑54 or 1954‑55. The cloth shop and the tea polishing factory at Peshawar as well were wound up in the course of the assessment year 1953‑54, Thereafter two retail shops were started at this place for the sale of tea and cloth. They worked during the assessment years 1953‑54 and 1954‑55. The result of working for the relevant year was a net profit of Rs. 61,371 from the Qayum Textile Mills, Karachi and a loss of Rs. 2,041 from the Peshawar tea and cloth businesses. The figure of loss was arrived at after taking into account Rs. 2,335 for loss of the Peshawar office relating to the preceding year. The assessee claimed that the loss sustained at the Peshawar office should be set‑off against the profit earned from the textile mill under section 24 (2) of the Income‑tax Act. The Income‑tax Officer refused to do so. This was upheld by the Appellate Assistant Commissioner on appeal who observed that in the instant case whereas the loss had accrued out of the dealings of purchase and sale of cloth the profit during the year under consideration had accrued from the textile mill ; that this textile mill was a complete unit and independent venture having nothing to do with the former business of purchase and sale of the assessee in the open market. The assessee took the matter in the second appeal to the Appellate Tribunal who also came to the same conclusion that the business in cloth was separate and distinct from the activity of the assessee in running the textile mill and that the purchase and sale of cloth was not the same thing as the manufacturing of that commodity. The assessee then asked the Tribunal to refer the question for the opinion of this Court, which the latter has done.

3. The question whether the business of the purchase and sale of cloth and the running of the textile mill by the assessee are the same, is essentially one of facts. The limited question of law which arises in a case of this nature is whether the finding of the assessing authorities is based upon any material and further whether from the proved fact a proper inference has been drawn. In the present case, the finding of fact is against the assessee and having regard to all the circumstances it is impossible to say that this finding was without any material or that the inference reached was not proper. The relief provided to the assessee in respect of the loss or profits and gains of a previous year in the form of set‑off against the profits and gains of the subsequent year is subject to the condition that such profits and gains must be in respect of the same business, profession or vocation in which the loss had been incurred during the previous year. In the present case, the loss has been incurred in respect of the wholesale business of dealings in textile goods and the profits in the subsequent year arose out of the textile industry which was set up by the assessee in the subsequent year. We find it difficult to see how the two lines of business could be described as the "same business". It is not possible to lay down an all embracing test which would cover all kinds of cases arising under section 24 (2) but the broad principles are well‑settled and we could not do better than to quote from certain observations of Rowlatt J., in the leading English case of Scales v. George Thompson & Co. Ltd. (13TC83). This is what the learned Judge said;

"The real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing these two businesses."

His Lordship was considering a case in which it was claimed by the assessee that his business of underwriting and shipping should be treated as the "same business." In repelling the contention his Lordship observed;

"One does not depend upon the other; they are not interlaced; they do not dovetail into each other, except that the people who are in them know about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop the underwriting; it does not affect the ships. They might stop the ships and it does not affect the underwriting. They might carry on underwriting in a country where there were no ships, except that it would not be commercially convenient; but the two things have nothing whatever to do with one another."

These observations apply with full force in the present case. We do not see what interdependence there is between the business of buying and selling cloth as a cloth dealer and a textile industry. The two can undoubtedly stand without dependence on the' other. There is neither any unity nor any interlacing nor any interdependence.

4. Mr. Ali Athar, the learned counsel for the assessee contended that the business of the assessee in the previous year was that of buying and selling textile goods and when he set up this industry he was doing the same business inasmuch as he was still selling the produce of his textile industry. There is an obvious fallacy in the argument. We are not considering the sale of the textile goods produced by the textile industry of the assessee for the purposes of interlacing it with the wholesale business of the assessee of the previous year. The interlacing has to be between the two businesses, and it is plain that the industrial enter-price was independent of the wholesale business and the two could be carried on with complete independence from each other. One would not stop or suffer as a result of the break down of the other. The learned counsel drew our attention to two decisions. One of them is a judgment of the Sessions Court of Scotland in the case of Howden Boiler and Armaments Company Limited v. Steward (9TC205). In that case a firm of boiler makers having secured a large shell contract from the French Government converted their business into a private limited company with objects which included the carrying on of the trades or businesses of boiler‑making, engineering and machinery, armaments and shell‑making. Thereafter the manufacture of shell and boiler‑making was done in two separate premises with two separate staffs. Upon the facts of that case the Commissioner came to the conclusion that the company was carrying on one business only. When the matter was referred to Court it was held that the question whether the company was carrying on one business or two separate businesses was a question of fact, and that, as there was evidence on which the Commissioner could come to the conclusion of fact that the company was carrying on one business only, the Court could not review their findings. There is no doubt that upon the facts in this case a conclusion may well have been reached that the two businesses were separate but the Commissioner came to a different conclusion and the view taken by the Court was that as there was evidence for that conclusion the Court would not review the decision of the Commissioner.

5. Another case relied upon by Mr. Ali Athar is an Indian decision reported in K. S. S. Soundrapandia Nadar & Brothers v. Commissioner of Income‑tax, Madras (18ITR163). In that case it was held that the business of the assessee which he carried on in grain and rice by buying the commodities and selling them and their business of entering into forward contracts in respect of these goods, constituted the "same business" within the meaning of section 24 (2) of the Act. It was found that the financing of all the transactions was from one place and the control of all the transactions was under a single management. Upon these facts no doubt the view could well have been taken as was done in this case. We, however, find that there is no parallel between this case and the case with which we are dealing. Neither of these decisions have dislodged us from the view that we have taken in the present case that the wholesale business of dealing in cloth by the assessee and the business of the textile industry are not the same business for the purposes of section 24 (2) of the Act. In this view of the matter we have no hesitation in answering the reference in the affirmative. The assessee will pay the costs of the Department in respect of this reference.

Reference answered in affirmative.

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