# J82 PRODUCE EXCHANGE CORPORATION LTD v. COMMISSIONER OF INCOME TAX

- **Citation:** [1971] 1 S.C.R. 382
- **Court:** Supreme Court of India
- **Decided:** 1970-04-27
- **Case number:** Civil Appeals Nos. 2538 and 2539 of 1966
- **Bench:** J. C. Shah, K. S. Hegde, A. N. Grover
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/j82-produce-exchange-corporation-ltd-v-commissioner-of-income-tax-5053
- **Pages:** 6

## Headnote

Indian Income-tax Act, (II of 1922) s. 24(2) Loss sufjered-C/aun or
set off by the assessee fro1n its income-Whether assessee entitled-"Sa1ne
A,
B
business", tests
·
C
The assessee was a public limiiei!'company doing business as a ·dealer
in diverse commodities and also in stocks and shares.
In the year
of
account 1949 the company suffered loss in the sale of shares of public
limited companies.
In proceedings for assessment 'for the year 1950-51
the Income-tax Officer declined to take into
account
the loss suffered.
D
In his view if the loss be taken as a tr.ading loss it could not be set off
against the business income of the assessee because the Joss resulted· from
transactions in shares which constituted a busi·ness distinct from the business in other commodities.
On the question
whether the loss could be
taken into. account and the set off given under ·s. 24(2)
of the Indian
Income-tax Act, 1922 in force in the year of assessment; this Court,
E
HELD : The assessee was entitled to the set off.
Section 24(2) of the Indian Income-tax Act, 1922 in force in the
relevant year of assessment contemplated that the loss which. could not be
wholly set off against the other income under sub-s. (I) could be carried
forward to the following year and set off only against the profits
and
gains, if any, from the same business.
A fairly adequate 'test for determining whether the two constitute
the same. business is 'was there any
inter-connection, any interlacing, any inter-dependence,
any unity at a1l
embracing those two business?' [385 H. 386 A-DJ
Applying this test in the present case there was no doubt that there
was .a common management of the share and stock business and other
lines df business, unity of trading organisation, common employees, common administration. common fund and a common
Place of
business.
•
[386 E-F]
Com1nissioner of /ncorne-tax, Madras v. Prithvi Insurance Co1npany
Ltd .. 63 I.T.R. 632 followed.
Scales v. George Thompson & Co. (1927) 13 Tax Cases 83 applied.
F
G
H
,
l
C.I.T. V, MURUQAPPAN (Shah, J.)
383
A
Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax 64
B
c
I.T.R. 317 doubted.

## Text

J82
PRODUCE EXCHANGE CORPORATION LTD.
v.
COMMISSIONER OF INCOME TAX
April 27, 1970
[J. C. SHAH, K. S. HEGDE AND A. N. GROVER, JJ]
Indian Income-tax Act, (II of 1922) s. 24(2) Loss sufjered-C/aun or
set off by the assessee fro1n its income-Whether assessee entitled-"Sa1ne
A,
B
business", tests
·
C
The assessee was a public limiiei!'company doing business as a ·dealer
in diverse commodities and also in stocks and shares.
In the year
of
account 1949 the company suffered loss in the sale of shares of public
limited companies.
In proceedings for assessment 'for the year 1950-51
the Income-tax Officer declined to take into
account
the loss suffered.
D
In his view if the loss be taken as a tr.ading loss it could not be set off
against the business income of the assessee because the Joss resulted· from
transactions in shares which constituted a busi·ness distinct from the business in other commodities.
On the question
whether the loss could be
taken into. account and the set off given under ·s. 24(2)
of the Indian
Income-tax Act, 1922 in force in the year of assessment; this Court,
E
HELD : The assessee was entitled to the set off.
Section 24(2) of the Indian Income-tax Act, 1922 in force in the
relevant year of assessment contemplated that the loss which. could not be
wholly set off against the other income under sub-s. (I) could be carried
forward to the following year and set off only against the profits
and
gains, if any, from the same business.
A fairly adequate 'test for determining whether the two constitute
the same. business is 'was there any
inter-connection, any interlacing, any inter-dependence,
any unity at a1l
embracing those two business?' [385 H. 386 A-DJ
Applying this test in the present case there was no doubt that there
was .a common management of the share and stock business and other
lines df business, unity of trading organisation, common employees, common administration. common fund and a common
Place of
business.
•
[386 E-F]
Com1nissioner of /ncorne-tax, Madras v. Prithvi Insurance Co1npany
Ltd .. 63 I.T.R. 632 followed.
Scales v. George Thompson & Co. (1927) 13 Tax Cases 83 applied.
F
G
H
,
l
C.I.T. V, MURUQAPPAN (Shah, J.)
383
A
Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax 64
B
c
I.T.R. 317 doubted.
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 2538
and 2539 of 1966.
Appeals by special leave from the judgment and order dated
March 26, 1965 of the Calcutta High Court in Income-tax Reference No. 120 o.f 1961.
D. Pal, T. A. Ramachandran and D. N. Gupta, for the appellant (in both the appeals).
B. Sen, S. K. Aiyar and B. D. Sharma, for the respondent (in
both the appeals).
D
The Judgment of the Court was delivered by
Shah, J.
The appellant is a public limited company doing
business as a dealer in diverse commodities, and also in stocks
and shares.
The Company maintains its accounts according to
the calendar year.
In the year of account 1949 the Company
E
suffered a loss of Rs. 3,71.700 in the sale of share of public limited companies.
In proceedings for assessment of income-tax for ·
;he assessment year 1950-51, the Income-tax Officer disallowed
the claim to set off loss against the profits from transactions in
other commodities in that year.
The appeal filed before the ApF
pellate Assistant Commissioner was unsuccessful.
But the Appellate Tribunal upheld the claim of the Company.
G
H
In the meanwhile assessment for the year 1951-52 was coinpleted, and the income of the Company was computed at Rs.
1,00,777.
In proceedings for assessment of income for the &Ssessment year 1952-53 the Income-tax Officer computed the income of the Company from its business at Rs. 3,39,899 and declined to take into account the loss suffered by the Company in
the share transactions.
I.n the view of the Income-lax Officer,
even if the loss be treated as a trading loss it could not be set off
against the business income of the Company, because the loss
resulted from transactions in shares which constituted a business
distinct from the business in other commodities.
384
SUPREME COURT REPORTS
[1971] 1 S.C.R.
In appeal against the order to the Appellate Assistant Commissioner, the order of the Income-tax Officer was confirm~<.!. Th~
Appellate Assistant Commissioner held that the business in shares
and the business in other commodities were not the "same bmi ·
ness" within the meaning of s. 24(2) of the Income-tax Act. I. 912,
as then in force.
He observed that a common capital, a common
set of employees and a common set of accounts o ,1f1 common business premises are not "the deciding factors ;,, determining whether
the various activities carried on by the assessee constituted one
business or separate businesses : " it is the nature of the business
which is "the main factor" and where separate prn5ts or loss was
ascertainable and the nature of the business 'Vas different. the activities could not be held to form one and single unit for the purposes of s. 24(2) of the India11 Income-tax Act.
Tht: Tribu·nal disagreed with the Appellate Assistant Commissioner. The Tribunal observed that there was complek unity of
control and shares were one of a number of commodities in which
the Company dealt in the ordinary course of business.
There
was, in the view of the Tribunal "no element of diversity or distinction or separateness about the transactions in shares".
Accordingly, the Tribunal upheld the claim of the appeJlant Company and directed that the lnss be set off under s. 24(2) of the
Indian Income-tax Act then in force.
The Tribunal referred the following question to the High Court
of Calcutta :
"Whether on the facts and in the circumstances of
the case, the business activities of the company to wit,
dealings in shares and its dealings in other commodities
and selling agency on commission basis constituted the
same business within the meaning of section 24(2) of the
Indian Income-tax Act?"
The High Court held, following their judgment in Shree Ramesh
Cotton Mills Ltd. v. Commissioner of Income tax(') that the "essential matters to be considered in determining whether the two
businesses carried on by the assessee constitute the same business,
is about the nature of the two commodities, the manner in which
(I) 641.T.R. 3!7.
A
8
c .
D
E
F
G
H
A
B
c
D
E
F
G
P. E. CORPORATION V. C,I,T. (Shah, J.)
385
they are conducted being a secondary consideration".
They observed that "unity of control or management, the employment of
the same or common fjnance, the user of the same business premises and the record of the transactions in the· same set of books
of accounts are matters to be considered only when it is found
that two businesses of the same nature. Merely because the traesactions in shares consist of sales and purclrase as to dealings in
other commodities like sugar, molasses etc. the two activities cannot be held to form one unit of business",
and that the Tribunal
erred in holding that because there was complete unity of control
and shares formed a part of number of commodities in which the
assessee dealt with,
the whole trading activity formed one business.
Section 24(2) of the India.n Income-tax Act, 1922. as in
force in the relevant years, read as follows :
"Where any assessee sustains a loss oi 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 ga~ns of business, profession or vocation" and the
loss cannot be wholly set off under sub-section ( 1 ) , the
portion not so set off shalJ be carried forward to the following year and set off against the profits and gains, if
any, of the assessf:'e from the same business, profession
or vocation for tbat 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,
~nd so on;
..
The section contemplated that the loss which could not be wholly
set off against the othei income ulider sub-s. ( 1) could be carried
forward to the following year and ~et off only against the profits
and gains, if any, .from the same/ b!1siness.
There was differH
ence of opinion among the High C-o~s as to the meaning of the
words· "same business". It is unnecessary to refer to those authorities.
This Court in Commissioner of Income-tax Madras
v.
386
SUPREME COURT REPORTS
[1971) I S.C.R.
Prithvi Insurance Company Ltd.(') set out 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 cibse1 ved
at p. 636:
"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)
'Was there any inter-conneciion, any inter-ladng,
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 manageoent, 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
A
B
c
D
is a common management of the share and stock business and
other lines of business, unity of trading organization, common
E
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(') on which
F
reliance was placed is correct, but we are unable to agree wi.th
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 Tmunal 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.
Counsel for the Commissioner contended that the Commissioner had applied under s. 66(2) to the High Court for calling
(I) 63 J.T.R.'632.
(2) 64 J.T.R. 317.
G
H
1
A
B
c
P. E, CORPdRATION v. C.J.T, -(Shah, J.)
387
for a statement of the c'se from the Tribunal on the following
question : -
-·
"Whether there was any evidence in support of the
Tribunal's finding that there was complete unity of control and that shares formed a part of the commodities
in which the assessee company deals regularly from year
to year in the ordinary course of its business ?"
The High Court declined to make an order on that application
calling for the statement cf the case on the ground that the first
question was "sufficiently comprehensive" and included inquiry
into the question proposed.
In our judgment the decision of the
Tribunal is amply supported by the evidence which is referred to
in the order of the Tribunal. Even if the question had been raised
and statement of the case had been called for, it could not affect
the ultimate result.
The answer to the question referred will be in the affirmative.
'D
The appeals are allowed, The Commissioner of Iricome-tax
to pay the costs of the Company in this Court a:nd the High Court.
One hearing fee.
·
Y.P.
Appeals allowed.