# SETABGUNJ SUGAR MILLS LTD v. THE COMMISSIONER OF INCOME-TAX

- **Citation:** [1961] 2 S.C.R. 488
- **Court:** Supreme Court of India
- **Decided:** 1961
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/setabgunj-sugar-mills-ltd-v-the-commissioner-of-income-tax-1966
- **Pages:** 6

## Headnote

488
SUPREME COURT REPORTS
(1961)
'960
business and trade organised with the object of
Th• Ahmedabad di~covering w~ys and means _by which the memberTextile Industry's ~mlls m~y obtam large~ profits m connection with their
Research
mdustrres. In these circumstances we have no hesiAssociation
tation in coming to the conclusion that the appellantv.
.
association is carrying on an activity which clearly
The State 01
comes within the definition of the word "industry" in
Bombay &- Others
2( ')
d
h" h
t b
. .1
d
_
s.
J an w ic canno
e ass1m1 ate
to a purely
wanchoo 1.
educational institution. In this view of the matter,
when a dispute arose between the appellant and some
of its employees, it was an industrial dispute and
could be properly referred for adjudication under the
Act.
November r7.
The appeal fails and is hereby dismissed with <me
set of costs.
Appeal dismissed.
SETABGUNJ SUGAR MILLS LTD.
v.
THE COMMISSIONER OF INCOME-TAX,
CENTRAL, CALCUTTA.
J. L. KAI'UR, M. HrnAYATUI,LAH and J.C. SHAH, JJ.
Income Tax-Company having several activities-Set-off of
loss in one, when can be claimed agait.sl profits in another-W hether activities constitute one business or separate businesses-Mixed
question of law and fact-Indian Income Tax Act, r922, (II of
r922) ss. 24(2), 66(2).
The appellant company which had different ventures claimed to set off against the profits of one venture the losses of its
other venture which were brought forward from the back years,
contending that the losses were of the same business and
s. 24(2) of the Indian Income-tax Act applied. The tribunal
rejected the appellants contention and gave reasons why the
various activities of the company could not be construed as the
same business for the application of s. 24(2).
The company then asked the Tribunal to make a reference
to the High Court on questions of law arising out of Tribunal's
order. The Tribunal declined to make a reference. The company moved the High Court of Calcutta, under s. 66(2) of
ii
-
2 s.c.R. SUPREME COURT REPORTS
489
Income-tax Act, for calling upon the Tribunal to state a case but
1960
the application was summarily dismissed. The company appeal-
.
ed to the Supreme Court, by special leave, against the decision
Setabfiun1
of the Income-tax Appellate Tribunal and also the order of the Sugar Mills Ltd.
Calcutta High Court.
v.
d h
h
·
h h
· d The Commissioner
Hel , t at t e quest10n w et er d1tterent ventures carne
1
b
· d' 'd
l
f
b ·
·
· d
oj ncome-tax
on y an in .1v1 ua or a company orm one usmess is a m1xe
1 c
'
question of law and facts.
The principle is to find out whether Centra •
alrntta.
there is any interconnection, any interlacing, any interdependence, any unity at all, embracing the ventures as laid down in
Scales v. George Thomp~on & Co. Ltd. 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 one business. The ultimate conclusion is a legal inference from facts proved and is one of mixed law and fact on
which application of s. 24(2) of the Act depends.
In the instant case a question of law did arise on which the
High Court should have asked for a statement of the case. The
question of law is "whether on the facts and circumstances of
the case, the business activities of the company, to wit, manufacture and sale of sugar and sale and purchase of gunnies,
jute, mustard seeds, constituted the same business within the
meaning of s. 24(2) of the Indian Income-tax Act, 1922".
The High Court is directed to call for a statement of the
case from the Tribunal and dispose of it according to law.
Scales v. 'George Thompson & Co. Ltd., (1927) 13 T. C. 83,
relied on.
CIVIL APPELLATE Ju&Iso10TI0N:
Civil Appeal
No. 143 of 1958.
Appeal by Special Leave from the Judgment and
Order dated the 15th March, 1955, of the Income-tax
Appellate Tribunal of India, Calcutt.a in I. T. A.
No. 4309 of 1954.
Civil Appeal No. 144 of 1958.
Appeal by Special Leave from th

## Text

488
SUPREME COURT REPORTS
(1961)
'960
business and trade organised with the object of
Th• Ahmedabad di~covering w~ys and means _by which the memberTextile Industry's ~mlls m~y obtam large~ profits m connection with their
Research
mdustrres. In these circumstances we have no hesiAssociation
tation in coming to the conclusion that the appellantv.
.
association is carrying on an activity which clearly
The State 01
comes within the definition of the word "industry" in
Bombay &- Others
2( ')
d
h" h
t b
. .1
d
_
s.
J an w ic canno
e ass1m1 ate
to a purely
wanchoo 1.
educational institution. In this view of the matter,
when a dispute arose between the appellant and some
of its employees, it was an industrial dispute and
could be properly referred for adjudication under the
Act.
November r7.
The appeal fails and is hereby dismissed with <me
set of costs.
Appeal dismissed.
SETABGUNJ SUGAR MILLS LTD.
v.
THE COMMISSIONER OF INCOME-TAX,
CENTRAL, CALCUTTA.
J. L. KAI'UR, M. HrnAYATUI,LAH and J.C. SHAH, JJ.
Income Tax-Company having several activities-Set-off of
loss in one, when can be claimed agait.sl profits in another-W hether activities constitute one business or separate businesses-Mixed
question of law and fact-Indian Income Tax Act, r922, (II of
r922) ss. 24(2), 66(2).
The appellant company which had different ventures claimed to set off against the profits of one venture the losses of its
other venture which were brought forward from the back years,
contending that the losses were of the same business and
s. 24(2) of the Indian Income-tax Act applied. The tribunal
rejected the appellants contention and gave reasons why the
various activities of the company could not be construed as the
same business for the application of s. 24(2).
The company then asked the Tribunal to make a reference
to the High Court on questions of law arising out of Tribunal's
order. The Tribunal declined to make a reference. The company moved the High Court of Calcutta, under s. 66(2) of
ii
-
2 s.c.R. SUPREME COURT REPORTS
489
Income-tax Act, for calling upon the Tribunal to state a case but
1960
the application was summarily dismissed. The company appeal-
.
ed to the Supreme Court, by special leave, against the decision
Setabfiun1
of the Income-tax Appellate Tribunal and also the order of the Sugar Mills Ltd.
Calcutta High Court.
v.
d h
h
·
h h
· d The Commissioner
Hel , t at t e quest10n w et er d1tterent ventures carne
1
b
· d' 'd
l
f
b ·
·
· d
oj ncome-tax
on y an in .1v1 ua or a company orm one usmess is a m1xe
1 c
'
question of law and facts.
The principle is to find out whether Centra •
alrntta.
there is any interconnection, any interlacing, any interdependence, any unity at all, embracing the ventures as laid down in
Scales v. George Thomp~on & Co. Ltd. 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 one business. The ultimate conclusion is a legal inference from facts proved and is one of mixed law and fact on
which application of s. 24(2) of the Act depends.
In the instant case a question of law did arise on which the
High Court should have asked for a statement of the case. The
question of law is "whether on the facts and circumstances of
the case, the business activities of the company, to wit, manufacture and sale of sugar and sale and purchase of gunnies,
jute, mustard seeds, constituted the same business within the
meaning of s. 24(2) of the Indian Income-tax Act, 1922".
The High Court is directed to call for a statement of the
case from the Tribunal and dispose of it according to law.
Scales v. 'George Thompson & Co. Ltd., (1927) 13 T. C. 83,
relied on.
CIVIL APPELLATE Ju&Iso10TI0N:
Civil Appeal
No. 143 of 1958.
Appeal by Special Leave from the Judgment and
Order dated the 15th March, 1955, of the Income-tax
Appellate Tribunal of India, Calcutt.a in I. T. A.
No. 4309 of 1954.
Civil Appeal No. 144 of 1958.
Appeal by Special Leave from the Judgment and
' Order dated the 27th April, 1956, of the Calcutta
High Court in Income-tax Matter No. 9 of 1956.
N. A. Palkhivala (In both the Appeals) and B. P.
Mahe,shwari for tlie Appellants.
K. N. Rajagopal Sastri a~1d D. Gupta for the Respondent.
1960. November 17. The Judgment of the Court
was deliv~d by
6z
490
SUPREME COURT REPORTS
[1961]
I96o
HrnAYATULLAH, J.-These are two consolidated
5
b
.
appeals by special leave. The first is directed against
Suga;
1
~~~;
1 Lid. an order of the Income-tax Appellate Tribunal, Calv.
cutta Bench dated March 15, 1955, and the other,
Th• Commissioner against an order of the Calcutta High Court dated
of Income-lax. April 27, 1956, declining to ask for a statement of
Central. Calcutta. the case under s. 66(2) of the Indian Income-tax Act.
--
The facts are as follows : Setabgunj Sugar Mills,
Hidayatullah ]. Ltd., is the appellant. This Company was incorporated in 1934, and was established to take over some
sugar mills run by a firm.
Included in the objects for
•
which the Company was established was the business
of buyers, sellers and dealers in jute, gunnies, oil
seeds, etc. ]'or the first few years, the Company
· carried on the business of manufacture and sale of
sugar only. In the accounting year ending August 31,
1945, the Company had some transactions in gunnies
and made a profit. In the next accounting year ending August 31, 1946, the Company made also a profit
in transactions in gunnies and jute. In the accounting year ending August 31, 1947, (corresponding
assessment year being 1948-49), the Company did
business in mustard seeds, gunnies and hessian and
made profit. After this assessment year, the Company
ceased to have any business other than the manufacture and sale of sugar.
We are concerned with the assessment year 1948-49,
corresponding to the accounting year ending August
31, 1947. In that year, the profits from the sale of
gunnies, mustard and jute amounted to Rs. 6,14,018.
Some of the business was done by purchases or sales
in the territory now in Pakistan. During the same
accounting year, the sugar business resulted in a loss
of Rs. 2,09,306.
The loss in sugar business was set
off against the profits of the other businesses, and the
Income-tax Officer by his order assessed the Company
on an income of Rs. 4,04,712. The Company claimed to set off against this profit, business losses of
back years in its business in sugar amounting to
Rs. 13,43,069, which had been brought forward from
the previous year. The contention of the Company
was that these losses were of the same business, and
2 S.C.R. SUPREME COURT REPORTS
491
that s. 24(2) of the Indian Income-tax Act applied.
r96o
This contention was not accepted. On appeitl to the
5
.
Appellate Assistant Commissioner, the contention of suga:'a;J;~;
1 T.td.
the Company was accepted. The Commissioner of Inv.
come-tax then preferred an appeal before the Income- The Commissioner
tax Appellate Tribunal (Calcutta Bench), which was of Income-tax,
allowed. The Tribunal gave reasons why the various Central, Calcutta.
activities of the Company could not be construed as
the same business for the application of s. 24(2).
Hidayatullah J.
The Company then asked the Tribunal to make a
reference to the High Court on four questions of law
which, it stated, arose out of the Tribunal's order.
The Tribunal declined to make a reference.
The
Company next moved the High Court under s. 66(2)
of the Act for calling upon the Tribunal to state a
ca.se on the four questions, but its application was
summarily dismissed.
The Company has now, with
special leave, appealed against the order of the Tribunal reversing the decision of the Appellate Assistant
Commissioner and also against the order of the High
Court declining to call for a statement of the case.
The question whether, on the application of the
settled tests, different ventures carried on by an individual or a company form the same business is a
mixed question of law and, fact. Certain principles
are applied to determine whether on the facts found a
legal inference can be drawn that the different ventures constitute separate businesses or viewed together, can be said to constitute the same business.
These principles were stated by Rowlatt, J. in Scales
v. George Thompson & Go. Ltd. (1). The learned Judge
observed:
" ......... the real question is, was there any interconnection, any interlacing, any inter-dependence, any
unity at all embracing those two businesses."
The learned Judge also observed that what one had
to see was whether the different ventures were so
interlaced and so dovetailed into each other as to
make them the same business. These principles have
to be applied to the facts, before a legal inference can
be drawn that a particular business is composed of
(t) (1927) 13 T.C. 83, 89.
.
492
SUPREME COURT REPORTS
[1961]
r96o ·
separate businesses, and is not one business.
No
S
b
.
doubt, findings of fact are involved, because a variety
eta gun}
f
tt
b
·
h
·
f h
b
.
Suga• Mills Ltd. o ma ers earmg on t e umty o t e
usmess have
v.
to be investigated, such as unity of control and
The Commissioner management, conduct of the business through the
of Income-tax, same agency, the inter-relation of the businesses, the
Cenfral, Calcutta. employment of same capital, the maintenance of comHidavatullah J. mon bo?ks of account, employment of same staff t~ run
·
the busmess, the nature of the different transactwns,
the possibility of one being closed without affecting
the texture of the other and so forth. When, however,
the true facts have been determined, the ultimate
conclusion is a legal inference from proved facts, and
it is one of mixed law and fact, on which depends the
application of s. 24(2) of the Act. In our opinion, a
question of law did arise in the case, on which the
High Court should have asked for a statement of the
case. That question of law is:
"Whether on the facts and circumstances of the
case, the business activities of the Company to wit,
manufacture and sale of sugar and sale and purchase
of gunnies, jute, mustard seeds constituted the same
bustness within the meaning of s. 24(2) of the Indian
Income-tax Act, 1922?"
We accordingly allow Civil Appeal No. 144 of 1958,
with costs, and direct the High Court to call for a
statement of the case from the Tribunal on this question, and dispose of it, according to law.
As regards Civil Appeal No. 143 of 1958, which
questions the order of the Tribunal, we express no
opinion, though we may state that the learned counsel for the Department attempted to show that the
order of the Tribunal in the circumstances of the case
was correct, and that no other decision but the one
given by the Tribunal was possible. In view of the
fact that the Appellate Assistant Commissioner had
drawn an inference contrary to that of the Tribunal,
it cannot be said that the legal inference was one and
one alone. We, however, express no opinion either
way, because we are satisfied that a question of law
did arise in the case, and have, therefore, allowed the
other appeal, so that the matter may be examined by
2 S.C.R. SUPREME COURT REPORTS
493
the High Court in the first instance, on a statement of
r96o
the case by the Tribunal.
5 1 b
.
Civil Appeal No. 143 of 1958, will, therefore, be dis- Suga: ~1~~1;
1 Ltd.
missed, but without any order as to costs.
v.
The Commissioner
0. A. No. 144 of 1958 allowed.
O. A. No. 143 of 1958 dismissed.
of Income-tax,
Central, Calrntta.
THE COMMISSIONER OF INCOME-TAX,
BOMBAY CITY, BOMBAY
. v.
BIPINCHANDRA MAGANLAL AND CO. LTD.,
BOMBAY
S. K. DAS, M. HIDAYATULI,AH and J. C. SHAH, JJ.
Income-tax-Profit and assessable income-Diff crcnce between
-Smallness of profit-How determined-Indian Income-tax Act,
z922 (II of I9zz), ss. IO (z) (vii) second proviso, 66(I).
The respondent company purchased certain machinery for
Rs. 89,000 and sold it for the same value, but in the books of
account the written down value of the machinery was shown in
the year of account as Rs. 73,392. The Income Tax Officer in
computing the assessable income of the company added the
difference, i.e. Rs. i5,608, between the actual value and the
written down value to the profit of the company. The Income
Tax Officer also passed an order under s. 23A of the Income Tax
Act, and directed that the undistributed portion of the assessable income, shall be deemed to have been distributed amongst
the shareholders as dividend. Appeals against the order of the
Income-tax Officer proved unsuccessful and the Appellate Tribunal referred the following question to the High Court under
s. 66(1):-
"Whether the sum of Rs. I 5,608 should have been included in the assessee company's "profit" for the purpose of determining whether the payment of a larger dividend than that
declared by it would be unreasonable."
The High Court answered the question in the negative. On
appeal by special leave,
Held, that the view takrn by the High Court was correct.
H idayatullah ].
November r7 •