John Beaumont, Kt., C.J.
1. This is a reference made by the Commissioner of Income-tax under Section 66(2) of the Indian Income-tax Act of 1922, raising two quite separate and distinct questions.
2. The first question is :
Whether the commission of one per cent. realised by the assessees on the value of the hundis collected by them in Bombay in respect of the cloth sold by their Indore shop to merchants in Bombay is liable to be assessed to payment of income-tax and super-tax in British India ?
3. The facts in relation to that question are that by an agreement made in 1919 between the Kalyanmal Mills, Ltd., which was a joint stock company registered in Indore of the one part, and the assessees of the other part, the assessees were to be entitled, amongst other things, to be paid by the company a commission at the rate of one per cent. on the gross sale proceeds of all cloth and yam of the company, and it was provided in Clause (5) of the agreement that the commission should be due to the assessee firm yearly on December 31 in each and every year during the continuance of the agreement and be paid immediately thereafter. The facts as found are that sales were effected in Indore, being on terms f.o.r. Indore; the purchasers being Bombay merchants, the purchase moneys were received in the form of hundis drawn by the assessees through their Indore shop, and accepted by the Bombay purchasers; such hundis were collected by the assessees in Bombay, and after realisation paid to the company in Indore. So that, the position being that sales were effected outside British India, the proceeds of such sales were collected by the assessees in British India, and the commission of one per cent. was ultimately paid outside British India, the question is whether it can be said that the commission of one per cent. accrued or arose in British India within the meaning of Section 4(1) of the Indian Income-tax Act. The commission payable at the end of the year was paid in Indore and not received in British India.
4. We were referred to a decision of this Court in Commissioner of Income-tax v. Sarupchand, (1930) 33 Bom. L.R. 382 in which the facts were somewhat similar, but there were two important distinctions. In that case the assessees were also selling agents of a mill company registered in Indore, and they had an agreement under which they were entitled to a commission of one and a half per cent, on the gross sale proceeds of all cloth produced by the mill. So that the agreements in the two cases were very similar, except that there does not appear to have been any provision in the agreement dealt with in Commissioner of Income-tax v. Sarupchand (supra) that the commission was to be payable at the end of the year. In that case sales were effected in Bombay, and the moneys were received in Bombay, and the Court held that in that case, though rather near to the line, the commission accrued in British India. The Court held the question to be whether the real source of the commission was the agreement made in Indore, or the sales in Bombay and that the sales in Bombay were the tax source. The Court relied to some extent on the fact that under the agreement the assessees could deduct their commission from the proceeds of sales which they received in Bombay, Now, in this case the sales were not in Bombay, but in Indore, and the assessees could not deduct their commission until the end of the year, because nothing was payable until the end of the year. Those are two important distinctions.
5. The argument on behalf of the Commissioner in this case is that the source of the commission is the receipt of the proceeds of sale on which the commission is calculated. But, in my opinion, that is not so. I think the source of the commission is the sale which took place in Indore. The commission would be payable, although the proceeds of sale were not actually received, if the company voluntarily released purchasers from their obligation to pay. In my opinion, it is impossible to say that the commission accrued or arose at the place where, and at the time when, the purchase moneys were received. I think it is more accurate to say, as we said in Commissioner of Income-tax v. Sarupchand (supra), that it is the sale which is the real source of the commission, and as in this case the sale took place in Indore, whereas in Commissioner of Income-tax v. Sarupchand the sale took place in Bombay, the decisions in the two cases must necessarily be different.
6. I would, therefore, answer the first question in the negative.
7. The second question arises in this way. The assessees had, apart from their commission agency business, two other businesses, one of them being cotton speculation and banking, and the other cotton jatha business. The findings of the Commissioner are that there were two separate businesses; separate sets of account books were maintained for the two businesses; they were conducted in different names; and to a great extent they were distinct in their character. The cotton jatha business consisted in selling cotton belonging to upcountry clients and earning income thereby in the form of brokerage, godown rent, muccadami, insurance differences, etc.; while the other business consisted of banking, speculation and cotton on the assessees' own account. On those facts the Commissioner came to the conclusion that the two businesses were separate. On the other hand, the assessees maintain that they were two branches of one business. The relevance of the; question is this. The cotton jatha business was closed down before the year of assessment, but in the year of assessment the assessees incurred certain expenses in endeavouring to collect outstandings of that business. If the business was still subsisting, because it was merely a branch of a still subsisting business, then the expenses would be allowable under Section 10(2) (ix) of the Indian Income-tax Act. If, on the other hand, the cotton jatha business was a distinct business, and it had ceased to exist before the year of assessment, the expenses incurred in relation to it would not be allowed against the profits of the other business.
8. Now, whether these two businesses were separate businesses, or were really two branches of the same business, is obviously a question of fact for the Commissioner to decide, and the only question raised, and the only question that can be raised, is :
Whether there was material before the Income-tax Officer on which he could come to the conclusion that the cotton jatha business, in respect of the legal expenses for which allowance has been claimed by the assessees, was a separate business of the assessees which had been closed at the time of the assessment in question ?
All that we have to consider is whether there was evidence before the Commissioner on which he could reach the conclusion that these were two separate businesses. We were referred to various cases which demonstrate that it is not always easy to determine whether businesses are independent businesses, or separate branches of the same business. But the difficulty of determining a question of fact does not make it a question of law.
9. We were referred to Arunachalam Chetty v. Commissioner of Income-tax (1928) I.L.R. 52 Mad. 296 which was a decision of a special bench of the Madras High Court, and another decision of a full bench of the same Court in S.I. Industrials v. Commsr. of Income Tax, Madras, (1934) 3 I.T.R. 11 and in those two cases the Courts to a great extent adopted different views. We were also referred to a decision of Mr. Justice Rowlatt in Scales v. George Thompson & Co., Ltd. (1927) 10 T.C. 83 I think it would be very difficult, if not impossible, to formulate any rules, for determining questions of this nature. It is obvious, that mere common ownership of two businesses does not mean that they are merely branches of the same business. It is also I think obvious that the mere fact that the two businesses are of a distinct nature does not necessarily mean that they are distinct businesses. You can have two branches of a multiple store, one selling drugs, and the other selling cloth. Nobody would suggest that these two departments constitute two different businesses. On the other hand, if you have a shop in Bombay selling cloth, and a shop in Ahmedabad selling drugs under different names and different management, and with separate accounts, common ownership would hardly make them one business. Mr. Justice Rowlatt in Scales v. George Thompson & Co., Ltd. (supra) suggests that there must be some sort of inter-relation between the two businesses to constitute them branches of the same business. At any rate, all these cases recognize the fact that this matter is a question of fact to be determined by the Commissioner, and if there is any evidence enabling him to determine the question, then his determination is final. I am unable to say that there was no evidence in this case on which the Commissioner could come to the, conclusion which he reached that there were two distinct businesses. The two businesses may have overlapped to some extent, but there was evidence that they were separate in their character. I am not prepared to say that there was no evidence on which the Commissioner could reach the conclusion he reached.
10. Therefore, the answer to the second question will be in the affirmative.
11. There will be no order as to costs, each side having succeeded on one question.
12. The Commissioner has referred two questions for the opinion of the Court. On the first question the relevant facts are that the assessees are the managing agents and also the selling agents of a textile mill at Indore. An agreement in that connection was made between the mill company and the assessees in 1919. That agreement provides for the opening of shops at Indore and Bombay for the business of the company and the company has agreed to pay the costs of running those two shops. At both those shops cloth and yarn produced by the mill company were sold. In respect of the sales effected in Bombay by the assessees they earned the selling agency commission, for which they; have been assessed and the same is paid. In respect of the sales effected at the Indore shop the facts are found in the statement of case submitted by the Commissioner. According to that statement sales took place at the Indore shop on f.o.r. terms to Bombay merchants. To recover the sale proceeds the Indore shop drew hundis on the Bombay merchants, which were in due course accepted and honoured by the Bombay merchants. The proceeds of those hundis were received by the assessees in Bombay. On those facts it is argued on behalf of the Commissioner that the commission at one per cent. on those gross sale proceeds either accrued or arose in British India, or was received in British India, Commissioner of Income-tax v. Sarupchand (1930) 33 Bom. L.R. 382 was relied upon in this connection. The facts as reported in that case clearly show that the sales were effected there by the assessees in Bombay to Bombay merchants, and the sale proceeds were all recovered in Bombay. Therefore, not only the contract of sale but the sale took place in Bombay in that case. On those facts the Court found that the income accrued in British India. In the present case those two vital factors are wanting. The sales took place at Indore, and the property in the goods also passed to the Bombay; merchants as soon as the goods were railed at Indore. Therefore, the sale was completed at Indore.
13. It was argued on behalf of the Commissioner that the receipt of the sale proceeds is the source from which the income accrued. In my opinion, this contention is unsound. The receipt of the sale proceeds at a particular place is not stated to be a part of the contract between the mill company and the merchants. The accident, therefore, of the sale proceeds being received in Bombay cannot make that the source of the income in Bombay. To illustrate, suppose instead of the assessees receiving the sale proceeds, the same were recovered by a bank in Bombay, and credited by the Bank to the account of the assessees which was being operated upon by the assessees from Indore and also by their manager in Bombay, I fail to see how the receipt of the sale proceeds from the merchants in Bombay by the bank would constitute a source of income in Bombay, The underlying assumption that the receipt of the sale proceeds is a source, in my opinion, is unjustified. The commission had to be calculated on the amount of the sale proceeds. It was payable, however, only after the end of the year. Therefore, the receipt of the sale proceeds does not give rise to the accrual of the income in British India.
14. The second part of the argument was that the receipt of the sale proceeds included the receipt of the commission in British India and, therefore, the commission was received in British India. This contention is also unsound. The amount that was received was only the sale proceeds. That amount, when paid to the mill company, would give rise to a right in the selling agents to receive their commission. To put it in other words, supposing the selling agents failed to pay the amount to the mill company, would they have a right to receive any commission at all It seems to me certainly not, because they have committed a breach of their agency agreement, and, therefore, they will not be entitled to any remuneration for their work as agents. The receipt of the sale proceeds, therefore, means only the sale price received on behalf of the company, and because the agents are entitled to a commission worked out on the amount of the sale proceeds, the receipt of the sale proceeds does not amount, in my opinion, to the receipt of the selling agency commission.
15. The second question is limited by its very nature. The Court has jurisdiction only to inquire whether there was any evidence before the Commissioner for his conclusion on a question of fact that the two businesses were separate. According to the facts stated in the reference, the two businesses were one of banking and speculation which, I understand, would mean buying and selling cotton for, forward delivery, and the other of commission agency which includes the receipt of cotton from upcountry constituents, advancing money to the constituents, and the earning of interest, brokerage, muccadami, insurance differences, etc,, as stated in the reference. They were done in two different names. The assesses had kept also two separate books of account, and they certainly closed the commission agency business many years ago. On those facts the Commissioner had come to the conclusion that the two businesses were separate, and I do not think that the conclusion of the Commissioner is liable to be disturbed by this Court on the ground that he had no evidence before him to show that. The question of fact is bound to vary in each case, and little assistance is likely to be derived from reported decisions which hold that in particular cases the businesses were separate or were the same It is difficult, if not impossible, to lay down any general standard by which the distinction could be clearly made and decided. The reported cases show that ownership is not the sole criterion. In the same way the decisions also show that the nature of the businesses must in some way be shown to be connected; otherwise there would be some reason to believe that the businesses were separate. In the present case the assessees have kept the two businesses in separate names, and it cannot be disputed that an individual may carry on a commission agency business in cotton, without necessarily doing the business of a merchant, and vice versa. The fact that one business is done, while the other is closed, shows that the two are capable of being conducted independently. Under the circumstances, I am not prepared to say that the Commissioner had no evidence to come to the conclusion he did on this question of fact.
16. I agree, therefore, that the answers should be as indicated in the judgment of the learned Chief Justice, and agree with the order made therein.