BHANDARI C.J. - In this application under section 66(2) the Indian Income-tax Act the commissioner of Income tax prays that the following questions of law be referred to this Court namely.
'1. Whether there is any material on record on which the tribunal could find that the respondents loss on the sale of shares in 1948 was in the same business as comprised in the respondents business in sewing machines and accessories in which it made profits in 1949 ?
2. Whether on the facts and in the circumstances of the case the respondent was entitled to carry forward and set off under section 24(2), Indian Income-tax Act, 1922, the unabsorbed loss in sale of shares in 1948 against the profits of the machinery business in 1949.'
The assessee in this case is a private limited company carrying on business in sewing Machine Co., (India) Ltd. It was incorporated in the year 1933, and was being assessed at Lahore till the assessment year 1947-48. The company was formed as its name indicates, to deal primarily in the purchase and sale of sewing machines and accessories although it had power under its memorandum of association to association to invests its funds in stocks and shares and also to deal in them. Owing to the outbreak of hostilities in Western Europe in the year 1939, it was impossible for the company to import the machines from Germany and it was according compelled by force of circumstances to utilise its working capital for the purpose of holding securities and in dealing with them. Towards the end of 1948 the Company was again in a position to resume the normal activities in sewing machines and accessories and on the 22nd November 1948, it passed the following resolution :
'Resolved that as the Company is no longer interested in stock exchange investments and besides all available funds are required for carrying out its normal activities the securities mentioned against each item.....'
Then followed a list of shares in various companies of the value of Rs. 1,86,196-4-0. By this sale the company incurred a loss of Rs. 54,580. In the assessment for 1949-50, this loss was described in the profit and loss statement as loss on sale of investments and was claimed in companys return as business loss and was allowed as such by the Income-tax Officer. In the assessment for 1950-51, the assessee claimed to carry forward and set off the unabsorbed loss of 1948 against the profits of the assessees business in sewing machines and accessories in the year 1949 on the ground that the business of the assessee was that of merchants who purchase and sell not only sewing machines and accessories but also stocks and shares and consequently that the assessee was entitled to set off the loss under the head 'business' carried forward from 1949-50, against any profit under the head 'business' for the 1950-51 assessment. The Income-tax Officer was unable to accept the proposition that the loss pertained to the business that was being carried by the assessee. He accordingly disallowed the claim and his order in this behalf was affirmed by the Assistant Commissioner in appeal. The Appellate Tribunal however came to a contrary conclusion. While dealing with the loss sustained by the assessee in the sale of shares the Tribunal observed as follows :
'This loss has been allowed by the Income-tax Officer as being in the nature of a revenue loss. The assessee was obliged to invest the working capital in the shares because war conditions. That does not mean that the business had ended or had been discontinued. The business was dormant. It was only being suspended and the working capital had to be invested capital the shares and realizing the capital immediately after the business could be started was the conduct of a prudent businessman. Therefore, the loss suffered by the assessee in the sale of shares and the unabsorbed portion brought forward from the 1949-50 assessment was a loss in the same business of the assessee and, therefore, must be allowed as a set off against the profits if business in the relevant account year. The Income-tax Officer is directed to modify the assessment accordingly.'
The commissioner of Income-tax was dissatisfied with his order and requested the Tribunal to refer the following question to this Court, namely :
Whether in the facts and circumstances of the case and upon a proper construction of sub-section (2) of section 24 of the Indian Income-tax Act, 1922, the loss of Rs. 52,215 in the sale of shares and securities can be carried forward from 1949-50 assessment year and adjusted against the income from the business of sewing machines in the assessment year 1950-51 ?
The Tribunal declined to accede to this request as it was of the opinion that the finding of the Tribunal that the investment in stocks and shares was in the course of the original business of the assessee which did not change its shape at any time was a pure finding of fact from which no question of law arose. The Commissioner of Income-tax is dissatisfied with this order and prays that the Appellate Tribunal be required to state that case and to refer the two questions which have been set out at the commencement of this order.
The learned counsel for the Department has put forward several arguments in support of his contention that this is not a finding of fact. It is stated in the first place that it was never the assessees case that it carried only business at any time in stocks and shares and that as late as the year 1949 the company stated that the gain on investment did not form part of the reserve of the business of the company and was not taxable. Secondly, it was never the case of either party that the transactions in shares, if and when they amounted to a business, were part of the same business as dealings in sewing machines and accessories. In the year 1944-45 the Tribunal expressed the view that the dealing in shares the assessee had turned its activities towards another line of business. Thirdly, even if one were to assume for the sake of argument that the companys transactions in shares were not by way of investment and it is obvious that the assessee discontinued that business when it passed the resolution dated the 22nd November, 1948, that it was no longer interested in stock exchange investments and required all available funds for carrying on its normal activities. Lastly, it was for the company to establish its claim to relief under section 24(2) and as there was no material to show that the assessees business in shares was the same as its business in sewing machines and accessories, the material on record all pointed in the opposite direction. The fact that the same working capital was successfully employed in two kinds of businesses did not make the two business the same.
These arguments cannot bear a moments scrutiny. It has been held repeatedly that the finding whether two businesses are separate businesses or are two branches of the same business is a funding of fact which cannot be the foundation for a question of law. The Tribunal has come to the conclusion, with which I find myself in agreement, that the company in the present case was formed with the object not only of dealing in the import and distribution of sewing machines but also in the sale and purchase of stocks and shares. Ever since the year 1933, the company has been purchasing and selling shares and the assessment for the year 1936-37 shows a profit of Rs. 223. Later, however, it found that the business of importing machines from Germany was much more profitable and the company accordingly diverted the bulk of its fund for the import of those articles. The outbreak of war in the year 1939 compelled the company to invest its circulating capital in some other line of the business and it accordingly invested these monies in stocks and shares. When a company which is dealing in a number of commodities discontinues its dealings in one commodity and concentrates its attention on dealings in another commodity it cannot be said to carry on another business. In any case the Tribunal in the present case has come to the conclusion that by dealing in stocks and shares the company did not change the nature of its business.
We have also been requested to ask the Tribunal to refer another question to us, namely as to whether there is any material on the record on which the Tribunal could find that the respondents loss on the sale of shares in 1948 was in the same business as comprised in the respondents business in sewing machines and accessories in which it made profits in 1949. This question was not agitate before the Tribunal itself and cannot be agitate before us in the application. In any case, I am of the opinion that there is abundant material on the record to show that the Tribunal were justified in coming to the conclusion on which they arrived.
This petition appears to me to be wholly misconceived and must, therefore, be dismissed with costs, which I assess at Rs. 150.
FALSHAW, J. - I agree.