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K.S.S. Soundarapandia Nadar and Bros. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai
Decided On
Case NumberCase Referred No. 21 of 1946
Judge
Reported inAIR1950Mad704; [1950]18ITR163(Mad)
ActsIncome Tax Act, 1922 - Sections 24(2) and 66(5)
AppellantK.S.S. Soundarapandia Nadar and Bros.
RespondentCommissioner of Income-tax
Appellant AdvocateS. Krishnamachariar, Adv.
Respondent AdvocateC.S. Rama Rao Sahib, Adv.
Cases ReferredScales v. George Thompson
Excerpt:
direct taxation - business - section 24 (2) of income tax act, 1922 - whether two lines of business carried on by assessee constituted same business under section 24 (2) - forward contracts carried on by applicants in rangoon grain market was distinct and separate business from dealing in ready goods of some commodities - common practice of merchants to enter under separate heads each line of business to ascertain whether that particular line was fetching profit or ending in loss - such circumstances does not give business distinctive character to detract from its being same business under section 24 (2). - - an individual may run a multiple stores like the spencer and co. i am therefore clearly of the opinion that the conclusion of the tribunal and the other income-tax authorities.....satyanarayana rao, j.1. the appellate tribunal, madras bench, referred under section 66 (1), income-tax act, the following question for the opinion of the high court:'whether there is any material for the finding that the dealing in forward contracts carried on by the applicants in the rangoon grain market is a distinct and separate business from the dealing in ready goods of some commodities.' the facts re evant for the case are as follows: the applicants are an undivided hindu family carrying on business in grains and rice at tuticorin and virudunagar. the mode adopted by them in the business is to buy grain and rice at rangoon through their agents and import them to tuticorin where the goods are sold. in the accounting year 1937-1938, they also carried on business in what are described.....
Judgment:

Satyanarayana Rao, J.

1. The Appellate Tribunal, Madras bench, referred under Section 66 (1), Income-tax Act, the following question for the opinion of the High Court:

'Whether there is any material for the finding that the dealing in forward contracts carried on by the applicants in the Rangoon grain market is a distinct and separate business from the dealing in ready goods of some commodities.'

The facts re evant for the case are as follows: The applicants are an undivided Hindu family carrying on business in grains and rice at Tuticorin and Virudunagar. The mode adopted by them in the business is to buy grain and rice at Rangoon through their agents and import them to Tuticorin where the goods are sold. In the accounting year 1937-1938, they also carried on business in what are described as Satta contracts or forward contrasts of purchase and sale and dealing in differences Such contracts related also to the same commodities in respect of which they had also made ready purchases. In the next year of account 1938-39 they did not deal in forward contracts, but revived them again in the two succeeding years. These dealings in forward contracts ended in loss which was larger than the profits earned by ready purchases and sales. The forward contracts were entered into through commission agents at Rangoon who submitted from Rangoon from time to time statements of account to the assessees at Tuticorin. The dealings relating to the Satta business were entered in a separate folio in the accounts. In the accounting year 1941-48, i.e., the assessment year 1912-43, the loss incurred in respect of the forward contracts was carried forward into the accounts, and the assessees claimed a right to act off this loss against the profits they earned daring the period, under Section 24 (2), Income-tax Act, Daring this assessment year, however, the assessees did not enter into any contracts for future deliveries. The Income-tax Officer disallowed the claim to set off on the ground that the Satta business was not the same business as the business of purchase and sales of paddy but was a distinct business which the assessees carried of and on. The Income-tax Officer was also of the opinion that under the forward contracts there was no intention to take delivery of the goods; but the main object of the assessees was to take advantage of the fluctuations in the market at Rangoon. The forward contract business was therefore, according to the Income tax Officer, not a business carried on for the benefit of the grains trade which the assessees carried on at Rangoon. The assessees appealed to the Appellate Assistant Commissioner but were not successful as the Appellate Assistant Commissioner also was of opinion that the speculation business in the differences which resulted in a loss was distinct and separate from the grains business carried on by the assessees at Tuticorin. This was confirmed by the Appellate Tribunal on the ground that the speculation business was not necessarily an incident of the business of the dealings in grains, that there was a marked distinction between the two activities, and that there was no common or unifying feature between the two.

2. The fundamental question that arises for decision is therefore whether the two lines of business carried on by the assessees constitute the same business within the meaning of Section 24 (2), Income-tax Act, or distinct businesses. Under Clause (2) :

'Where any assessee sustains a loss of profits or gains in any yean being a previous year, not earlier, than the previous year for the assessment for the year ending on 31st day of March 1940 under the head 'profits and gains of business, profession or vocation' and the loss cannot be wholly set off under Sub-section (1), the portion not so set off shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that 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 and so on.'

In order, therefore, to entitle the assessees in this case to carry forward to the assessment year the loss of Rs. 21,294 it has to be established that the business of dealings in forward contrasts is the same as the business or dealings in grains.

3. The question whether the business is the, same or not is no doubt essentially one of fact. If, however, there is no evidence to support the finding, or a proper inference from the proved facts was not drawn, they are questions of law. The judgment of the Appellate Tribunal does not give sufficient indication for coming to the conclusion that the two lines of business are distinct and separate. Both related to grains which the assessees either purchased as ready stock or in respect of which they entered into forward contracts of sales and purchases with a view, if necessary to adjust the differences or to demand delivery according to the circumstances. One statement of fact in the judgment of the Appellate Tribunal needs amplification. It is stated by the Tribunal that in the year preceding the year of account the assessees did Satta speculation business in grains at Rangoon, and then follows the sentence 'large quantities of grains were purchased and stocked in godowns and subsequently sold.' If this statement were to refer to purchase and stocking of godowns at Rangoon even in respect of forward contracts, it is objected on behalf of the Income-tax Commissioner, that this is wholly incorrect and proceeds on an erroneous assumption. The Appellate Assistant Commissioner pointed out in his judgment on the basis of the statements filed by the assessees themselves that there were no godowns for stocking the goods at Rangoon, and that the assessees had not taken possession of the goods under the forward contracts. In view of this statement by the assessees themselves the sentence in the judgment of the Appellate Tribunal above quoted does not, in my opinion, relate to stocking of goods in godowns at Rangoon but relates only to goods stocked at Tuticorin and to ready purchases and not to forward contracts. In the statement of the case by the Appellate Tribunal this discrepancy was adverted to. In the light of the interpretation which I am inclined to place upon the sentence in the judgment of the Appellate Tribunal I think that there is no discrepancy, and the question will be considered and dealt with on that footing.

4. It is not easy to formulate a test applicable to all cases in order, to determine whether two dealings in different commodities or the carrying on of different lines of business would constitute the same business or not, within the meaning of Section 24 (2) of the Act. One thing, however, seems to be definite, and that is that common ownership alone would not constitute different lines of business the same business; nor the mere fact that two businesses are of a distinct nature would make them separate businesses. An individual may run a multiple stores like the Spencer and Co., at Madras and yet the business may be only one business, though there are different lines In the case of Insurance Companies investment of their funds for the purpose of earning income is an ordinary incident of the business of insurance, and though insurance business and money lending are two different lines of businesses, yet the business is treated as one and entire. What is it then that constitutes two lines of business the same business? In almost all the decisions which have been cited before us reference is made to the observations of Rowlatt J. in Scales v. George Thompson & Co., Ltd., (1929) 13 Tax. Cas. 83, where the learned Judge observes:

'That method of book-keeping does not seem to me to throw any light upon this matter at all. I think the real question is, was there any inter-connection, any interlacing, any interdependence, any unity at all embracing those two businesses; and I should have thought, if it was a question for me, that there was none.'

The case raised the question whether the shipping business and underwriting business carried on by a company constituted one trade or two separate trades within the meaning of the English Income-tax Act, 1918. In the earlier part of the judgment the learned Judge gave an indication as to the meaning of 'interdependence' and 'interlacing' the expressions used by him in the observations quoted above. He pointed out that the activities of the Company relating to under-writing had nothing to do with the activities relating to shipping, though both of them had something to do with ships. One was not dependent upon the other; they were not interlaced. To quote the words of the learned Judge, they do not dovetail into each other, except that the people who are in them knew about ships; but the actual conduct of the business shows no dovetailing of the one into the other at all. They might stop that underwriting; it does not affect the ships. They might stop the ships and it does not a fleet 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.'

From this it is contended on behalf of the Income-tax Commissioner that if one business could be stopped without materially affecting the other, then the two businesses are distinct, and that if one could be separated from the other, then also the two would be distinct activities or businesses of an individual or a company. It was argued by the counsel for the Income-tax Commissioner that in the present case the forward contract business could be separated without detriment to the business in grains, and therefore it was a distinct business, and that one was not dependent upon the other. As an illustration of what is meant by dependence, counsel suggested in the course of the argument that if the forward contracts were entered into as a sort of cover or security for any loss that might accrue to the assessees in the dealings relating to ready purchases it would be a case of interdependence, and the businesses could then be said to be the same business. No doubt where there is interdependence of the kind suggested by the learned counsel the inference that the business is the same is irresistible. But the question is, is this the only test and the sole test by which the controversy in the case should be resolved. I do not think that Rowlatt J. in the case cited above was laying down a test applicable to all cases and all situations but confined his observations to the particular facts of the case before him

5. In Chidambaram v. Commissioner of Income-tax, Madras, I. L. R. (1946) Mad. 94 : A.I.R. 1915 Mad. 318 the late Leach C. J. and Patanjali Sastri J. had to consider whether in the case of Nattukottai Chetty who carried on money lending and banking business at Karaikudi in British India, where he had his head quarters and also at Penang and other places in the Federated Malay States the business of money lending carried on by him in all the places could be treated as the same business within the meaning of Section 24 (2) of the Act. The test laid down by Rowlatt J. in Scales' case, (1929) 13 Tax. Cas. 83 was adverted to, and it was pointed out in the judgment that the fact that the securities for money lending obtained at the head-quarters and at Penang were different, that the income at the two places was derived from different sources, that the accounts were maintained separately, that the staff for each business was separate and that the two places were removed by a long distance would not make the businesses at Penang and at Karaikudi different and distinct. The customary features incidental to Nattukottai Chetty business of money lending and banking were taken into consideration as affording the test to determine the sameness of the business. The business was carried on in that case through agents who had considerable discretion in lending money. Separate sets of accounts were maintained; copies of the day book were periodically sent to the headquarters and instructions were issued by the principals to their agents from time to time by correspondence. There was a flow of remittances from headquarters to the branches and from the branches to the headquarters, and the final trading result was ascertained at the headquarters. From these facts it was inferred that the picture presented was of 'a trading organisation interconnected ,as head office and branch, with financial interdependence and unity of control.' The interdependence may be financial, and the unity may be unity of management and control. Though capital is owned by the same person, if he keeps the capital of the two businesses separate and distinct without mixing them up and if the management of the two businesses is kept distinct without one management interfering with the other, it may be assumed that the businesses which related to different lines or different commodities or even carried on at different places constitute distinct businesses. In my opinion, this decision is very helpful and gives guidance to apply the test laid down by Rowlatt J. of interconnection, interlacing, interdependence and unity,

6. In Re: Hiralal Kalyanmal, : [1943]11ITR128(Bom) Beaumont C. J. and Kania J. of the Bombay High Court had to consider the question whether on the facts and circumstances of the case the commission agency business and two other businesses, one being Cotton speculation and banking and other cotton jatha business, carried on by the assessee were the same business or separate businesses. It was found by the Commissioner in that case that there were separate sets of accounts maintained for the two businesses which were conducted in different names. The learned Chief Justice at p. 138 pointed out:

'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 the business 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 under separate accounts, common ownership would hardly make them one business.'

Ultimately it was found by both the learned Judges that there was enough material to justify the conclusion of the Commissioner that the two businesses were distinct and separate.

7. Whether the loss incurred by an assessee as a result of speculation in silver could be set off in the following year against the income, profits and gains of speculation in cotton was the question which the Bombay High Court had recently to consider in the case of Govindram Bros. Ltd. v. Commissioner of Income tax, Central Bombay : [1946]14ITR764(Bom) . It was pointed out that there was no legal objection for a person if he conducted himself in a lawful manner to carry on the business of speculation in futures, provided of course the contracts in the circumstances did not amount to wagering contracts. The mere fact that the commodities in which he speculated were different would not make the business a separate and distinct business. Chagla J. pointed out that the nexus between the two businesses to make them the same business must be a factor which is apart from speculation. Both the learned Judges came to the conclusion that the finding of the tribunal that the businesses were distinct could not be justified, that the businesses were the same within the meaning of Section 24 (2) of the Act, and that the right to set off was rightly claimed by the assessee.

8. A case somewhat analogous to the present arose for decision in the Patna High Court in Rekhabchand Sarogi v. Commissioner of Income-tax B. &O.; : [1947]15ITR465(Patna) . There also the assessee a partner in a registered firm of merchants was dealing in hardware, cement, rice, wheat, yarn, salt, grain, hessian and other commodities. There was also speculation carried on by him in hessian, gunny, jute, silver, linseed, cotton and wheat. The con-tracts for future delivery did not constitute a new kind of business or new undertaking. The firm were still carrying on business as merchants, and they were entitled, according to the learned Judges to either take delivery of the goods under the forward contracts or even sell their right to obtain delivery of these goods. These incidents therefore would not constitute them separate businesses. At p. 473, Manohar Lall J. refers to some of the decisions in which the question was considered and points out that the result of the cases is

'that the question whether there are two distinct businesses or the same business is largely a question of degree and, therefore, a question of fact, but where it is possible to separate one business from the other, this should be done, Commissioner of Inland Revenue v. Maxse, (1919) 12 T.C. 41 : 1919 1 K.B. 647 that cases can be conceived where the two branches of a person's or company's business are so interlaced that it is quite impossible to separate one part of the business from another; Commissioner of Inland Revenue v. William Ransom and Son Ltd., (1919) 12 T.C. 21. See also Scales v. George Thompson & Co., Ltd., (1929) 13 T. C. 83.'

The case now before us is more or less analogous to the decision of the Patna High Court. These decisions which I have referred to afford illustration of the application of the principle enunciated by Rowlat J. and afford a basis for deciding whether the two businesses constitute the same business or distinct businesses.

9. The facts as found in the present case do not present any difficulty in coming to a conclusion. The assessees who are members of undivided Hindu family had their place of business at Tuticorin, and through their agents, either commission or otherwise, were buying ready goods and were also entering into forward contracts in respect of the grains. In the case of ready purchases, the grain was sent from Rangoon to Tuticorin and was sold. In respect of forward contracts, the sales and purchases were adjusted, and the differences were paid or received. Under the forward contracts the assessee had the undoubted right to demand delivery in cases of purchases. It cannot be said that from the beginning the assessees did not entertain the intention of taking delivery under those con-tracts and had in view only speculation upon the fluctuations on the grain market at Rangoon. The agents sent extracts of accounts to Tuticorin, and they were all entered in the same account books, though in a different folio. The financing of all the transactions, whether they related to purchases or whether they related to forward contracts, was from Tuticorin, and the control of all the transactions was under a single management. The mere fact that the forward contract business could be separated, if trouble was taken to go through the accounts anil to separate the dealings, does not make this business a distinct business from the other business of the assessees. It is the common practice of every merchant to enter under separate heads each line of business in order to ascertain whether that particular line was fetching profit or ending in loss. That circumstance, in my opinion, does not give the business a distinctive character so as to detract from its being the same business within Section 24 (2) of the Act. I am therefore clearly of the opinion that the conclusion of the Tribunal and the other Income-tax authorities was not warranted by the facts as found by them and cannot be justified.

10. The answer to the question referred is in the negative and in favour of the assessees. The assessees are entitled to their costs, which I fix at Rs. 250.

11. Viswanatha Sastri J.--The assessees are an undivided Hindu family trading and carrying on business as rice and grain merchants at Tuticorin and Virudunagar in South India. They buy these commodities in Burma through their agents at Rangoon. The goods are shipped to Tuticorin by the Rangoon agents and sold by the assessees here. In 1937-38 the assessees, through their Rangoon agents entered into forward contracts, for future deliveries of rice and other grains. In 1938-39 they bought and sold only ready goods in the market. In each of the years 1939-40 and 1940-41 they not only bought and sold ready goods bat also entered into forward contracts in rice and other grains and speculated in grain futures, these latter operations being styled satta business. The forward contracts and dealings in grain futures were conducted by the assessees through their Rangoon agents who communicated the results of these transactions to the assessees with a statement of account. The satta dealings were entered in a separate folio at Tuticorin on receipt of the accounts of these transactions from the Rangoon agents. The assessees sustained losses in respect of these forward contracts and dealings in grain futures during the years 1939 to 1941. In computing the profits of the year of account, 1941-42, they claimed that the unadjusted balance of loss carried forward from 1939-40 and 1940-41 should be set off against the profits of the year of account. But their claim was disallowed by the Revenue authorities on the ground that the case did not fall within Section 24 (2). Income-tax Act. In other words it was held that the speculations in forward contracts and grain futures constituted a separate and independent business and did not form part of the business of the assessees as traders and dealers in rice and other grains.

12. The reason for this conclusion is stated by the appellate Tribunal in these terms:

'Before us it is argued that the dealings in grains and speculations in the same commodity must be taken to be, component parts of the same business. This, however, is a proposition which is difficult to sustain. It cannot be said that a dealer must necessarily carry on speculation business as an unavoidable incident of his business. There is a marked distinction between the two activities and we fail to see any common features.'

There is an element of speculation even in transactions relating to the sale and purchase of ready goods owing to market fluctuations. It is a legitimate and indeed a common thing, for merchants dealings in a particular type of goods to enter into forward contracts under which they may be compelled to take or entitled to ask for delivery as the case may be and in case of default, pay or claim damages. There is no doubt a greater element of speculation in transactions of this kind which often involve a chain of buyers and sellers, than in the case of purchase and sale of ready goods. How his business has to be carried on is primarily the concern of the merchant or trader, and it is only if and when profits emerge that the Revenue authority has a right to dip its hand into his pocket. I can imagine a trader saying.

'Well I will take my chance. I will enter into forward contracts as I expect a favourable turn of the market. If my expectation comes true, I shall insist on delivery and make a profit, and if it fails, I shall pay damages.'

In such a situation it is not for the Revenue authority to say to the merchant or trader

'No. A bird in hand is worth two in the bush. You should have known that speculation is dangerous and confined yourself to buying and selling ready goods. In any case, if you make a profit out of your speculations in goods in which you are trading I shall charge you with tax. But if you lose, you have to stew in your own juice and you may not carry forward your losses.'

13. The point for decision is whether the two lines of business carried on by the assessees constitute the same business. It is ordinarily a question of fact depending for its answer on a consideration of several facts and circumstances. But where, as in this case, the question is one of legal inference from proved or admitted facts or where there is no evidence at all to justify the conclusion of the revenue authority, a question of law does emerge and this Court has to answer it. I agree with the criticism of Mr. Rama Rao Saheb that the statement of the Tribunal that the assessees were stocking their goods in rented godowns in Rangoon is unwarranted and indeed has not been sought to be supported by the advocate for the assessees. This mistake, however, does not seriously affect the point at issue.

14. An individual or a firm or a company may carry on more than one business at the same time, (Arunachalam Chetty & Co. v. Commr. of Income-tax, 52 Mad. 296: A. I. R. 1923 Mad. 1229, South Indian Industrials Ltd., v. I. T. Commr., 58 Mad. 433 : A. I. R. 1935 Mad. 330 and Arunachalam Chettiar v. I. T. Commr ). Consequently, the fact of common ownership or proprietorship of the business concerns, is not a criterion for determining whether the business activities of individuals, firms or companies constitute a single business (In Re: Hiralal Kalyanamal : [1943]11ITR128(Bom) ). On the other hand the fact that different lines of business are pursued or different commodities are bought and sold by a single person, firm or company does not necessarily mean that there are different businesses. There are multiple stores like Woolworth's and Selfridges in England or Spencer's in Madras which deal in different and dissimilar lines of goods, but yet the business is one and the same. If two lines of business belong to the same person and are connected with the same trade, the one being ancillary or subsidiary to the other, if they are owned, controlled and financed in common, if the staff employed and the place of business are the same and if common accounts are kept, it may readily be inferred that the two lines of business are really part of the same business. Observations to this effect are found in the decided cases. But it is not to be assumed that all these features must be present in every case or that the absence of one or more of them is fatal to the claim that the different lines of business are really parts of the same business. In Chidambaram Chettiar's case : AIR1945Mad318 , it was held that where the businesses were the same in character, the facts that the business activities extended to several places, different staff were employed in those places separate capital was allotted to each of the places where the business was carried on and separate accounts were maintained in those places would not outweigh the effect of common ownership, unity of control, interdependence for finance and the incorporation of the final results of the business in one. account at the head office.

15. The present case is not like Scales v. George Thompson, (1929) 13 Tax. Cas. 83 where Rowlatt J. held that the operations of a limited company engaged in shipowning and underwriting constituted not one but two separate businesses. The learned Judge who combined a remarkable felicity of expression with a deep knowledge of Income-tax law, stated his reasons in these terms:

'This company carried on the business of underwriting. It also had a fleet of steamers, I cannot conceive two businesses that could be more easily separated than those two. They both have something to do with ships ; that is all that can be said about them. 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 are no ships ; except that it would not be commercially convenient; but the two things have nothing whatever to do with one another. I think the real question is, was there any interconnection, any interlacing, any interdependence, any unity at all embracing these two businesses.'

Founding himself on these picturesque and arresting phrases Mr. Rama Rao Saheb argued that the test is not common ownership but whether the stoppage or closure of one part of the business would materially affect the rest of the business and it is only if that test is satisfied that the two lines of business could be said to constitute a single business. In further illustration of his contention, Mr. Rama Rao Sahib pointed to the example of cotton mill owners who habitually enter into forward contracts and speculate in cotton features as a sort of cover or insurance against possible losses due to fluctuations of prices in the cotton market. He contended that speculative contracts of this kind alone should be considered to be part of the regular business and other kinds of speculation not so connected must be held to constitute separate and independent businesses. In my opinion these illustrations are not to be erected into hard and fast rules or invariable tests applicable to all cases and circumstances.

16. In Hiralal Kalyanmal's case : [1943]11ITR128(Bom) , the learned Chief Justice of the Bombay High Court held that it would be difficult, if not impossible, to formulate precise rules for determining question of this nature. In Govind Ram Bros. Ltd., Case : [1946]14ITR764(Bom) the Court (Chagla J., dubitante) held that losses in silver speculations could be carried forward and set off against the profits of cotton speculations of the same merchant in a subsequent year. In Rekhabchand Sarogi's case : [1947]15ITR465(Patna) which is very similar on its facts to the present case, the Court after pointing out that the question whether there were to distinct businesses or whether they constituted the same business, was largely one of degree and therefore one of fact, held that losses incurred in speculative dealings in futures could be carried forward and set off against the profits arising out of dealings in ready and tangible goods.

17. The assessees here are merchants trading in rice and other grains which they buy and sell. Speculation in those commodities is involved even in the purchase and sale of ready goods. By entering into forward contracts for the purchase and sale of those very commodities, it cannot be said that they are carrying on a separate and independent business unconnected with the business of rice and grain merchants. There is no reason why a rice and grain merchant should not do forward business in rice and other grains in addition to buying and selling ready goods. That is not the commencement or carrying on of a new or different business, but is a part of the business of a grain merchant (see Rekhabchand Sarogi's case : [1947]15ITR465(Patna) . Here the different operations by way of purchase and sale of ready goods and by way of entering into forwards contracts for the same goods are carried on in the course of the same trade or business and are conducted by the same agency for the same merchants.

18. There was here in truth one business, a business which was partly and which was primarily, it might well be the business of buying and selling rice and other grains. But in course of time the activities of the assesses extended to entering into forward contrasts for the purchase and sale of those very commodities in which they were dealing, but as part of the business itself. As I said, the business was carried on by the same persons, through the same agency, with the same funds, both with reference to the dealings in futures and forward contracts as well as ready goods. The speculations in futures were entered into with a view to increase the profits of the business and also perhaps to impress the commercial public in Rangoon and command credit facilities. The speculations were merely ancillary to the ready goods business and they converged to the same point, namely, the earning of profits as a result of the rice and grains business. It is not like the case of a lawyer seeking to carry forward and set off his previous losses in cotton or bullion speculations against his professional earnings of a subsequent year. The argument of Mr. Rama Rao Sahib is that as the speculation was begun in 1937-38, stopped in 1938-39, re-started in 1939-40, continued in 1940-41, and again stopped in 1941-42, it could not be said to be the same business as that of rice and grain merchants which had been carried on from before 1937 and continued right through. I am unable to accept this argument. A man who sustains a loss in a business venture in a particular year need not persist in similar adventures in succeeding years in order that he may avail himself of the provisions of Section 24 (2) of the Act. The fact that in a particular year the assessees did not enter into forward or speculative contracts had not the effect of stamping their activities with the character of a new or separate business when they recommenced their dealings by way of speculative contracts in the same commodities in a later year. Nor did the fact that they discontinued entering into speculative forward contracts after 1940-41 and confined their activities to purchasing and selling ready goods, retrospectively stamp the speculative transactions carried on before 1941 as a separate and independent business. If a portion of the business namely speculation in forward contracts and grain futures, became unprofitable and was stopped permanently or for a time, the effect of that was not to make the business of the assessee different from what it was previously. The assessees might resume the traffic in grain futures and forward contracts if they think fit; they might discontinue it if they do not find it paying, but their business remains exactly what it was, viz., that of traders in rice and other grains. There is authority for this view in the case of Govindram Bros. Ltd. : [1946]14ITR764(Bom) .

19. For these reasons I hold that the dealings in forward contracts and grain futures carried on by the assessees in the Rangoon market through their agents did not constitute a separate or distinct business from their dealings in ready goods of the same type and their speculations must be held to be a part of the general business of the assessees as rise and grain marchants. I agree with my learned brother in the answer to the question propound. lad and in the direction as regards costs.


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