Judgment:
Venkataswami, J.
1. In all these references, a common question of law relating to the same assessee has been referred to this court for its decision. The assessment years pertaining to Tax Cases Nos. 1293 to 1296 of 1980 are 1972-73 to 1975-76. As regards Tax Case No. 1252 of 1980, the assessment year is 1976-77.
2. For the assessment years 1972-73 to 1975-76, the question reads as follows :
'Whether, on the facts and in the circumstances of the case and having regard to the proviso to sub-clause (i) of sub-section (1) of section 72 of the Income-tax Act, 1961, the Appellate Tribunal was correct in holding that the business carried on by the assessee was one and the same and, accordingly, the assessee was entitled to set off of the losses of the assessment years 1969-70 and 1970-71 from the managing agency business against the income of the assessment years 1972-73 to 1975-76 even though the said managing agency business was not continued in the relevant years?'
3. For the assessment year 1976-77, the question reads as follows :
'Whether on the facts and in the circumstances of the case and having regard to the proviso to sub-clause (i) of sub-section (1) of section 72 of the Income-tax Act, 1961, the Appellate Tribunal was correct in holding that the business carried on by the assessee was one and the same and, accordingly, the assessee was entitled to set off of the loss of the assess ment year 1970-74 from the managing agency business against the income of the assessment year 1976-77 even though the said managing agency business was not continued in the relevant year?'
4. The brief facts may now be noted : The assessee, who is common in all these cases, is a private limited company incorporated on May 3, 1943. The object for which the company was established, as specified in the memorandum of association included, inter alia, the following activities :
'the business of financiers, financial agents, concessionaire, capitalists, merchants, trustees, executor and administrators, receivers, promoters, managers, agents, secretaries, treasurers, managing agents of companies, corporations, firms, partnerships, association of individuals, persons or body of persons, general agents, land owners, estate owners, mill owners, mine owners, warehousemen, export and import agents, forwarding and commission agents, manufactures' representatives, insur ance agent, mercantile agents, stockbrokers, underwrites, guarantors, property agents......'
5. The assessee was appointed as managing agents of Blue Mountain Estate and Industries Limited immediately after incorporation. The assessee continued to receive income from the managing agency over the years. For the assessment year 1969-70, the assessment order, as rectified, resulted in a net loss, under the head 'Business', of Rs. 18,185. This loss related to the managing agency receipts. For the assessment year 1970-71, there was again a loss in relation to the managing agency receipts and the net business loss was computed in a sum of Rs. 40,600. It appears, the business in the managing agency was stopped from April 3, 1971. Originally, assessments for the years 1972-73 to 1976-77 were completed permitting the assessee to carry forward the loss incurred in the business of managing agency. Subsequently, the assessments were reopened under section 147(b) of the Income-tax Act on the ground that the losses incurred in the business of managing agency which were not carried on during the assessment yeas in question were wrongly allowed to be carried forward and set off against the income during the years in question. In other words, the Income-tax Officer treated the business in managing agency as distinct and independent from other businesses carried on by the assessee. On that view, the Income-tax Officer withdrew the losses incurred in the business of managing agency which were originally given set off.
6. The assessee, aggrieved by the withdrawal of the losses which were given set off in the original assessments preferred appeals to the Appellate Assistant Commissioner. Before the Appellate Assistant Commissioner, the appellant, placing reliance on the memorandum and articles of association, contended that income from agency business for the assessment year 1971-72 included both managing agency commission as well as other commission, and other commission was received even during the assessment year 1972-73 which business having bene continued, it will not be right on the part of the Revenue to treat the commission from managing agency alone as independent and distinct business to deny the carry forward loss and set off. However, the Appellate Assistant Commissioner concluded that the loss of earlier years attributable to the managing agency receipts could not be set off against any other income as the same business was not continued during the assessment years in question. On that view, the Appellate Assistant Commissioner dismissed the appeals.
7. Second appeals were preferred before the Tribunal. Before the Tribunal on behalf of the assessee, it was contended that the assessee was carrying on a single business and at least as far as assessment years from 1971-72 onwards are concerned, it was a single business of agency. In any event, it was contended for the assessee before the Tribunal that the managing agency was only one facet of such business, viz., agency business, and commission agency was just another facet, and, discontinuance of one facet would not mean discontinuance of the business itself. In support of that contention, the assessee placed reliance on a judgment of the Supreme Court in B. R. Ltd. v. V. P. Gupta, CIT : [1978]113ITR647(SC) . In addition to the above, it was also brought to the notice of the Tribunal that there was only one common management, common business assessment, and there was complete interlacing and dovetailing between the two aspects of the business and, therefore, under the provisions of section 72 of the Act, the loss in managing agency can be set off against the other income from commission. That contention found favour with the Appellate Tribunal. The Tribunal, after going through the materials placed before it, has given a finding in paragraph 15 as follows :
'We have set out the history of the case. The further facts ascertained by us are that for the accounting year when there were was only managing commission and 71-72 when there were was income from managing agency as well as other commission, only a single book of account has been maintained comprised of journal, cash book an ledger sections for each year separately, managing agency remuneration which was the minimum of Rs. 29,144 returned in the assessment year 1971-72 appeared at ledger folio 82 and the commission income of Rs. 4,236 returned in the same year appeared at ledger folio 104. The business were carried on from the same premises and there was no bifurcation in the two bank accounts which were with the State Bank of India and the Eastern Bank.'
8. Again, in paragraph 17, after referring to another judgment of the Supreme Court in Produce Exchange Corporation Limited v. CIT : [1970]77ITR739(SC) , the Tribunal, on a question of fact, found as follows :
'..... In the present case, from the facts as specifically ascertained by us, it is clear that there was a common administration, common fund common place of business and common management and, therefore, there is interlacing between the managing agency and commission agency. We have set out the relevant extract from the memorandum of association. This would show that the carrying on the business of agency was one of the object for which the assessee-company was formed.'
9. Again the Tribunal has given the following finding :
'Commission receipts were received in 1969 and 1970 from rendering services as managing agent and in 1971-72 and subsequent years from rendering services as purchase agents, etc., i.e., commission was received on supply of tea chests for the Blue Mountain Estate. The entire agency business is a single business of which managing agency is one facet and commission agency is another. The businesses are not separate or distinct business and, therefore, the requirement of the proviso to sub-clause (i) to section 72(1) of the Income-tax Act, 1961, is satisfied.'
10. In the light of the above findings on the facts based on materials placed before it, the Tribunal found that the assessee is entitled to carry forward the loss and set off the same against the income during the years in question. In these circumstances, at the instance of the Revenue, the present references were made by the Tribunal under section 256(1) of the Act.
11. Mr. N. V. Balasubramanian, learned counsel appearing for the Revenue, placing reliance on the judgments of this court in Waterfall Estates Ltd. v. CIT (No. 1) : [1981]131ITR207(Mad) , CIT v. Blue Mountain Estates and Industries Limited : [1985]151ITR616(Mad) , Tube Suppliers Ltd. v. CIT : [1985]152ITR694(Mad) and CIT v. Veecumsee : [1985]152ITR708(Mad) , argued that the Tribunal was not right in holding that the managing agency business is one facet of the agency business carried on by the assessee and, therefore, the assessee is entitled to carry forward the loss notwithstanding the stoppage of the managing agency business.
12. On the other hand, Mr. R. Janakiraman, learned counsel appearing for the assessee, invited our attention to the following later decisions of this court :
CIT v. S. S. M. Ahmed Hussain : [1987]164ITR525(Mad) , CIT v. T. S. Srinivasa Iyer (Late) : [1991]192ITR50(Mad) and CIT v. R. M. Maruthai Naidu and Sons : [1991]192ITR666(Mad) . In these decisions, more or less under identical circumstances, this court has taken the view that notwithstanding the stoppage of one facet of the business, the carry forward of loss is permissible to set off against income from other facts of the business. It is also brought to our notice that in the decision in CIT v. S. S. M. Ahmed Hussain : [1987]164ITR525(Mad) , it is has been expressly held that the decisions in CIT v. Blue Mountain Estates and Industries Ltd. : [1985]151ITR616(Mad) and Tube Suppliers Ltd. v. CIT : [1985]152ITR694(Mad) have to be restricted to the facts of those cases. Likewise, in the decisions in CIT v. T. S. Srinivasa Iyer (Late) : [1991]192ITR50(Mad) and CIT v. R. M. Maruthai Naidu and Sons : [1991]192ITR666(Mad) , the earlier decisions on which reliance was placed by learned counsel for the Revenue have been explained.
13. We have already set out the facts relating to these references. Let us now look into the decisions cited at the Bar, before coming to a conclusion as to which ratio is to be applied having regard to the facts of these cases.
14. In Waterfall Estates Ltd. v. CIT (No. 1) : [1981]131ITR207(Mad) , the learned judges did not agree with the challenge made by learned counsel for the assessee regarding the correctness of the inference drawn by the Tribunal that several lines of activity like tea estate, coffee estate, coffee curing, plantation, etc., did not constitute one single and integrated activity or business, but independent units of business.
15. The above challenge was made by learned counsel for the assessee in that case, contending that the assessee was carrying on only one business as shown by the fact that there was a single account and a single balance-sheet and profit and loss account and that the activities were all controlled from the head office. The rejection of this contention is taken advantage of by learned counsel for the Revenue, to apply the same to the facts of this case. We are unable to agree with learned counsel for the Revenue, as the circumstances under which the learned judges rejected such contention cannot be ignored. In this course of the judgment, the learned judges have observed as follows (at page 220) :
'The onus is thus on the assessee to show that the different ventures in the present case constituted parts of the same business. As seen already, the assessee was given an opportunity to place relevant materials to establish that the several activities carried on by the assessee constituted a single business. As the assessee did not avail itself of this opportunity, the onus has not been discharged in the present case. The apportionment made by the assessee in all the earlier years clearly establishes that these business, viz., running the tea estate, the coffee estate and the coffee curing works were all treated as different businesses by the assessee itself. There is no change of circumstances in these years, which would justify a different stand being taken by the assessee.'
16. The facts in our case are entirely different, which we have already set out, and which we will state again in brief infra, at the concluding part of this order. We are, therefore, unable to agree with learned counsel for the Revenue that in the light of the decision in Waterfall Estates Ltd. v. CIT (No. 1) : [1981]131ITR207(Mad) , the conclusion reached by the Tribunal to hold that the managing agency business was one facet of agency business cannot be sustained.
17. The other cases, namely, CIT v. Blue Mountain Estate and Industries Ltd. : [1985]151ITR616(Mad) , Tube Suppliers Ltd. v. CIT : [1985]152ITR694(Mad) and CIT v. Veecumsee : [1985]152ITR708(Mad) , were relied on by learned counsel appearing for the Revenue to contend that the assessee is not entitled to carry forward and set off the unabsorbed loss of the early years in the accounting year in question as the business in respect of which the loss was sustained no longer exists. As noticed earlier, in a later Division Bench judgment of this court in CIT v. S. S. M. Ahmed Hussain : [1987]164ITR525(Mad) , to which one of us (Venkataswami J.) was a party, M. N. Chandurkar C.J., after elaborately considering the case-law up to the date, and also after referring to three important judgments of the Supreme Court, namely, CIT v. Prithvi Insurance Co. Ltd. : [1967]63ITR632(SC) , Produce Exchange Corporation Ltd. v. CIT : [1970]77ITR739(SC) and B. R. Ltd. v. V. P. Gupta, CIT : [1978]113ITR647(SC) , observed as follows (at page 529) :
'.... The Supreme Court took the view that the life insurance business and the general insurance business constituted one composite business and that the interconnection, interlacing, interdependence and unity were furnished by the existence of common management, common business organisation, common administration, common fund and a common place of business. The Supreme Court also pointed out in that decision in CIT v. Prithvi Insurance Co. Ltd. : [1967]63ITR632(SC) that the question whether the life insurance business and the general insurance business carried on by the assessee may be regarded as the 'same business' or different businesses depends not upon the special methods prescribed by the Income-tax Act for computation of the taxable income, but upon the nature of the business, the nature of their organisation, management, source of the capital fund utilised, method of book-keeping used and other related circumstances which stamp the business as the same or distinct. ...'
18. In this Division Bench judgment, the decision rendered by this court in CIT v. Blue Mountain Estates and Industries Ltd. : [1985]151ITR616(Mad) has also been dealt with. The learned Chief Justice, speaking for the Bench, after referring to CIT v. Blue Mountain Estates and Industries Ltd. : [1985]151ITR616(Mad) , has observed that that decision does not affect the test laid down by the Supreme Court, an what seems to have weighed with the learned judges was that fertilizer was not a commodity which the company was dealing in the ordinary course of business in coffee or tea. The learned Chief Justice further held that decision must, therefore, be read as merely applying the test to the facts in the case which the court was called upon to consider, and that decision must be treated as one given on its own facts. Likewise, while referring to the decision in Tube Suppliers Ltd. v. CIT : [1985]152ITR694(Mad) , it was held in CIT v. S. S. M. Ahmed Hussain : [1987]164ITR525(Mad) that that decision is liable to be distinguished, as pointed out by the Tribunal. On the facts, it was found that the assessee carried on several distinct and independent businesses. We are further inclined to hold in the same manner that the decision in CIT v. Veecumsee : [1985]152ITR708(Mad) must be confined to the facts of that case. In CIT v. S. S. M. Ahmed Hussain : [1987]164ITR525(Mad) , the Division Bench, in the concluding portion of the discussion, has observed as follows (at page 535) :
'In view of the law laid down by the Supreme Court, we must take the view in the case that there was a composite business of the assessee and, therefore, merely because he has ceased to carry on the activity of purchase and sale of National Defence Remittance Scheme Certificates, it could not be held that he had ceased to carry on the business which he was originally carrying on in the assessment year 1967-68. ...'
19. This decision in CIT v. S. S. M. Ahmed Hussain : [1987]164ITR525(Mad) , on the facts, directly applies to the case on hand.
20. Likewise, the decisions in CIT v. T. S. Srinivasa Iyer (Late) : [1991]192ITR50(Mad) and CIT v. R. M. Maruthai Naidu and Sons : [1991]192ITR666(Mad) , clearly support the case of the assessee as the facts in those cases are similar to the facts in the present case.
21. In CIT v. T. S. Srinivasa Iyer (Late) : [1991]192ITR50(Mad) , the assessee was a Hindu undivided family consisting of father and son. There was a partial partition on September 7, 1962, and complete partition some time in June, 1969. The joint family originally carried on a composite business consisting of pre-shooting and post-shooting of cinema films, processing of films and development of the assessee's own films as well as films produced by others, leasing of pictures, etc. The assessee claimed deduction of bad debts amounting to Rs. 17,693 arising from its colour laboratory and printing department for the assessment year 1970-71 and loss of Rs. 21,682 representing rebate allowed to customers for laboratory charges and copy printing charges for the assessment year 1969-70. The Income-tax Officer rejected the claims on the ground that the assessee was not doing business in the colour laboratory in the assessment years under consideration. The Tribunal accepted the assessee's claim. The Division Bench, while upholding the conclusion of the Tribunal, held as follows (headnote) :
'Held, that the facts on record showed that the assessee was doing a composite and integrated business in films. The entire business was under one common management and there was interlacing, interlocking and unity of control among the various lines of business. Even after certain assets were transferred to the minor Hindu undivided family in the partition arrangement, the assessee was doing business in films. Simply because one line of business was closed or that part of the business assets relating to cine colour processing was transferred to the minor Hindu undivided family, it would not mean that the assessee had discontinued its entire business in films. The bad debts amounting to Rs. 17,693 and the expenses amounting to Rs. 21,682 were deductible from the profits of the continuing business.'
23. Now, at the risk of repetition, the facts of this case may be recalled in short.
24. The assessee was appointed as the managing agents of Blue Mountain Estate and Industries Limited shortly after incorporation. The assessee continued to receive income from managing agency over the years. In the assessment year 1969-70, there was a net loss under the head 'Business'. This loss related to the managing agency receipt. The Tribunal found that during the assessment year 1970-71, there was only income from managing agency and in the year 1971-72, there was income from managing agency as well as from other commission. The assessee was keeping only a single book of account, comprising journal, cash book and ledger sections for each year separately. The business was carried on from the same premises and there was no bifurcation in the two bank accounts which were with the State Bank of India and Eastern Bank. Commission receipts were received in 1969 and 1970 from rendering services as managing agent and in 1971-72 and subsequent years from rendering services as purchase agents, etc., i.e., commission was received on supply of tea chests for the Blue Mountain Estate. Under these circumstances, the Tribunal held that the entire agency business is a single business of which managing agency is one facet and commission agency is another facet. The business was not separate and distinct business and, therefore, the requirement of the proviso to clause (i) to section 72(1) of the Income-tax Act was satisfied. The Tribunal also found, on the facts, that there was a common administration, common fund, common place of business and common management and, therefore, there was interlacing between the managing agency and commission agency. The tribunal also found that from assessment year 1972-73 onwards, the assessee ceased to be managing agent due to abolition of the managing agency system. In the light of the facts set out and also in the light of the ratio laid down in various decisions referred to above, we do not find it difficult to hold that there was a composite business of agency and hence merely because the assessee ceased to carry on the managing agency business, it cannot be held that the assessee had ceased to carry on the business of agency, which consisted of managing agency and commission agency. Consequently, we hold that the Tribunal was right in its view that the assessee was entitled to carry forward and set off the loss incurred in the managing agency business under section 72(1) against the income derived during the years in question.
25. In the result, we answer the questions in the affirmative and against the Revenue, with costs. Counsel's fee Rs. 1,000 one set.