Income Tax Appellate Tribunal - Nagpur
Commissioner Of Income-Tax C. P. & U. P. vs Seth Remakrishna Ramnath. on 16 March, 1943
Equivalent citations: [1944]12ITR21(NAG)
JUDGMENT
This is a reference under section 66(1) of the Income-tax (Amendment) Act, 1939. The questions which have been referred to us by the Income-tax Appellate Tribunal (Bombay Bench) are as follows :
(1) Whether on a true construction of Section 24, sub-section (2) of the Income-tax (Amendment) Act 1939, the applicant is entitled to set off the loss in speculation business carried forward by him from the assessment year 1939-40 to the assessment year 1940-41 against the profits and gains of bidi business of the latter year ? (2) Whether in computing the business income in the applicants claim for deduction of Rs. 4,310 in respect of charity levies has been rightly disallowed ?
With reference to the first question, the essential facts are as follows : The applicant Seth Ramakrishna Ramnath of Kamptee is a manufacture of bidis (country cigarettes) on an extensive scale. In the year pertinent to the assessment of 1939-40, that is to say, the year ending in Diwali 1938, the applicant in addition to his bidi business engaged in speculation which we are told consisted in dealing in forward cotton contracts, and in that speculation he lost in that year Rs. 1,81,218. Under the provision of Section 24(1) of the Income tax Act he was allowed to set this off against the profit derived from the manufacture of bidis during that year. The loss, however, outweighed the gains and he sought to carry forward the balance of the loss which amounted to Rs. 1,17,181 to the following year and claimed to set off this sum against the profits of bidi manufacture for the following year. It may here be noted that in the following year he did not engage in any speculation whether in the nature of forward cotton contracts of otherwise at all. That venture had ceased. The Income-tax Officer having regard to the provisions of Section 24 (2) of the Act did not permit the set off and assessed him on the profits of his bidi business. An appeal to the Appellate Assistant Commissioner failed as did a second appeal to the Income-tax Appellate Tribunal, Bombay, and it is this Tribunal which has now stated a case. We now set out the relevant portions of Section 24 of the Act. Section 24, sub-section (1), runs :
"Where any assessee sustained a loss of profits or gains in any year under any of the heads mentioned in Section 6 he shall be entitled to have the amount of the loss set off against his income, profits or gains under any other head in that year...."
Sub-section (2) :
"Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 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...."
The head profits and gains of business, profession or vocation is one of the heads mentioned in Section 6 of the Act. The other heads are Salaries, Interest securities, Income from property, and Income from other sources. When a loss is sustained in any year an assessee is entitled to set off that loss against the profits or gains under any other taxable head, but where it is desired to carry forward a balance of loss against the profits of a succeeding year it has been held in the Income-tax Court that the balance of loss can only be set off in this particular case against any profits which would have arisen from the same business in which the loss was incurred, that is to say, the business of engaging in forward cotton contracts and that as in the year to which it was sought to carry forward the loss no such business was undertaken the claim for the set off could not be entertained.
Now it is the contention of the assessee, as it was before the Income-tax authorities, that he is entitled to set off the loss as he is still carrying on business and that the words in sub-section (2) "from the same business, profession or vocation" have the same meaning as the head "profits and gains of business, profession or vocation" and that as the loss was incurred in business in the earlier year and as he is assessed on income from business he is entitled to set off the balance of the loss against the gains of the following year. If that had been the intention of the Legislature we do not see why for these words the words "under the same head" should not have been used, and it appears to us that by the words "the same business, profession or vocation" it was the intention of the Legislature plainly to express that the loss could only be carried forward and set off against profits and gains, if any, arising from the identical business. An argument has also been addressed to us contending that the two business of manufacturing bidis and entering into cotton transactions must be included as one in the word business at the end of sub-section (2) which we have quoted, and for this proposition reliance is placed on the definition of business in Section 2 (4) of the Act. The definition there is "business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture," and it is said therefore that the word business as used in Section 24 must be taken to include any and every kind of trade, commerce or manufacture or adventure or concern in the same, that is to say, that the singular connotes the plural and that the word business is to be read as including business. That interpretation, however, would render the word same otiose and nugatory. The definition in Section 2 (4) does no more than lay down what is to be included in the definition of business when the question whether any particular activity is or is not business arises. Then again it is contended that the two activities in which the assessee was concerned must be taken to be one business. Whether a business is one or several businesses is a question of fact as has been held both in England and in India : Scales v. George Thompson & Co., Ltd. and South Indian Industrials, Ltd., Madras v. Commissioner of Income-tax, Madras and it would be difficult to imagine a clearer case, as indeed the proper tribunal for finding of facts has found, of two separate businesses conducted by the same person. It is argued that it may be possible to conduct two separate branches of trade or business under a common roof in which the items of expenditure are so interwoven or the overhead expenses are common that they must be taken to constitute one business. This may be so in the case of merchants, and for instance no one would imagine that in the case of a grocer dealing in matches and dealing in tinned foods, his business would be considered to be two or more separate businesses. The question, however, as we have said, is a question of fact and here the fact has been found, and there can, in our opinion, be no doubt as to the correctness of the finding, that the two businesses are separate.
Sub-section (2) of Section 24 was added by the Amending Act VII of 1939. We have pointed out that in the year in which relief sought, the business of speculation in cotton contracts had ceased to exist. Even under the provisions of sub-section (1) which was in existence before the amendment of 1939 it was held that to gain relief under that sub-section the business in respect of which it is claimed to set off a loss, must have been in existence in the year in which the set off was claimed : South Indian Industrials, Ltd, Madras v. Commissioner of Income-tax, Madras and also B.C.G.A. Punjab Ltd. v. Commissioner of Income-tax, Punjab. A fortiori this principle will apply when a claim is made to set off a loss in the following year and this is emphasised in the concluding words of the part of the sub-section we have quoted, "set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year." There cannot be any profits or gains if the business has ceased to exist, and again a fortiori if the business has ceased to exist it cannot be the same business. To accept the assessees contention would bets substitute the word some by the word any. We have also been referred to the well-known principle enunciated in Maxwell on the Interpretation of Statutes :
"Where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, a construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence.
We are unable to find here any contradiction whatever of the apparent purpose of the enactment. The amending Act of 1939 enlarged the provisions of Section 24 and gave a concession to the assessee which did not previously exist. There is nothing whatever to indicate that the concession was as large as the assessee claims and it is limited in very definite and express terms that the carrying forward of losses is only permissible when those losses can be set off against profits and gains from the same business in the year to which it is sought to carry forward the losses of the previous year. The intention is plain the particular words have been used to emphasize that intention. The first question then must be answered in the negative. The second question, namely, whether in computing the business income the applicants claim for the deduction of Rs. 4,310 in respect of "charity levies" has been rightly disallowed, must be answered in the affirmative. This sum for the year under consideration represents a deduction at the rate of two pies in the rupee from the wages paid to the assessees employees. It is contended that following instructions regarding the deductions for depreciation and obsolescence for assessments for the year 1940-41 on wards, reproduced in pp. 281 to 284 of the Income-tax Manual, this sum should not have been considered for purposes of assessment. The instruction in question runs as follows :
"Indian trader and businessmen charge their customers or clients a small fee on each transaction - for example so many pies per bag of some commodity sold - the proceeds of which are supposed to be devoted to various religious, charitable or educational purposes. Such customary receipts and the corresponding expenditure should be left out of account altogether for income-tax purposes."
The case before us cannot be treated as analogous to cases coming under this instruction. It is not a case of a fee being paid over and above the rice of the commodity sold but a deduction from the wages of workmen. It is alleged that this is a voluntary contribution. It has been found as a fact that it is not so. Two pies in the rupee are compulsorily deducted from the wages of each employee although his wages are entered in the accounts in round rupees, that is to say, the wages are shown are expenditure whereas something less than the wages are actually paid. It is manifest that this difference amounting in the year under assessment to Rs. 4,310 must be treated as income liable to assessment. On the case stated therefore we hold that the appellate judgment of the Income-tax Appellate Tribunal (Bombay Bench) is correct in law. Counsels fee Rs. 100 to be paid by the assessee.
Reference answered accordingly.