REKHABCHAND SAROGI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 66(1) of the Indian Income-tax Act by the Appellate Tribunal to this Court for a decision on the following question :-

(2.) THE facts may be shortly stated. THE assessee is a nine annas partner in the registered firm of Jokhiram Jagernath who are merchants dealing in hardware, cement, rice, wheat, yarn, salt, grain, hessian and other commodities. THEy carry on business at Ranchi, which is the head office, with branches in Calcutta and Madras. For the assessment year 1941-42 the registered firm was found to have lost a considerable sum due to speculation in hessian, gunny, jute, silver, linseed, cotton and wheat. THE Income-tax Officer originally disallowed the loss in speculation upon his view that the assessee does not carry on any business in speculation and also because he was not satisfied that all the accounts to support the figures of the loss claimed at Rs. 1,28,814 had been produced. This order was set aside by the Assistant Commissioner in appeal. THE case was reminded to find out whether the assessee entered into these transactions with a view to make a profit and whether his activity in speculation was so continuous as to amount is carrying on of a business; the Income-tax officer was also directed to ascertain whether any capital had been set apart for speculation purposes. THE Income-tax officer on remand after examining the relevant in almost contract papers, bijaks and account books came to the conclusion that the registered firm entered into these transactions frequently and regularly in almost all the months of the accounting year with the object of making profits, but the amount of capital set apart for speculation could not be ascertained as the firm had mixed up the accounts of this business with other businesses, and the firm was found utilising the capital both for speculation business and for the other businesses to the extent that it was required in each of the businesses. THEse transactions having been found to constitute a business, the Income-tax Officer reduced the loss of speculation by about Rs. 9,000 and as enjoined by section 23, sub-clause 5 (a), of the Act apportioned the loss between the two partners - to the assessee, the nine annas partner, at Rs. 38,332 and the balance Rs. 29,813 to Durgadas, the seven annas partner.

(3.) THE learned standing counsel relies upon the case of the Howden Boiler and Armaments Company, Limited, and the oft quoted decision of Rowlatt, J., in Scales v. Thompson, and argues that the question whether the two businesses are separate or one is a question of fact. He also relies very strongly upon the Nagpur case of Seth Ramakrishna Ramnath, where it is said the facts were somewhat similar. I have read several other English cases including William Ransom, a case of manufacturing chemists and herb-growers, Maxse, a case where the assessee was carrying on a profession of a journalist as owner of a magazine and also by editing the magazine, Birt, Potter and Hughes, a case of ship broking company owning steamers jointly with others and also partner in other firms. In all these cases, it has been held 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 this should be done : Commissioners of Inland Revenue v. Maxse, that cases can be conceived where the two branches of a persons or companys business are so interlaced that it is quite impossible to separate them or disintegrate them and it will be impossible to separate one part of the business from another : Commissioners of Inland Revenue v. William Ransom & Son, Ltd.; see also Scales v. George Thompson and Co. Ltd.