Case: Commissioner Of Income-Tax, Madras Vs. Prithvi Insurance Co. Ltd

being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March 1940, (in any business profession or vocation) and the loss cannot be wholly set off under sub-s. (1), (so much of the loss as is not so set off or the whole loss where the assessee had no other head of income) 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 words underlined (bracketed herein, Ed.) were substituted by the Income-tax Amendment Act (25 of 1953), for the words "under the head Profits and gains of business, profession or vocation" and "the portion not so set off" respectively. At the relevant time loss which could not be set off in the year of account may be carried forward to the following year, but it could be set off against the profits and gains of the assessee from "the same business, profession or vocation". If the loss carried forward from the previous year and sought to be set off was not from the same business, profession or vocation, it could not be set off under S. 24 (2). If there was no income or profits from the same business in the subsequent year, the loss could not be set off, but had to be carried forward in the next year following, subject to the restriction placed in that sub-section.5. The question whether the business of life insurance and the business of general insurance could be regarded as the same business assumes importance in this case, since the right to carry forward the loss suffered in the life insurance business and to set it off against the profit of the company in the general insurance business of the subsequent year is clearly in issue. If the life insurance business and the general insurance business were not "the same business" within the meaning of S. 24 (2), loss in the life insurance business which could not be set off against income from other business of the Company and sources of income, could not he carried forward and set off in the year following against the income from the general insurance business.6. Counsel for the Commissioner contended that life insurance business and general insurance business were separate businesses and he relied in support of that contention primarily upon the method of computation, of taxable income of the life insurance business and of the general insurance business. Both in respect of the life insurance business and general insurance business there are as already mentioned, special methods of computation of income. But because there are distinct methods of computation of taxable income of the insurance business, and the general provisions of the Income-tax Act relating to computation of profits and gains of a business in S. 10 and the related sections are inapplicable, it does not follow that the two businesses cannot be the same business" within the meaning of S. 24 (2).Whether two or more lines of business, may be regarded as the same business, or different business depends not upon the special methods prescribed by the Income-tax Act for computation of the taxable income, but upon the nature of the businesses, the nature of their organisation management, source of the capital fund utilised, method of book-keeping and a host of other related circumstances which stamp them as the same or distinct.7. In the present case, there is little doubt that the two businesses constituted one composite business : the Company was entitled to carry on the life insurance business and the general insurance business under its Memorandum of Association, and the businesses were attended to by the Branch Managers and the Agents without any distinction, there was one common administrative organization and the expenses incurred in connection with the business both for administration and for heads of expenditure such as salary of the staff, postage, staff welfare fund and general charges, were common.8. We are unable to agree with counsel for the Commissioner that the test whether one of the businesses can be closed without affecting tire conduct of the other business, is a decisive test in determining, whether the two constitute the same business within the meaning of S. 24 (2). If one business cannot conveniently be carried on after the closure of the other, there would be a strong indication that the two businesses constitute "the same business", but no decision inference may be drawn from the fact that after the closure of one business another may conveniently be carried on.9. In the present case the Tribunals judgment proceeds not upon any special circumstances governing the distinctive organization, management, at counts, methods of book-keeping or the peculiarities of the two businesses, but primarily upon the provisions of the Income-tax Act which provide different methods of computation of the taxable income of the life insurance business and of the general insurance business. We are notable to agree with the Tribunal, that because in respect of the life insurance business and general insurance business there are special methods of computation of income for the purpose of levying income-tax, they are not the "same business within the meaning of S. 24 (2). A fairly adequate test for determining whether the two constitute the same business is furnished by what Rowlatt, J. said in Scales v. George Thompson and Co. Ltd., (1929) 13 Tax Cas at p. 89"Was there any inter-connection, any interlacing, any inter-dependence, any unity at all embracing those two businesses?"That inter-connection, interlacing, inter-dependence and unity are furnished in this case by the existence of common management, common business organisation, common administration, common fund and a common place of business.10. In our view therefore the High Court was right in holding that the life insurance business and the general insurance business constitute the same business within the meaning of S. 24 (2) of the Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]7. In the present case, there is little doubt that the two businesses constituted one composite business : the Company was entitled to carry on the life insurance business and the general insurance business under its Memorandum of Association, and the businesses were attended to by the Branch Managers and the Agents without any distinction, there was one common administrative organization and the expenses incurred in connection with the business both for administration and for heads of expenditure such as salary of the staff, postage, staff welfare fund and general charges, were common.8. We are unable to agree with counsel for the Commissioner that the test whether one of the businesses can be closed without affecting tire conduct of the other business, is a decisive test in determining, whether the two constitute the same business within the meaning of S. 24 (2). If one business cannot conveniently be carried on after the closure of the other, there would be a strong indication that the two businesses constitute "the same business", but no decision inference may be drawn from the fact that after the closure of one business another may conveniently be carried on.9. In the present case the Tribunals judgment proceeds not upon any special circumstances governing the distinctive organization, management, at counts, methods of book-keeping or the peculiarities of the two businesses, but primarily upon the provisions of the Income-tax Act which provide different methods of computation of the taxable income of the life insurance business and of the general insurance business. We are notable to agree with the Tribunal, that because in respect of the life insurance business and general insurance business there are special methods of computation of income for the purpose of levying income-tax, they are not the "same business within the meaning of S. 24 (2).In our view thereforewas right in holding that the life insurance business and the general insurance business constitute the same business within the meaning of S. 24 (2) of thethe life insurance business and the general insurance business were not "the same business" within the meaning of S. 24 (2), loss in the life insurance business which could not be set off against income from other business of the Company and sources of income, could not he carried forward and set off in the year following against the income from the general insurancein respect of the life insurance business and general insurance business there are as already mentioned, special methods of computation of income. But because there are distinct methods of computation of taxable income of the insurance business, and the general provisions of theAct relating to computation of profits and gains of a business in S. 10 and the related sections are inapplicable, it does not follow that the two businesses cannot be the same business" within the meaning of S. 24 (2).Whether two or more lines of business, may be regarded as the same business, or different business depends not upon the special methods prescribed by theAct for computation of the taxable income, but upon the nature of the businesses, the nature of their organisation management, source of the capital fund utilised, method ofand a host of other related circumstances which stamp them as the same or distinct.