Case ID: 2909

Judgment:
Appeals Nos. 589 and 590 of 1967. Appeals by special leave from the judgment and order dated May 7	 1965 of the Calcutta High Court in Income tax Reference Nos. 183 and 238 of 1961. C. K. Daphtary	 B. P. Maheshwari and N. R. Khaitan	 for the appellant (in both the appeals). section C. Manchanda	 section K. Aiyar	 R. N. Sachthey and B. D. Sharma for the respondent (in both the appeals). The Judgment of the Court was delivered by Grover	 J. These appeals by special leave from a judgment of the Calcutta High Court arise out of certain questions of law which were referred relating to the assessment for the assessment year 1956 57	 the relevant accounting year being from September 1	 1954 to August 31	 1955. The assessee owned a colliery called the Western Kajoria Colliery	 hereinafter referred to as "colliery". It entered into an agreement with another company on November 29	 1954 to sell the colliery to it. According to this agreement the vendor was to sell and the purchaser was to buy as on and from September 1	 1954 all the underground rights etc of the colliery with the machinery and other articles detailed in the schedules annexed to the agreement. It is not necessary to give the details of the other stock intrade which the purchaser was to purchase. The sale was to be completed within one year from the date of the execution of the agreement. According to clause 7 of the agreement pending completion of the sale or delivery of possession of the premises to the purchaser the vendor was to carry on business on behalf of the purchaser and run the said colliery as on and from September 1	 1954 on the account and at the cost of the purchaser. The purchased was to get all the profits and was liable for all the losses from that date. 385 The price fixed for the colliery was Rs. 3	50	000. The book	 value of the assets was Rs. 4	80	290/ . In the relevant assessment year the loss of Rs. 70	290/ was claimed by the assessee. The Income tax Officer rejected the claim for deduction of the loss from the assessee 's other income on the ground that during the accounting period the assessee did not carry on the business of colliery since the transfer took place with effect from September 1	 1954. After making adjustment for certain assets which	 according to the Income tax Officer	 were not entitled to depreciation he determined the figure of loss to be Rs. 11	257/ . This loss was also disallowed. The Appellate Assistant Commissioner upheld the order of the Income tax Officer. The Appellate Tribunal	 however accepted the contention of the assessee that it carried on business till November 29	 1954 but did not allow the loss as the Tribunal was of the view that it had resulted from a closing down sale. There was another item of dividends received from certain shares held by the assessee during the relevant accounting year. The Income tax Officer included these dividends in the Company 's income under section 12 of the Income tax Act	 1922	 hereinafter called the "Act". The assessee failed to satisfy the authorities that the income received on account of the dividends could be set off against the loss in business of earlier years brought forward. The Tribunal made a reference of the following two questions under section 66(1) of the Act : "(1) Whether on the facts and in the circumstances of the case the sum of Rs. 11	257/ being a claim for loss on sale of assets on which depreciation was allowable in earlier years is allowable under Section 10 (2) (vii) in computing the total income of the assessee? (2) Whether on the facts and in the circumstances of the case dividend income was to be taken as income	 profits and gains of business of the company and set off against losses brought forward from earlier years under section 24(2)?" Since certain other questions had been sought to be referred by the assessee in respect of which the Tribunal declined to make a reference the assessee moved the High Court and the High Court directed that the following questions be referred "(3) Whether in the facts and circumstances of the case	 the interest income from Western Kajoria Collieries Ltd. is income taxable under Section 10 of the Indian Income tax Act or under Section 12 of the said Act ? 11 L807SupC.1171 386 (4) Whether on the facts and circumstances of I the case there was any material to hold that the loan of M/s Shri Vijoy Corporation Ltd. was an accommodation loan not advanced during the normal course of money lending business? (5) If the answer to question (4) is that the loan was a business loan whether the debt had become bad in the year of account and deductible in computation of the total income? (6) Whether in the facts and circumstances of the case the Tribunal was right in refusing to allow set off of earlier years business losses under section 24(2)?" The two references were dealt with together by the High Court. On the first question the High Court was of the view that the sale was a closing down sale and the net result of the transaction was that the assessee was working the colliery from September 1	 1954 for and on account of the purchaser. While recognising that the coal business was not stopped as from September 1	 1954 the High Court came to the conclusion that it was on account of the purchaser that the business was carried on and any profits 	or losses which might have resulted until the actual sale were to be those of the purchaser and the vendor was to get only the price fixed together with interest. The first question was answered against the assessee. The second question was also answered against the assessee on the view that no colliery business in the relevant year was carried on by it and therefore no question of set off could arise. The third and the fourth questions were answered in accordance with the findings of fact given by the Tribunal and against the assessee. The fifth question was not pressed and was not answered. The sixth question was covered by the second question and therefore no answer was returned with regard to it as well. In the present appeals we are concerned with the first and the second question. It has been submitted on behalf of the appellant that the loss of Rs. 11	257/ was allowable under section 10(2) (vii) of the Act in computing the total income of the appellant. The Tribunal had recorded a finding which was one of fact; that in the relevant accounting year the appellant did carry on the colliery business. The finding of the Tribunal had not been challenged by the department by raising an appropriate question and therefore it was not open to the High Court to go against the finding of the Tribunal and hold that the business was carried on for and on account of the purchaser. At any rate it was an un 387 disputable fact that the appellant carried on the business upto November 29	 1954 and it was only by virtue of the agreement made on that day that it agreed to treat the business as having been transferred to the purchaser with effect from September 1	 1954. By means of the agreement it was not possible to alter the actual state of affairs	 namely	 the carrying on of the business by the appellant. In our judgment there is a good deal of substance in the above contentions urged on behalf of the appellant. The Tribunal had	 in clear and unequivocal terms	 upheld the contention of the appellant that it had actually carried on the business till November 29	 1954. Section 10(2) (vii) provides that profits or gains shall be computed after making the allowance in respect of any such building	 machinery or plant which had 'been sold etc. the amount by which the written down value thereof exceeds the amounts for which the building	 machinery or plant is actually sold or its scrap value. The first provise requires that such amount should actually be written off in the books of the assessee. It is difficult to see how all the conditions necessary for the allowance under the above provisions were not satisfied. The colliery business was carried on by the appellant during part of the relevant accounting year. The machinery and plant had been used for the purpose of the business. The sale of the colliery took place during the accounting year. The loss of Rs. 11	275/ was written off in the books of the appellant The present case appears to be covered by the decision of this Court in Commissioner of Income tax	 Bombay City II vs National Syndicate(1) in which all the above conditions for the applicablity of section 10(2) (vii) were held to be	 present. It was said that there was no other condition to be found in the section Dr in the Act which had to be complied with. There was nothing to show that the business of the assessee should have been carried on for the whole year or that the machinery or plant should have been used for the whole of the accounting period or if the assessee worked only for a part of the year and then sold out the loss that lie incurred was not a business loss. The decisions which were relied upon by the High Court are hardly of much assistance in the matter and are distinguishable on facts. The first question should have been answered in favour of the assessee. On the second question once it is accepted that the colliery business was carried on for a part of the relevant assessment year the assessee would be entitled to get a set off under section 24(2) of the Act if the shares on account of which the dividends were received formed part of the assessee 's trading assets. It is well settled by the decisions of this Court (see C.I.T. Andhra Pradesh vs Cocanada (1) 388 Radhaswami Bank Ltd.(1) that section 6 of the Act classifies the taxable income under the several heads but the scheme is that income tax is one tax and section 6 only classifies the taxable income under different heads for the purpose of computation of the net income of the assessee. While sub s.(1) of section 24 provides for setting off the loss under one of the heads mentioned in section 6 against the profits under a different head in the same year sub s.(2) provides for the carrying forward of the loss for one year and setting off the same against the profits or gains of the assessee from the business in the subsequent year or years. It was emphasised in the aforesaid decision that sub section (2) of section 24 in contradistinction to sub section (1) is concerned only with the business and not with its heads under section 6 of the Act. Dividends are included in the meaning of income under sub section (1A) of section 12 which is the residuary head. Applying the principles adverted to before the amount of dividends would form a part of the income from business of the assessee if the shares were a part of the assessee 's trading assets and the assessee would be entitled to a set off as claimed against the loss from its business incurred during the previous years. It does not appear to have been disputed at any stage that the shares formed part of the stock in trade of the share dealing business of the ass	see. There could be no reason	 therefore	 for the assessee not being entitled to the set off claimed. The High Courts have consistently taken the view that business loss carried forward from earlier years can be set off against dividend income derived from shares held as stock in trade. (vide Commissioner of Income tax Madhya Pradesh vs Shrikishan Chandmal(2) and Commissioner of Income tax	 Ahmedabad vs Bhavnagar Trust Corporation (P) Ltd.(	) The second question, therefore, 'should have been answered in favour of the assessee. In the result the appeals are allowed with costs in this Court and the decision of the High Court is set aside only with regard to questions 1 and 2, the answers to which are returned as already indicated. One hearing fee. R.K.P.S. Appeals allowed. 
994	Appeal No. 429 of 1959. Appeal by special leave from the judgment and order dated December 6, 1957 of the former Bombay Sales Tax Tribunal in Appeal No.6 of 1956. C. K. Daphtary, Solicitor General of India, H. R. Khanna and R. H. Dhebar, for the appellant. N. A. Palkhivala, section P. Mehta, J. B. Dadachanji, Rameshwar Nath and P. L. Vohra, for the respondents. November 15. The Judgment of the Court was delivered by HIDAYATULLAH, J. The State of Bombay has appealed to this Court with special leave, against an order of the Sales Tax Tribunal, Bombay, dated December 6, 1957, by which the Tribunal allowing the appeal before it, set aside an order of the Collector of Sales Tax passed under section 27 of the Bombay Sales Tax Act, 1953. The respondents, Ratilal Vadilal & Bros., are commission agents doing business as clearing and transport contractors. On June 25, 1954, they applied to the Collector of Sales Tax, Bombay, under sections 27(a), (b) and (c) of the Act describing the nature of their business, citing one instance thereof, for determination of the question whether they could be called dealers " within the Act. The Collector by his order held that they were dealers	 and were required to register themselves under the Act. On appeal	 the Tribunal held otherwise	 and hence this appeal by the State of Bombay. 369 It appears that no action was taken to ask for 'a reference to the High Court of Bombay under section 34(1) read with sections 30(1) and (2) of the Act. We have frequently noticed that all the remedies which are open to an appellant are not first exhausted before moving this Court. Ordinarily	 this Court will not allow the High Court to be bypassed in this manner	 and the proper course for an appellant is to exhaust all his remedies before invoking the jurisdiction of this Court under article 136. In the present case	 however	 the matter is simple	 and the learned counsel for the respondent requested us to determine the question	 stating that his client who was a small trader and who made the application for the clarification of the law	 would be dragged through Courts once again	 if we were to decide this appeal on this short point. In view of this	 though we decide this appeal	 we must not be held to lay down a cursus curiae for this Court. The matter relates to a time after the Colliery Control Order	 1945	 came into force. Under that Order	 no person could acquire or purchase coal from a colliery except under authority of the Central Government for which purpose he had to obtain a priority certificate from the State Coal Controller. Under the scheme of the Order	 del credere agents were allowed to act and to charge a commission of one rupee per ton of coal. One Nanalal Karsandas	 a brick manufacturer	 was allotted a priority certificate in respect of 22 tons of coal on June 17	 1954. He dealt with M/s. S.C. Rungta Colliery	 Burhar	 through the respondents. The consignment was in the name of Karsandas	 but the bill was sent by the Colliery to the respondents	 and the respondents	 in their turn	 made out a bill in which they charged	 in addition to the amount of the bill of the Colliery	 a sum of Rs. 22 as their commission. The liability to pay the Colliery rested upon the respondents	 but they claimed to be acting as mere "middlemen " between the Colliery and Karsandas. The respondents stated that their business was along these lines with other constituents also	 and asked the Collector to determine whether they could be described as "dealers" within the Act	 and required registration. 370 "Dealer " in the Bombay Sales Tax Act	 1953	 is defined as follows: "dealer " means any person who carries on the business of selling goods in the State of Bombay	 whether for commission	 remuneration or otherwise. " (Explanation omitted). It would appear that to be a dealer	 the person must carry on the business of selling goods in the State of Bombay. The short question in this case	 therefore	 was whether the respondents were carrying on such a business in respect of coal. The scheme of the Control Order shows that no sale of coal could take place except to a person holding a certificate. A sale otherwise was in contravention of the Control Order. The certificate which has been produced in the case	 though made out in the name of the respondents	 shows the consumer as the consignee. It is thus plain that there was no sale by the Colliery to the respondents	 but directly to Karsan das	 though through the agency of the respondents. The respondents also	 when they made out the bill to Karsandas	 mentioned that he was the consignee	 and that they were only charging their " middlemen " commission. In these circumstances	 it is difficult to hold that the Colliery sold coal to the respondents	 and that they	 in turn	 sold it to Karsandas. There were no two sales involved; there was only one sale	 and that was by the Colliery to the consumer. The respondents never became owners by purchase from the Colliery	 because the Colliery would not have sold coal to them	 nor could they have bought it unless they had obtained a certificate. The position of the respondents was merely that of agents	 arranging the sale to a disclosed purchaser	 though guaranteeing payment to the Colliery on behalf of their principal. In view of what we have said	 no business of selling coal was disclosed in the instance cited before the Collector	 and the order of the Tribunal was correct on the facts placed before it. In the result	 the appeal fails and will be dismissed with costs. Appeal dismissed.

Summary:
The assessee entered into an agreement with another company on November 29	 1954 for the sale of its colliery. It was provided in the agreement that pending completion of the sale or delivery of possession	 the vendor was to carry on business on behalf of the purchaser and run the colliery as on and from September 1	 1954 on the account and at the cost of the purchaser. In the course of the appellant 's assessment to income tax for which the accounting year was from September 1	 1954 to August 31	 1955	 the Income Tax Officer	 after making adjustment for certain assets which according to him were not entitled to depreciation	 worked out the figure of loss at Rs. 11	257.00; however he rejected a claim to set off this loss against the appellant 's other income on the view that the assessee did not carry on the business of the colliery during the year since the transfer took place with effect from September 1	 1954. The Appellate Assistant Commissioner upheld this order and	 although the Tribunal	 in appeal	 accepted the assessee 's contention that it carried on business till November 29	 1954	 it did not allow the loss on the view that it had resulted from a closing down sale. In respect of the same year	 certain dividends on shares received by the assessee were included in its income under section 12 but its claim to set off this income against the loss in business for earlier years brought forward	 was disallowed. The High Court	 upon a reference made to it	 held against the appellant on both these issues. On appeal to this Court	 HELD : The Tribunal had	 in clear and unequivocal terms	 upheld the contention of the appellant that it had actually carried on the business till November 29	 1954. Section 10(2) (vii) provides that profits or gains shall be computed after making the allowances in respect of any such building	 machinery or plant which had been sold etc. 	 the amount by which the written down value thereof exceeds the amount 'for which the building	 machinery or plant is actually sold or its scrap value. The first proviso requires that such amount should actually be written off in the books of the assessee. It is difficult to see bow all the conditions necessary for the allowance under the above provisions were 	 not satisfied. The colliery business was carried on by the appellant during part of the relevant accounting year. The machinery and plant had been used for the purpose of the business. The sale of the colliery took place during the accounting year; and the loss of Rs. 11	237.00 was written off in the books of the appellant. [387 C F] Commissioner of Income Tax	 Bombay City II vs National Syndicate	 ; followed. 384 Once it is accepted that the colliery business was carried on for a part of the relevant assessment year	 the assessee would be entitled to get a set off under section 24(2) of the Act if the shares on account of which the dividends were received formed part of the assessee 's trading assets. It was not disputed that the shares formed part of the stock in trade of the share dealing business of the assessee. There could be no reason	 therefore	 for the assessee not being entitled to the set off claimed. [388 B D] C.I.T.	 Andhra Pradesh vs Cocanada Radhaswami Bank Ltd.	 ; Commissioner of Income Tax Madhya Pradesh vs Shrikishan Chandmal	 and Commissioner of Income Tax	 Ahmedabad vs Bhavnagar Trust Corporation (P.) Ltd.	 ; referred to.