Pennar Electronics Pvt.Ltd, Bangalore V. ITO, Hyderabad

ITA 1096/HYD/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3332 (ITAT-HYDERABAD)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-01-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 18-08-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMLAN TRIPATHY
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Depreciation; Opportunity of being heard; Difference of opinion; Unabsorbed depreciation
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER ITA NO.1096/H/2010 ASSESSMENT YEAR : 1998-99 M/S PENNAR ELECTRONICS (P) LTD., BANGALORE. (PAN AABCP 2142 E) VS THE ITO, WARD 16(2), HYDERABAD APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMA RAO RESPONDENT BY : SHRI AMLAN TRIPATHY ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THIS APPEAL PREFERRED BY THE ASSESSEE IS DI RECTED AGAINST THE ORDER OF THE CIT(A) V, HYDERABAD DATED 23.6.2010 AND PERT AINS TO THE ASSESSMENT YEAR 1998-99. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS IN ITS APPEAL: 2. THE CIT(A) ERRED IN CONFIRMING THE ASSESSMENT M ADE U/S 143(3) OF THE IT ACT WITHOUT PROVIDING PROPER OPPORTUNITY TO THE ASSESSE E. 3. THE CIT(A) ERRED IN HOLDING THAT THE ACTIVITY O F PRODUCTION OF ELECTRONIC GOODS BY THE ASSESSEE COMPANY DID NOT CONTINUE. TH E CIT(A) OUGHT TO HAVE SEEN THE DETAILS OF THE ACTIVITIES CARRIED ON BY TH E ASSESSEE AND OUGHT TO HAVE HELD THAT THE ACTIVITY OF PRODUCTION OF ELECTRONIC GOODS CONTINUED DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. 4. THE CIT(A) ERRED IN HOLDING THAT THE SYNDICATIO N CHARGES DO NOT REPRESENT INCOME FROM THE BUSINESS ACTIVITY OF THE ASSESSEE H EREIN AND FURTHER ERRED IN HOLDING THAT THE SAID INCOME IS TO BE ADDED SEPARAT ELY. THE CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT SUCH INCOME IS A PAR T AND PARCEL OF ONE BUSINESS ACTIVITY. 5. THE CIT(A) ERRED IN HOLDING THAT THE PROVISIONS OF SEC.72 AND SECTION 32(2) ARE NOT APPLICABLE WITH REGARD TO THE INCOME DERIVE D FROM THE SYNDICATION CHARGES. ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE 6. THE CIT(A) ERRED IN CONFIRMING THE ASSESSMENT M ADE BY THE ASSESSING OFFICER DETERMINING THE TOTAL INCOME AT RS.15,13,65 0/- AS AGAINST THE LOSS ADMITTED OF RS.2,48,534/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED RETURN OF INCOME ADMITTING A LOSS OF RS.2,48,534/- ON 30.11.1998. T HE ASSESSEE WAS IN THE BUSINESS OF MANUFACTURE AND SALE OF TVS WHICH HAD STOPPED IN APRIL, 1995. DURING THE CURRENT YEAR THE COMPANY ADMITTED INCOME OF RS.16,17,154/- UNDER THE HEAD INCOME FROM OTHER SOURCES WHICH INCLUDES RS.12,06,778/- BEING SYNDICATION CHARGES RECEIVED AND RS.4,10,370/- BEING WAIVER OF INTEREST BY THE B ANK. FROM THE TOTAL INCOME OF RS.16,17,154/- THE ASSESSEE REDUCED AN AMOUNT OF RS .1,05,263/- ON ACCOUNT OF DECREASE IN VALUE OF STOCK ON ESTIMATE BASIS. THE ASSESSEE FURTHER REDUCED ITS INCOME BY RS.4,11,726/- WHICH INCLUDES RS.2,42,813/ - AS ESTIMATED REDUCTION IN VALUE OF RAW MATERIAL RELATING TO TV BUSINESS AND O THER EXPENDITURE WHICH IS CONNECTED TO THE ASSESSEE OF SYNDICATION AND NOT TO THE BUSINESS OF TV MANUFACTURE. FROM THE PROFIT THUS ARRIVED AT RS.11 ,00,065/- BROUGHT FORWARD LOSS PERTAINING TO TV UNIT WAS ADJUSTED AND UNABSORBED L OSS WAS CARRIED FORWARD. THE ASSESSING OFFICER HELD THAT THE CARRY FORWARD LOSS FROM THE TV BUSINESS COULD NOT BE ADJUSTED AGAINST INCOME FROM SYNDICATION CHARGES. ACCORDINGLY, HE DETERMINED TOTAL INCOME AS BELOW: SYNDICATION CHARGES RECEIVED AS ADMITTED RS. 12,06,778 ADD: INTEREST WAIVED BY THE BANK DURING THE YEAR TREATED AS INCOME U/S 41 OF THE IT ACT. R S. 4,10,376 -- --------------- RS.16,17,154 ========== LESS: EXPENDITURE ALLOWED RELATING TO COMMISSION BUSINESS 1. SALARIES AND WAGES RS.6000 2. PRINTING AND STATIONERY RS.3000 3. POSTS AND TELEGRAPHS RS. 6,000 4. TELEPHONES RS.18,000 ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE 5. GENERAL EXPENSES RS.6,500 6. EXPENSES UNDER SYNDICATION RS.64,000 ------------ TOTAL CHARGES RS.1,03,500/- TOTAL INCOME RS.15,13,650/- ========== 4. AGGRIEVED BY THE ABOVE, THE ASSESSEE WENT IN A PPEAL BEFORE THE CIT(A). THE CIT(A) ADJUDICATED ON THE MATTER AND G AVE A FINDING THAT THE SYNDICATION CHARGES RECEIVED ACTUALLY PERTAINING TO THE MANAGING DIRECTOR OF THE COMPANY, SRI RAVI KIRAN AND THAT THIS INCOME SHOULD BE ASSESSED IN THE HANDS OF THE MD AND NOT IN THE HANDS OF THE COMPANY. THEREF ORE, BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT WENT IN APPEAL BEFORE THE TRIBUNA L AND THE TRIBUNAL VIDE ORDER DATED 14.12.2007, IN ITA NO.1056 & 1074/H/03 FOR TH E ASSESSMENT YEAR 1998-99 HELD THAT THE SYNDICATION INCOME WAS TO BE ASSESSED IN THE HANDS OF THE ASSESSEE COMPANY ONLY AND NOT IN THE HANDS OF THE MD. IT WA S FURTHER OBSERVED THAT THE CIT(A) HAD NOT ADJUDICATED ON GROUNDS RAISED BY THE ASSESSEE. ACCORDINGLY, THE APPEAL WAS SET ASIDE TO THE FILE OF THE CIT(A) WITH THE FOLLOWING OBSERVATIONS: 20. HOWEVER, SINCE THE CIT(A), AS STATED ABOVE HA S NOT ADJUDICATED THE GROUNDS RAISED BY THE IN THE APPEAL BEFORE HIM, WE ARE OF THE VIEW THAT IN THE INTERESTS OF JUSTICE, THE MATTER SHOULD GO B ACK TO THE FILE OF THE CIT(A) AND ACCORDINGLY WE SET ASIDE THE GROUND OF T HE CIT(A) ON THIS ACCOUNT AND RESTORE THE MATTER TO THE FILE OF THE C IT(A), WHO SHALL DECIDE THE SAME, INCLUDING THE GROUNDS RAISED BY THE ASSE SSEE BEFORE US, AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING REASO NABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, THE GROU NDS NO.1,2,4, AND 6 TAKEN BY THE ASSESSEE BEFORE US ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. CONSEQUENTLY, THE CIT(A) PASSED THE IMPUGNED O RDER HOLDING THAT THERE IS ABSOLUTELY NO COMMONALITY BETWEEN THE SYND ICATION INCOME SHOWN BY THE ASSESSEE AND THE CLOSED DOWN BUSINESS OF TV MANUFAC TURE. WITH REGARD TO THE CLOSED DOWN BUSINESS, THE STAFF HAVE BEEN RETRENCHE D, THE MACHINES WERE LYING IDLE AND THERE WAS ABSOLUTELY NO ACTIVITY GOING ON, WHAT SOEVER. ON THE OTHER HAND, AFTER TWO YEARS OF CLOSING DOWN OF BUSINESS THE ASSESSEE SUDDENLY STATES THAT IT HAD HELPED THE APSEB TO OBTAIN LOAN AND HAD THUS RECEIV ED SOME COMMISSION FROM SOME PRIVATE PARTIES. IT IS NOT CLEAR EVEN AS TO W HAT SERVICES WERE REDUCED AS ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE CLAIMED BY THE ASSESSEE. NO DETAILS, WHATSOEVER WE RE PROVIDED? WAS ANY STAFFS RECRUITED FOR THE SAME IS NOT CLEAR. THE ASSESSEE HAS NOT DEMONSTRATED ANY COMMONALITY, INTERCONNECTION, INTERDEPENDENCE OR AN Y UNITY AT ALL WHICH WOULD EMBRACE THE INCOME EARNED FROM SYNDICATION AND THE ACTIVITIES WHICH WERE ONCE CARRIED OUT IN THE CLOSED DOWN BUSINESS OF TV MANUF ACTURE. IN THE CASE OF BR LIMITED VS CIT (1979) (113 ITR 647), THE HONBLE SU PREME COURT HELD THAT DECISIVE TEST TO DETERMINE WHETHER TWO BUSINESSES ARE THE SA ME IS THAT OF UNITY OF CONTROL. THE FACT THAT ONE BUSINESS CANNOT CONVENIENTLY BEEN CARRIED ON AFTER THE CLOSE OF THE OTHER BUSINESS AND THAT THE TWO CONSTITUTE THE SAME BUSINESS. ACCORDINGLY, IT IS HELD THAT THE TWO DO NOT CONSTITUTE A COMMON BUSINESS. HE FURTHER OBSERVED THAT IT IS CLEAR THAT THE ASSESSEE HAS NOT DEMONSTRATED ANY AC TIVITY THAT IT CARRIED OUT TO EARN THE INCOME. THE ASSESSEE COULD NOT PRODUCE ANY EVI DENCE OR EVEN EXPLANATION TO SHOW WHAT ACTIVITIES IT CARRIED OUT TO HELP THE APS EB OBTAIN A LOAN AS CLAIMED BY THE ASSESSEE. THERE IS NO LETTER FROM THE APSEB THAT I T HAD HIRED THE ASSESSEE AS A CONSULTANT. THEREFORE, GIVEN THE FACTS AND CIRCUMS TANCES, THE SYNDICATION INCOME CANNOT EVEN BE CLASSIFIED AS BUSINESS, LEAVE ALONE THE COMMON BUSINESS WITH THE CLOSED DOWN ACTIVITY OF MANUFACTURE OF TV SETS. TH IS INCOME HAS TO BE CLASSIFIED UNDER THE HEAD INCOME FROM OTHER SOURCES. 6. FURTHER, HE OBSERVED THAT SINCE THE ASSESSEE H AS NOT CARRIED ON THE BUSINESS IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THERE IS NO INCOME ASSESSABLE UNDER THE HEAD PROFIT AND GAINS FROM BU SINESS FROM WHICH THE LOSS WAS ORIGINALLY COMPUTED, THE LOSS EARNED BY THE ASSESSE E CANNOT BE SET OFF AGAINST THE INCOME FROM OTHER SOURCES EARNED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. HE ALSO HELD THAT UNABSORBED DEPRECIATION AND CARRY FO RWARD CANNOT BE ADJUSTED AGAINST THIS INCOME. ACCORDINGLY, HE CONFIRMED THE ORDER O F THE ASSESSING OFFICER. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTE D THAT DURING THE PREVIOUS YEAR UNDER CONSIDERATION, THE BUSINESS OF MANUFACTURING OF ELECTRONIC GOODS HAS BEEN CONTINUED. HE DREW OUR ATTENTION TO THE COPIES OF FOLLOWING LETTERS WHICH TO PROVE THE EXISTENCE OF ASSESSEE BUSINESS DURING THE ASSESSMENT YEAR : ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE 1. LETTER FROM ELECTRONICS TRADE AND TECHNOLOGY DE VELOPMENT CORPORATION LTD. (GOVT. ENTERPRISES) DT. 28.12.1999 (PB 7-9) 2. LETTER DATED 6.1.2000 FROM CHIEF MANAGER, ET&T, SECUNDERABAD FOR APPOINTMENT OF THE ASSESSEE AS AUTHORISED SERVICE CENTRE. (PB 1 0) 3. QUOTATION DATED 4.1.2000 FOR SUPPLY OF COLOUR AN D BLACK & WHITE TVS FOR ANGANWADI CENTRES/MODEL ANGANWADI CENTRES ADDRESSED TO SHRI M.G. SREENIVAS, IAS, PROJECT COORDINATOR WORLD BANK, ICDS PROJECT, VENGALRAO NAGAR, HYDERABAD, (PB 11 & 12) 4. CONFIRMATION LETTERS OF THE PARTIES REGARDING T HE SERVICING AND REPAIR WORK CARRIED OUT BY THE ASSESSEE. (PB 13-16). 8. FURTHER, HE SUBMITTED THAT THE BUSINESS OF T HE ASSESSEE WAS NOT CLOSED DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THERE WAS A LULL IN THE BUSINESS ACTIVITIES OF THE ASSESSEE AS THE ASSESSEE COULD NO T RECEIVE ORDERS FROM GOVT. FOR SUPPLY OF TVS IN THE RECENT PAST. EVEN NOW THE ASS ESSEE IS CAPABLE OF MANUFACTURING THE ELECTRONICS GOOD. THE ASSESSEE W AS MOSTLY CATERING TO THE NEEDS OF THE GOVT ORGANISATIONS BASED ON THE ORDERS PLACE D BY THEM. FOR TIME BEING THERE ARE NO ORDERS FROM GOVT AND THEREFORE THE ASSESSEE IS NOT MANUFACTURING THE TV SETS. THE COMPANY IS MAKING EFFORTS IN THE DIRECTI ON TO GET ORDERS. THE ASSESSEE IS STILL IN POSSESSION OF RAW MATERIALS THE FINISHED G OODS AND THE CAPITAL EQUIPMENT TO ASSEMBLE TVS, IT IS STILL IN POSSESSION OF THE PR EMISES WHEREIN SUCH ACTIVITY IS BEING CARRIED ON. HE SUBMITTED THAT THE ASSESSEE HAS REQ UESTED THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT TO CARRY OUT INSPECTION OF THE PREMISES TO SHOW THAT THE ASSESSEE IS CONTINUING THE BUSINESS AND DID NOT CLO SE ITS ACTIVITIES. HOWEVER, THE ASSESSING OFFICER HAS NOT CARRIED OUT SUCH INSPECTI ON AND WITHOUT CARRYING SUCH INSPECTION, HE CAME TO THE CONCLUSION THAT THE ASSE SSEE HAS CLOSED ITS BUSINESS, WHICH IS INCORRECT. 9. IT IS FURTHER SUBMITTED BY THE AR THAT THE T V SETS SOLD ARE UNDER WARRANTY FOR A PERIOD OF 3 YEARS. THE ASSESSEE WA S REPAIRING AND REPLACING PARTS OF THE TV SETS WHICH WERE BOUGHT FROM THEM. THE ACTI VITY OF REPAIR AND REPLACEMENT ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE WAS DONE FREE OF COST AS THE SETS SOLD WERE UNDER W ARRANTY. HE SUBMITTED THAT A LIST OF THE SETS WHICH WERE REPAIRED OR SERVICED FURNISH ED TO THE ASSESSING OFFICER. FROM THAT IT IS CLEAR THAT THERE IS A REDUCTION IN THE C LOSING STOCK AS ON 31.3.1998 COMPARED TO THE STOCK AVAILABLE AS ON 1.4.1997. THE SAID ST OCK WAS UTILISED IN PROVIDING REPLACEMENT AND IN CONDUCTING THE REPAIR WORK. THE REFORE, IT CANNOT BE SAID THAT THE BUSINESS WAS CLOSED. THE ASSESSEE IS CONTINUING TH E BUSINESS ACTIVITY THOUGH IT COULD NOT OBTAIN ORDERS FOR SALE OF TV SETS. 10. HE SUBMITTED THAT THE ASSESSING OFFICER WRONG LY PLACED RELIANCE ON THE FINAL ACCOUNTS OF THE ASSESSEE FOR THE YEARS 1996-9 7 AND 97-98 TO STATE THAT THERE WAS A CLOSURE OF MANUFACTURING ACTIVITY. THE DETAI LS IN THE FINAL ACCOUNTS OF THE EARLIER YEARS SHOW THAT THERE WAS NO MANUFACTURING ACTIVITY. HOWEVER, THEY CLEARLY SHOW THAT THERE WAS AN OPENING STOCK IN TRADE, FINI SHED GOODS, CONSUMABLES AND THE CLOSING BALANCE OF THE SAID STOCK. THIS CLEARLY SH OWS THE INTENTION OF THE ASSESSEE TO CARRY ON THE BUSINESS ACTIVITY AND THE INTENTION OF THE ASSESSEE NOT TO CLOSE THE SAID BUSINESS. IT IS FURTHER SUBMITTED THAT AT NO POINT OF TIME THE ASSESSEE TRIED TO LIQUIDATE THE COMPANY. THE ASSESSEE IS TRYING TO R EVIVE ITS ACTIVITY BY GETTING SOME MORE ORDERS FROM VARIOUS GOVT. AGENCIES. THEREFORE , IT IS KEEPING THE PREMISES IN ITS POSSESSION WITH ALL THE EQUIPMENTS. HOWEVER, THE A SSESSEE COULD NOT OBTAIN ORDERS FROM THE GOVT. AGENCIES FOR SUPPLY OF TV SETS. THE REFORE, IT DID NOT MANUFACTURE ANY TV SETS DURING THE PREVIOUS YEAR. IT CANNOT, THERE FORE, BE SAID THAT THE BUSINESS OF ELECTRONIC GOODS IS CLOSED. 11. HE SUBMITTED THAT THE ASSESSING OFFICER WRONG LY MENTIONED ABOUT THE RETRENCHMENT OF THE WORKERS. IN THIS RESPECT, HE SUBMITTED THAT AS THE COMPANY DID NOT OBTAIN GOVT. ORDERS FOR SUPPLY OF TVS, THE WORK ERS WERE RETRENCHED. THEY CAN BE APPOINTED; THE MOMENT GOVT PLACES ORDERS FOR SUPPLY OF TV SETS. THE MANAGEMENT WAS OF THE VIEW THAT THE WORKERS CAN ALSO BE ENGAGE D ON PIECE WORK BASIS PARTICULARLY IN VIEW OF THE UNCERTAINTY OF THE ORDE RS FROM GOVT. HOWEVER, THERE IS ONE EMPLOYEE WHO CAN ATTEND TO THE REPAIR WORK. THE MD HIMSELF IS QUALIFIED ENGINEER AND CAN PARTICIPATE IN THE MANUFACTURING ACTIVITY A ND THE ACTIVITY OF REPAIRS AND REPLACEMENTS. THEREFORE, THE RETRENCHMENT OF WORKE RS CANNOT LEAD TO THE CONCLUSION ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE THAT THE ASSESSEE CLOSED ITS BUSINESS ACTIVITY. TH IS FACT MAY BE APPRECIATED THAT NO PRUDENT BUSINESS MAN WOULD CONTINUE THE OVER HEADS AT THE COST OF SUB STRATUM OF THE COMPANY. 12. HE SUBMITTED THAT THE ASSESSING OFFICER HAS M ENTIONED ABOUT THE NO CHANGE IN MAIN OBJECTS OF THE COMPANY. IN THIS REG ARD HE SUBMITTED THAT THE OBJECTS OF THE FINANCIAL CONSULTANCY SERVICES AS PER THE CL AUSES (4) AND (5) UNDER OTHER OBJECTS OF MEMORANDUM OF ARTICLES OF ASSOCIATION OF ASSESSEE COMPANY IS APPROVED BY THE MEMBERS OF THE COMPANY BY PASSING THE SPECIA L RESOLUTION IN EXTRAORDINARY GENERAL BODY MEETING WHICH WAS HELD ON 15.12.1997 A ND THEREFORE, THE ASSESSEE COMPANY CAN TAKE UP THE FINANCIAL SERVICES ALSO. 13. HE SUBMITTED THAT VARIOUS COURTS HELD THAT SU SPENSION OF CARRYING ON THE ACTIVITY DOES NOT AMOUNT TO DISCONTINUANCE OF T HE BUSINESS AND THERE WAS NO SUSPENSION OF BUSINESS IN THIS CASE, AS THE REPAIR S AND REPLACEMENTS TO THE GOODS SOLD EARLIER WAS BEING CARRIED ON. 14. HE RELIED ON THE FOLLOWING JUDGEMENTS: 1. B.R. LTD. VS. CIT (113 ITR 647) (SC) 2. STANDARD REFINERY AND DISTILLERY LTD. VS. CIT (7 9 ITR 589) (SC) 3. PRODUCE EXCHANGE CORPORATION LTD. VS. CIT (77 IT R 739) (SC) 4. SHAH PRATAP CHAND NOWPAJI VS. CIT (AP HC) 5. LAXMINARAIN MILLS PVT. LTD. VS. CIT (205 ITR 88) (CAL. HC) 6. CIT VS. CACHAR NATIVE JOINT STOCK LTD. (198 ITR 289) (GOWHATI HC) 7. CIT VS. DEEPAK TEXTILE INDUSTRIES LTD. (168 ITR 773) (GUJ. HC) 8. ESCORTS ELECTRONICS LTD. VS. CIT (251 ITR 23) (D EL. HC) 9. CIT VS. PIONEER ASIA PACKERS PVT. LTD. (310 ITR 198) (MAD. HC) 10. CIT VS. RP IYER SIGNALLING SYSTEMS LTD. (328 ITR 283) (MAD. HC) 11. CIT VS. BHARAT NIDHI LTD. (1966) (60 ITR 520) (PUNJAB) WHEREIN HELD THAT THE ASSESSEE ADVANCED ITS FIRST LOAN ONLY SEPTEMBER, 19 52, DID NOT INDICATE THAT ITS BUSINESS CEASED TO EXIST OR THAT THE ASSESSEE DID N OT CARRY ON BUSINESS AT ALL: THE ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE MERE FACT THAT A BUSINESS WAS INACTIVE OR DORMANT F OR A PERIOD DID NOT LEAD TO THE CONCLUSION THAT IT HAD CEASED. 12. CIT VS. SHAH PRATAPCHAND NOWPAJI (1983) (139 I TR 149 ) (AP) WHEREIN HELD THAT THE TRIBUNAL HAD FOUND ON FACTS THAT THE ASSES SEE DID NOT CARRY ON SPECULATIVE BUSINESS AND IT WAS THE NORMAL TRADE PRACTICE TO PA Y LOSSES BY COMMISSION AGENTS ON BEHALF OF THEIR CONSTITUENTS AND RECOVER THE SAM E FROM THE LATTER IN DUE COURSE AND SUCH PAYMENTS WERE NECESSARY FOR THE PURPOSE OF CARRYING ON COMMISSION AGENCY BUSINESS. HENCE, THE LOSS SUFFERED BY THE A SSESSEE ON ACCOUNT OF SUCH PAYMENTS COULD NOT BE SAID TO BE IN THE COURSE OF S PECULATIVE BUSINESS, BUT WAS A LOSS ARISING FROM COMMISSION AGENCY BUSINESS. FURT HER, THE ASSESSEE WAS MAINTAINING ONE SET OF ACCOUNT BOOKS FOR BOTH COMMI SSION AGENCY AND MONEY LENDING BUSINESS. THERE WAS INTERLACING AND INTERM INGLING OF FUNDS AND ONE ACTIVITY COULD NOT BE SEPARATED FROM THE OTHER. THEREFORE, THE ASSESSEE WAS ENTITLED TO A DEDUCTION OF THE AFORESAID LOSS FROM ITS BUSINESS I NCOME DURING THE ASSESSMENT YEAR 1962-63, NOTWITHSTANDING STOPPAGE OF COMMISSIO N AGENCY BUSINESS DURING THE RELEVANT YEAR. 15. HE SUBMITTED THAT THE EVIDENCE PRODUCED BY THE ASSESSEE CLEARLY SHOWS THAT THE ASSESSEE HAS CARRIED ON ITS BUSINESS ACTIVITIES DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. THE INCOME EARNED BY THE ASSESSEE B Y WAY OF COLLECTING SYNDICATION CHARGES IS A BUSINESS ACTIVITIES AND LOSS OF EARLIE R YEAR TO BE SET OFF AGAINST ITS INCOME. 16. ON THE OTHER HAND, THE LEARNED DR STRONGLY RE LIED ON THE ORDER OF THE LOWER AUTHORITIES AND SUBMITTED THAT THERE IS NO BU SINESS ACTIVITIES OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION AND EARLIER YEAR B USINESS LOSS CANNOT BE SET OFF AGAINST THE INCOME EARNED FROM THE OTHER SOURCES. H E RELIED ON THE FOLLOWING JUDGEMENTS: 1. CIT VS. PRITHVI INSURANCE CO. LTD. (1967) (63 ITR 632) (SC) WHEREIN HELD THAT FOR TWO BUSINESS TO BE DESCRIBED AS THE SAME BUSINESS, THERE HAS TO BE INTERCONNECTION, INTERLACING, INTERDEPENDENCE AND UNITY AMONGST THEM. ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE 2. CIT VS. B.V. MUNIRATHNAM NAIDU (1966) (59 ITR 4 92) (MAD.) WHEREIN HELD THAT THE TESTS TO BE APPLIED TO FIND OUT WHETHER THE ACT IVITIES OF AN ASSESSEE CONSTITUTE A SINGLE BUSINESS ARE (1) THE INTER RELATION OF THE A CTIVITIES (II) THE NATURE OF THE DIFFERENT TRANSACTIONS AND (III) THE POSSIBILITY OF ONE BEING CLOSED DOWN WITHOUT AFFECTING THE TEXTURE OF FABRIC OF THE OTHERS. THESE TESTS SHOUL D BE APPLIED CUMULATIVELY. 3. BHAI SWINDER SINGH VS. CIT (1980) (124 ITR 105) , (DEL.) WHEREIN HELD THAT WHERE TWO BUSINESSES WERE NOT SIMULTANEOUSLY CONDUCTED, B UT ONE FOLLOWED THE OTHER, THE MERE FACT THAT THE MONEY EMPLOYED IN THE PREVIOUS B USINESS WAS BEING UTILISED IN THE SUBSEQUENT BUSINESS WOULD NOT BY ITSELF BE A SUFFIC IENT CIRCUMSTANCES TO HOLD THAT THE TWO BUSINESSES WERE THE SAME AND NOT DISTINCT. 4. JAI KISHAN NARANG VS. CIT (1963) (50 ITR 700) (B OM) HELD THAT THE GUARANTEE BROKING BUSINESS CONSISTENT OF INTRODUCING CLIENTS TO THE BANK AND AS THIS ACTIVITY WAS STOPPED IN 1947. THE BUSINESS COULD NOT BE SAID TO CONTINUE MERELY BECAUSE COMMISSION AND INTEREST IN RESPECT OF TRANSACTIONS GUARANTEED BEFORE 1947 CONTINUED TO BE RECEIVED. THE MONEY LENDING BUSINE SS AND GUARANTEE BROKING BUSINESS WERE NOT IDENTICAL, AND IN THE ABSENCE OF PROOF OF ANY CUSTOM, THE LOSS SUFFERED IN THE GUARANTEE BROKING BUSINESS CANNOT B E SAID TO BE LOSS SUFFERED IN THE MONEY LENDING BUSINESS. FURTHER, AS THE TWO BUSINE SSES VESTED IN TWO DIFFERENT ENTITIES IN THE PRESENT CASE, IT COULD NOT BE SAID THAT THEY WERE BRANCHES OF THE SAME BUSINESS. THE LOSS OF A DEAD, SEPARATE AND DISTINC T BUSINESS CANNOT BE CLAIMED AS A SET OFF AGAINST THE INCOME OF ANOTHER BUSINESS WHIC H THE ASSESSEE IS CARRYING ON IN THE ACCOUNTING YEAR. 5. CIT VS. BENGAL JUTE MILLS CO. LTD. (165 ITR 631) (CAL.) WHEREIN HELD THAT THE ASSESSEE HAD NOT CHALLENGED THE FINDING OF THE TRIB UNAL THAT THE INCOME FROM LETTING OUT THE GODOWNS WAS INCOME FROM HOUSE PROPERTY AND THAT FINDING HAD BECOME FINAL. THE DIRECTION OF THE TRIBUNAL ALLOWING THE ASSESSEE TO SET OFF ITS CARRIED OVER BUSINESS LOSSES AGAINST RENTAL INCOME FROM THE GODO WN WAS ERRONEOUS. THE ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE ASSESSEE WAS NOT ENTITLED TO SET OFF BUSINESS LOSSE S CARRIED FORWARD FROM EARLIER YEARS AGAINST RENTAL INCOME FROM THE GODOWNS FOR TH E ASSESSMENT YEAR 1971-72. 6. MALABAR AGRICULTURAL CO. VS. CIT (229 ITR 548) (KER) WHEREIN HELD THAT THE FACTUAL POSITION WAS CLEAR THAT THERE WAS NO BUSINESS ACTIV ITY OF ANY KIND DURING THE YEAR IN QUESTION. HENCE, THE LOSSES CARRIED FORWARD FROM T HE EARLIER YEARS AND UNABSORBED DEPRECIATION FROM THE BUSINESS OF GROWING AND MANUF ACTURING TEA COULD NOT BE SET OFF AGAINST THE INCOME OF THE CURRENT PREVIOUS YEAR. 17. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIALS AVAILABLE ON RECORD. WE HAVE ALSO CAREFULLY GONE THROUGH THE CA SE LAW CITED BY THE RIVAL PARTIES. THE MAIN CONTENTION OF THE DEPARTMENT HEREIN IS THA T THE ASSESSEES BUSINESS OF MANUFACTURING OF TV SETS WAS NOT CARRIED ON BY THE ASSESSEE AND IT WAS CLOSED IN THE ASSESSMENT YEAR UNDER CONSIDERATION. AS SUCH, THE INCOME EARNED BY THE ASSESSEE FROM SYNDICATION INCOME CANNOT BE CONSIDER ED AS BUSINESS INCOME AS SUCH, IT IS TO BE ASSESSED AS INCOME FROM OTHER SO URCES AND EARLIER YEAR LOSS CANNOT BE SET OFF AGAINST THIS INCOME. THE ASSESSI NG OFFICER HAS DECLINED THE SET OFF OF LOSSES ONLY ON THE BASIS THAT THE MANUFACTURING ACTIVITY OF TV SETS WAS NOT CARRIED OUT BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR. IN OUR CONSIDERED VIEW, MANUFACTURING OF TV SETS WAS NOT TAKEN PLACE DURIN G THE ASSESSMENT YEAR UNDER CONSIDERATION PER SE CANNOT EVEN LEAD TO A CONCLUSI ON THAT THAT THE BUSINESS OF THE ASSESSEE WAS DISCONTINUED, LEAVE ASIDE THE QUESTION OF CLOSURE OF THE ASSESSEES BUSINESS, WHICH MAY, ON THE GIVEN FACTS ENCOMPASS M ORE THAN MANUFACTURING OF TV SETS. IN THE CASE OF L VE. VERAVAN CETTIAR VS CIT (72 ITR 114) (MAD.), THEIR LORDSHIPS OF HONBLE MADRAS HIGH COURT CONSIDERED THE SITUATION WHERE THE ASSESSEE HAD OBTAINED AN IMPORT LICENCE FOR DOING A RECA NUT BUSINESS BUT DUE TO ADVERSE CONDITION IN MARKET, HE TEMPORARILY SUSPEND ED THE ARECA NUT BUSINESS FOR THE ASSESSMENT YEAR IN QUESTION. NEVERTHELESS, H E WAS MAINTAINED THE ESTABLISHMENT AND WAS WAITING FOR IMPROVED MARKET C ONDITIONS IN ARECA NUT. IT WAS THUS ADMITTED POSITION THAT NO ACTIVITIES WERE CARR IED OUT SO FAR AS THIS PART OF THE BUSINESS WAS CONCERNED. ON THESE FACTS, THEIR LORD SHIP TOOK NOTE OF THE POSITION THAT THERE IS NOTHING ON RECORD TO SHOW THAT HE CO MPLETELY ABANDONED OR CLOSED THE ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE BUSINESS FOR EVER. ON THE OTHER HAND, HIS BOOKS O F ACCOUNTS REVEALED THAT HE WAS MEETING THE ESTABLISHMENT CHARGES AND INTEREST PAYM ENTS AS DETAILED IN THE ACCOUNTS IN THE YEAR OF ACCOUNTS. IT WAS THEN OBS ERVED THAT THE QUESTION WHETHER THE BUSINESS IS BEING CARRIED ON MUST DEPEND IN EAC H CASE ON ITS OWN FACTS AND NOT ON ANY GENERAL THEORY OF LAW. THEIR LORDSHIP THEN REFERRED TO, WITH APPROVAL, LORD SUMMERS OBSERVATION IN IRC VS. SOUTH BEHAR RAILWAY CO. LTD. (1925) (12 TAX CASES 657) THAT BUSINESS IS NOT CONFINED TO BEING B USY ; IN MANY BUSINESSES LONG INTERVALS OF ACTIVITY OCCUR. THE CONCERN IS STI LL A GOING CONCERN THOUGH A VERY QUITE ONE. AFTER ELABORATE SURVEY OF JUDICIAL PR ECEDENCE ON THE ISSUE, THEIR LORDSHIP CONCLUDED, IN THE LIGHT OF, AS NOTED ABOVE, THE FAC TUAL POSITION THAT THERE IS NOTHING ON RECORD TO SHOW THAT HE COMPLETELY ABANDONED OR C LOSED THE BUSINESS FOREVER. ON THE OTHER HAND, HIS BOOKS OF ACCOUNT REVEALED THAT HE WAS MEETING THE ESTABLISHMENT CHARGES AND INTEREST PAYMENT AS DETAILED IN THE ACC OUNTS IN THE YEAR OF ACCOUNT, THAT THE LOSS IN ARECA NUT BUSINESS, IN WHICH ADMIT TEDLY NO ACTIVITY WAS CARRIED OUT DURING THE RELEVANT PREVIOUS YEAR, WAS TO BE SET OF F AGAINST THE ASSESSEES BUSINESS INCOME IN THE YEAR, AS THE BUSINESS MUST BE DEEMED TO BE CONTINUING. IN THE LIGHT OF THIS LEGAL POSITION, IT WOULD FOLLOW THAT UNLESS TH ERE IS SOME MATERIAL ON RECORD TO SHOW THAT THE ASSESSEE HAS COMPLETELY ABANDONED THE TV MANUFACTURING ACTIVITY, EVEN IF THAT CAN BE TREATED AS DISTINCT BUSINESS BY ITSELF, MERELY BECAUSE NO MANUFACTURING OF TV SETS IN THE RELEVANT PREVIOUS Y EAR CANNOT BE REASON ENOUGH TO COME TO CONCLUSION THAT THE LOSSES INCURRED BY THE ASSESSEE IN THAT BUSINESS IN THE EARLIER YEARS ARE NOT ENTITLED TO BE SET OFF AGAINS T THE ASSESSEES INCOME FROM SYNDICATION CHARGES IN THE ASSESSMENT YEAR UNDER CO NSIDERATION. FURTHER, THE ASSESSEE HAS SOLD THE TV SETS ON 3 YEARS WARRANTY A ND IT IS DUTY BOUND TO CARRY ON REPAIRS DURING THE PERIOD OF WARRANTY FOR WHICH PUR POSE THE ASSESSEE HAS MAINTAINED ESTABLISHMENT AND SPARE PARTS AND CONSUMABLES. IT COULD NOT BE THUS SAID THAT THE ASSESSEE HAD COMPLETELY ABANDONED OR CLOSED THE BUS INESS FOREVER. IN OUR CONSIDERED VIEW, THERE IS NO MATERIAL TO SUGGEST TH AT TV MANUFACTURING OPERATION OF THE ASSESSEE COMPANY WHEREIN A STAGE MORE THAN THAT OF A SUSPENSION. FURTHER, THE SYNDICATION INCOME IS NOTHING BUT BUSINESS INCO ME AND IT CANNOT BE CONSIDERED AS INCOME FROM OTHER SOURCES. AS EVIDENT FROM THE SPECIAL RESOLUTION IN EXTRAORDINARY GENERAL BODY MEETING HELD ON 15.12.19 97, THE ASSESSEE IS PERMITTED ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE TO CARRY ON THE FINANCIAL CONSULTANCY SERVICES AS P ROVIDED IN CLAUSE (4) & (5) OF THE OBJECT CLAUSE OF MEMORANDUM AND ARTICLES OF ASSOCIA TION OF ASSESSEE COMPANY. THE ASSESSEE IS BEING PERMITTED TO CARRY ON THE FIN ANCIAL CONSULTANCY SERVICES BY ITS OBJECT CLAUSE; AS SUCH THE SYNDICATION INCOME IS PA RT AND PARCEL OF THE BUSINESS INCOME. REGARDING THE SET OFF OF LOSS, THE LAW IS BY NOW FAIRLY WELL SETTLED THAT THE EXPRESSION BUSINESS OR PROFESSION IN S. 72 (1)(I) PROVISO REFERS TO ALL THE ACTIVITIES COMPRISED IN THE BUSINESS AND NOT ANY PARTICULAR A CTIVITY. THEREFORE, WHAT IS MATERIAL IS WHETHER THE BUSINESS, AND NOT NECESSARI LY THE ACTIVITY, IN WHICH THE LOSS WAS INCURRED, WAS IN EXISTENCE IN THE RELEVANT PREV IOUS YEAR OR NOT. HOWEVER, BEFORE WE ADDRESS OURSELVES TO THE QUESTION WHETHER, ON TH E GIVEN FACTS, THE REVENUE HAS RIGHTLY TAKEN A STAND THAT THE BUSINESS IN WHICH LO SS WAS INCURRED BY THE ASSESSEE WAS NO LONGER IN EXISTENCE, IT IS DESIRABLE TO TAKE A LOOK AT THE BROAD LEGAL POSITION. WE FIND THAT IN TERMS OF S.72(1)(I) OF THE ACT, WHE RE A NON SPECULATION BUSINESS LOSS IS CARRIED FORWARD BY THE ASSESSEE, IT SHALL BE SE T OFF AGAINST THE PROFITS AND GAINS, IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY HI M AND ASSESSABLE FOR THAT YEAR . PROVIDED THAT THE BUSINESS OR PROFESSION FOR WHICH THE LOSS WAS ORIGINALLY COMPUTED CONTINUED TO BE CARRIED ON BY HIM IN THE PREVIOUS Y EAR RELEVANT FOR THE ASSESSMENT YEAR. IT IS THUS CLEAR THAT ANY NON SPECULATION B USINESS LOSS BROUGHT FORWARD BY THE ASSESSEE CAN BE SET OFF AGAINST ANY BUSINESS INCOME OF THE ASSESSEE, WHICH ESSENTIALLY IMPLIES THAT IT CAN BE SET OFF AGAINST ANY INCOME FROM BUSINESS EVEN OTHER THAN THE BUSINESS IN WHICH THE LOSS WAS ORIGINALLY INCURRED; THE QUESTION OF ACTIVITY IN WHICH THE LOSS IS CARRIED FORWARD IS OF COURSE MUCH NARROWER AN ISSUE. HOWEVER, THE RESTRICTION PLACED BY THE PROVISO TO SECTION 72(1)( I), LAYS DOWN THE CONDITION THAT THE BUSINESS IN WHICH LOSS WAS ACTUALLY INCURRED MUST B E CONTINUED TO BE CARRIED ON BY THE ASSESSEE IN THE RELEVANT PREVIOUS YEAR ALSO. I N EFFECT, WHETHER THE LOSS BROUGHT FORWARD IS SET OFF AGAINST THE ASSESSEES INCOME FR OM THE SAME BUSINESS OR ANY OTHER BUSINESS, THE ONLY MATERIAL CONDITION IS THAT THE BUSINESS IN WHICH THE LOSS WAS ACTUALLY INCURRED MUST NOT HAVE BEEN CLOSED DOWN. THE LAW REQUIRES THAT IN ORDER TO SET OFF THE PAST LOSSES, THE BUSINESS WHERE LOSS WA S SUFFERED LEGAL CONNOTATIONS FROM THE EXPRESSION BUSINESS, MUST BE CONTINUED BY THE ASSESSEE BUT IT IS SUFFICIENT THAT THE BUSINESS, IN WHICH THE LOSS WAS INCURRED, SHOUL D CONTINUE TO HAVE EXISTENCE IN ORDER TO CLAIM THE SET OFF. ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE THE ASSESSEES ACTIVITIES IN THE EARLIER YEARS ADMI TTEDLY THAT OF MANUFACTURING TV SETS. LATER, DUE TO LULL IN THIS LINE OF BUSINESS, THE ASSESSEE WAS NOT ABLE TO PROCURE ORDERS FOR TV SETS. HOWEVER, THE ASSESSEE HAS CONT INUED TO MAINTAIN RAW MATERIALS AND CONSUMABLES TO CARRY ON THE REPAIR WORK OF TV S ETS. IN MEAN TIME, ASSESSEE HAS MADE AN AMENDMENT TO THE OBJECT CLAUSE OF MEMOR ANDUM AND ARTICLES OF ASSOCIATION THROUGH WHICH THE ASSESSEE HAS ENTERED INTO NEW LINE OF BUSINESS OF FINANCIAL CONSULTANCY SERVICES. THROUGH THIS FINAN CIAL CONSULTANCY SERVICES, THE ASSESSEE HAS EARNED INCOME FROM SYNDICATION CHARGES . THE QUESTION THEN ARISES, WHETHER ALL THESE ACTIVITIES TAKEN TOGETHER, SHOULD BE TREATED BUSINESS OR WHETHER TV MANUFACTURING SHOULD BE CONSIDERED IN ISOLATION. W E FIND GUIDANCE FROM THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF C IT VS. PRITHVI INSURANCE CO. LTD. (1967) (63 ITR 632) (SC) WHEREIN HELD THAT : WE ARE UNABLE TO AGREE WITH COUNSEL FOR THE CIT TH AT THE TEST, WHETHER ONE OF THE BUSINESS CAN BE CLOSED WITHOUT AFFECTING THE CONDUC T OF THE OTHER BUSINESS, IS A DECISIVE TEST IN DETERMINING WHETHER THE TWO CONSTI TUTE THE SAME BUSINESS WITHIN THE MEANING OF S.24(2). IF ONE BUSINESS CANNOT CONVENI ENTLY BE CARRIED ON AFTER THE CLOSURE OF THE OTHER, THERE WOULD BE STRONG INDICAT ION THAT THE TWO BUSINESS CONSTITUTE THE SAME BUSINESS, BUT NO DECISIVE INFERENCE MAY BE DRAWN FROM THE FACT THAT AFTER THE COURSE OF ONE BUSINESS ANOTHER MAY CONVENIENTLY BE CARRIED ON. .. A FAIRLY ADEQUATE TEST FOR DETERMINING WHETHER THE TWO CONSTITUTE THE SAME BUSINESS IS FURNISHED BY WHAT ROWLATT J. SAID IN SC ALES VS. GEORGE THOMPSON & CO. LTD; WAS THERE ANY INTER CONNECTION, ANY INTERLACING AN Y INTER DEPENDENCE, ANY UNITY AT ALL EMBRACING THOSE TWO BUSINESS?. THAT INTER CONNECTION, INTERLACING, INTER DEPENDENC E AND UNITY ARE FURNISHED IN THIS CASE BY THE EXISTENCE OF COMMON MANAGEMENT, COMMON BUSINESS ORGANISATION, COMMON ADMINISTRATION, COMMON FUND AND A COMMON PLA CE OF BUSINESS. ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE ON THE FACTS OF THE PRESENT CASE, IT IS CLEAR THAT ALL THE ACTIVITIES OF THE ASSESSEE COMPANY, BOTH MANUFACTURING OF TV SETS AND FINANCIA L CONSULTANCY SERVICES WERE CARRIED OUT BY THE SAME MANAGEMENT, FROM THE SAME O RGANISATION, FROM THE SAME FUNDS AS WERE ORIGINALLY RAISED BY THE COMPANY AND FROM THE SAME PLACE OF BUSINESS. IT WOULD THUS FOLLOW THAT INTER CONNECTI ON, INTERLACING, INTERDEPENDENCE AND UNITY REFERRED TO BY ROWLATT J. AND QUOTED WITH APP ROVAL BY THE HONBLE SUPREME COURT ARE FURNISHED IN THIS CASE, AS WERE FURNISHED IN THE CASE BEFORE THEIR LORDSHIPS, BY THE EXISTENCE OF COMMON MANAGEMENT, C OMMON BUSINESS ORGANISATION, COMMON ADMINISTRATION, COMMON FUND AN D A COMMON PLACE OF A BUSINESS. AS A COROLLARY TO THIS FINDING, IT FOLLO WS THAT THE BUSINESS CARRIED ON BY THE ASSESSEE WAS A COMPOSITE BUSINESS AND SINCE SOME AC TIVITIES OF THIS COMPOSITE BUSINESS WERE BEYOND DISPUTE, CARRIED OUT IN THE RE LEVANT PREVIOUS YEAR, THE ASSESSING OFFICER INDEED IN ERROR IN HOLDING THAT T HE BUSINESS IN WHICH LOSSES WERE INCURRED IN EARLIER YEARS WAS NOT IN EXISTENCE IN T HE RELEVANT PREVIOUS YEAR. WE MAY ALSO MENTION THAT THE HONBLE CALCUTTA HIGH COURT I N THE CASE OF CIT VS, PRODUCE EXCHANGE CORPN. LTD (1963) (50 ITR 308 (CAL.) HELD, THAT THE ESSENTIAL MATTER TO BE CONSIDERED IN DETERMINING WHETHER THE TWO BUSINESS CARRIED ON BY THE ASSESSEE CONSTITUTE THE SAME BUSINESS, IS ABOUT THE NATURE O F THE TWO BUSINESS, THE MANNER IN WHICH THEY ARE CONDUCTED BEING A SECONDARY CONSIDER ATION. THEY OBSERVED THAT UNITY OF CONTROL OR MANAGEMENT, THE EMPLOYMENT OF T HE SAME OR COMMON FINANCE, THE USER OF THE SAME BUSINESS PREMISES AND THE RECO RD OF THE TRANSACTIONS IN THE SAME SET OF BOOKS OF ACCOUNT ARE MATTERS TO BE CONS IDERED ONLY WHEN IT IS FOUND THAT THE TWO BUSINESSES ARE OF THE SAME NATURE. HOWEVER , IN APPEAL, THIS JUDGEMENT WAS REVERSED BY THE HONBLE SUPREME COURT IN THE CASE O F PRODUCE EXCHANGE CORPN. LTD. VS. CIT (1970) (77 ITR 739) (SC) AND THEIR LOR DSHIPS, INTER ALIA, OBSERVED THAT: THERE WAS DIFFERENCE OF OPINION AMONG THE HIGH COU RTS AS TO THE MEANING OF THE WORDS SAME BUSINESS. IT IS UNNECESSARY TO REFER TO THOSE AUTHORITIES. THE COURT IN CIT VS, PRITHVI INSURANCE CO. LTD. SET OUT THE TEST FOR DETERMINING WHETHER TWO LINES OF BUSINESS CONSTITUTER THE SAME BUSINESS WITHIN THE MEANING OF S.24(2) AT THE RELEVANT TIMER. IT WAS OBSERVED AT P.637: ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE A FAIRLY ADEQUATE TEST FOR DETERMINING WHETHER THE TWO CONSTITUTE THE SAME BUSINESS IS FURNISHED BY WHAT ROWLATT J. SAID IN SCALES VS. GEORGE THOMPSON & CO LTD: WAS THERE ANY INTER CONNECTION, ANY INTER LACING, INTER DEPENDENCE, ANY UNITY AT ALL EMBRACING THOSE TWO BUSINESS? THAT INTER CONNECTION, INTERLACING, INTER DEPENDENC E AND UNITY ARE FURNISHED IN THIS CASE BY THE EXISTENCE OF COMMON MANAGEMENT, COMMON BUSINESS ORGANISATION, COMMON ADMINISTRATION, COMMON FUND AND A COMMON PLA CE OF BUSINESS. APPLYING THAT TEST IN THE PRESENT CASE, THERE IS NO DOUBT THAT THERE IS A COMMON MANAGEMENT OF THE SHARE AND STOCK BUSINESS AND OTHE R LINES OF BUSINESS, UNITY OF TRADING ORGANISATION, COMMON EMPLOYEES, COMMON ADMI NISTRATION, A COMMON FUND AND A COMMON PLACE OF BUSINESS. .. WE ARE UNABLE TO AGREE WITH THE HIGH COURT THAT THE DECISIVE TEST FOR DETERMINING WHETHER THE TWO LINES OF BUSINESS CONSTITUTE THE SA ME BUSINESS IS THE NATURE OF THE TWO BUSINESS. IT IS THUS CLEAR, THAT IN ORDER TO CONSTITUTE SAME BUSINESS, IT IS NOT NECESSARY, AS IS THE VIEW OF THE HONBLE SUPREME COURT IN THE ABOVE NOTE D CASE, THAT THE NATURE OF TWO BUSINESSES HAS TO BE IDENTICAL. IN EFFECT, THERE C AN BE A DIVERSE NATURE OF ACTIVITIES AND YET, FOLLOWING THE TEST LAID DOWN BY ROWLATT J . AND APPROVED BY THE SUPREME COURT, THESE ACTIVITIES MAY CONSTITUTE SAME BUSINES S WHEN THERE IS A COMMON MANAGEMENT OF THESE BUSINESS ACTIVITIES, UNITY OF ORGANISATION, COMMON EMPLOYEES, COMMON ADMINISTRATION, A COMMON FUND AND A COMMON PLACE OF BUSINESS. ON OUR CAREFUL CONSIDERATION FACTS AND C IRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS IN COM POSITE BUSINESS OF TV MANUFACTURING BUSINESS AND FINANCIAL CONSULTANCY SE RVICES. AS A PART OF THESE ACTIVITIES, CONSTITUTING THE SAME BUSINESS WAS CARR IED OUT DURING THE RELEVANT PREVIOUS YEAR AND THE LOWER AUTHORITIES WERE CLEARL Y ERRED IN CONCLUDING THAT ITA NO.1096/H/2010 M/S PENNAR ELECTRONICS PVT. LTD. BANGALORE BUSINESS OF THE ASSESSEE WAS CLOSED DOWN IN THE REL EVANT PREVIOUS YEAR. IN VIEW OF THIS, WE ARE OF THE OPINION THAT THE LOWER AUTHORIT IES WERE NOT JUSTIFIED IN DECLINING SET OFF OF BUSINESS LOSS INCURRED BY THE ASSESSEE OUT O F THE INCOME EARNED FROM IN SYNDICATION CHARGES. ACCORDINGLY, WE APPROVE THE A RGUMENT OF THE ASSESSEES COUNSEL AND ALLOW THE APPEAL OF THE ASSESSEE. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13. 5.2011 SD/- G.C. GUPTA SD/- CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED 13 TH MAY, 2011 COPY FORWARDED TO: 1. SHRI RAMA RAO, ADVOCATE, FLAT NO.102, SHRIYAS ELEGANCE, DOOR NO.3-6-643, ST. NO.9, HIMAYATNAGAR, HYDERABAD 2. THE ITO, WARD 16(2), HYDERABAD 3. THE CIT(A) V, HYDERABAD 4. THE CIT, HYDERABAD 5. THE DR, ITAT, HYDERABAD NP