1. MAHMUD, J.-This is a reference by the Income-tax Appellate Tribunal (Karachi Bench), Karachi at the instance of the applicant under section 66(t) of the Income-tax Act, 1922 (hereinafter referred to as `the Act').
2. The applicant, Pheroze A.I is an individual, who derives share income as partner of Messrs Noor A.I & Co. In the preceding charge year 1957-58, the applicant claimed share of loss from the said firm as well as from his personal business, totalling Rs. 3,98,651. After determining the said loss, the Income-tax Officer noted in the assessment order that the said loss will be carried forward and set off against the share of the appellant's profit in the cotton business of Messrs Noor A.I & Co. And share of profit in Messers Noor A.I Cotton Ginning & Pressing Factory. For the charge year 1958-59 under consideration, the applicant's share of profits from Messrs Noor A.I & Co. Was determined at Rs. 11,17,895, whereas loss from other sources was worked out at Rs. 1,635, thus leaving a total profit of Rs. 11,16,260. The applicant claimed a set off of the carried forward loss of the preceding year against the said profits, but the Income-tax Officer refused to allow it on the ground that the profits of the firm of Messrs Noor A.I & Co. During the year under consideration was not from the cotton business but from the barter business, which the Income-tax Officer held was not the "same business" as cotton business within the meaning of section 24(2) of the Act.
3. The applicant preferred a direct appeal to the Income-tax Appellate Tribunal, Karachi. Certain facts were found admitted by the said Tribunal, namely (i) the firm Messrs Noor A.I & Co. Was carrying on a number of business activities such as, dealings in cotton, earning commissions and brokerage, rice dealings and barter business, (ii) separate sets of ledgers were maintained by each Department and profits and losses were separately determined in case of each Department, and (iii) the over-all financing, con--trol and management of the several Departments was the same. After considering these facts and the nature of barter and cotton businesses, the Appellate Tribunal came to the conclusion that the barter business was a distinct business and not the "same business" as the cotton business within the meaning of section 24(2) of the Act and, therefore, the set off of the brought forward losses of the preceding year was rightly disallowed by the Income- tax Officer. Accordingly, it dismissed the appeal of the applicant. Thereupon, at the instance of the applicant under section 66(1) of the Act, the following question of law has been referred to us by the Appellate Tribunal for decision :---- "Whether the facts proved in this case warranted the inference drawn by the learned Income-tax Appellate Tribunal that tire 'cotton business' and 'export of rice business' under the 'barter scheme' were not the same business?"
4. The relevant portion of section 24(2) of the Act, as then in force, reads as follows : --- "24(2).-Where any assessee sustains a loss of profits or gains in any year under the head profits and gains of business profession or vocation and the loss cannot be wholly set off under subsection (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 . . . . . "
5. It is well-established that the question whether two sets of activities constitute one and the same business, has to be determined by examining the facts and circumstances of each case. The tests for determining this question were laid down by Rowlatt, J. In the case of Scales v. George Thompson & Co. Ltd. ((1927-28) 13 Tax Cas. 83) and have been applied by the Courts in this sub- continent in several cases. The observations are :- "I think the real question is, was there any inter-connection, any inter--lacing, any inter- dependence, any unity at all embracing those two businesses."
The tests have also been recently considered by a Division Bench of this High Court in Wallem & Co.
(Pak.) Ltd., Karachi v. Commissioner of Income-tax ((1974) 30 Taxation 34), in which the above- quoted observations of Rowlatt, J. Were discussed. Their Lordships observed at page 43 :--- "Turning in the present case, we find that the learned Income-tax Tribunal placed reliance only ' on Rowlatt, J.'s observation in Scales (B. M. Inspector of Taxes) v. George Thompson 8c Co. Ltd. And on the Bombay decision in Manilal Dayabhai v. The Commissioner of Income-tax, Bombay City, in which latter case it was held that the test for ascertaining whether two lines of business conducted by the same assessee constituted the 'same business' or distinct businesses was whether one business could be stopped without affecting the texure or framework of the other business. We have expressed our view on this decision, that the proposition enunciated therein cannot be regarded as good law. As regards Scale's case in our view the learned Income---tax Appellate Tribunal has not correctly appreciated the full significance of the observations of Rowlatt, J. Which were based primarily on the facts of that case. As we have noted above, Rowlatt, J. Did not confine himself to the enunciation of one "test only, that is, inter-lacing or dovetailing of businesses into each other, but also suggested another test, ' that is, some sort of unity embracing the various lines of business."
6. The Appellate Tribunal itself relied on the observations of Rowlatt, J. In the case above-quoted and thought that Rowlatt, J. Had laid down only one test namely, "whether there was any inter- connection, inter-lacing, or inter--dependence". It appears that the learned Tribunal had not correctly appreciated the full significance of the observations of Rowlatt, J. Who had laid down an additional test, that of unity of control. The Appellate Tribunal in our opinion, erred in applying the test of inter-connection only without regard to the test of unity of control of the various activities of the firm. The Appellate Tribunal had held that there was no inter-connection between the barter and the cotton businesses and this was attributed by the Appellate Tribunal to the fact that purchase and sale transaction in the cotton depart--ment were not inter-laced with or had any connection with the purchase and sale transactions of rice in the barter department and therefore, the one was not dependent on the other, so much so that the closure of the barter business would not, in the least, lead to the closure of the cotton business. The test of closure of one business as not affecting the other, is not a valid test as was observed in the case of Wallem do Co. (Pak.) Ltd., above-mentioned. The Appellate Tribunal however, did not pay regard to the admitted facts that there was common control of the various activities of the firm, which were being carried out in the same premises, with common management, common staff and common administrative and financing control. The Indian Supreme Court in the case of Produce Exchange Corporation Ltd. v.
Com--missioner of Income tax (Central) ((1970) 77 1 T R 739), also held that the decisive' test was the test of unity of control and not the nature of the two lines of A business. In that case, the assessee was a public limited company doing business as a dealer in diverse commodities and also dealings in stocks and shares. The Tribunal had found on the facts that there was complete unity of control between the share business and the other business carried out by the company and applying the test of unity of control laid down by Rowlatt, J. In the case of Scales v. George Thompson & Co. Ltd. ((1927-28), 13 Tax Cas. 83), (above-quoted), the Supreme Court reversing the decision of the High Court of Calcutta, held that there was common management of the share business and the other lines of businesses, unity of trading organization, common employees, common administration, common funds and common place of business. Although the nature of two businesses was found to be distinct, it held that there was unity of control between them and therefore the two businesses constituted the "same business" within the meaning of section 24(2) of the said Act.
7. For the foregoing reasons, we are of the opinion that the cotton business and the barter business constituted the same business within the meaning of the section 24(2) of the Act.
8. We, therefore, answer the question referred to us in the negative. There will be no order as to costs.