The judgment of the court was delivered by
PATHAK J.-This appeal by certificate granted by the High
Court of Calcutta is directed against the judgment of the Division Bench of the
High Court confirming on appeal the dismissal of the appellant's writ petition.
The appellant, Brooke Bond & Co. Ltd., now known as
Brooke Bond Leibig Ltd., is a sterling company carrying on business in tea with
its head office in the United Kingdom, The appellant has invested in shares of
other tea companies in different parts of the world, and has a hundred percent
shareholding in an Indian subsidiary, Brooke Bond (India) Ltd.
The appellant is assessed under the Indian Income-tax Act
and the relevant financial year is the previous year in relation to the
corresponding assessment year. For the assessment year 1955-56, the appellant
was assessed on its total world income by an assessment order dated July 16,
1957, on the basis of provisional figures of its business loss including
depreciation and its income from dividends. On the basis of those provisional
figures, it was assessed to a net loss of Rs. 31,33,647. As its Indian income
exceeded its income outside India, it was assessed as a resident. Meanwhile, on
March 28, 1957 the appellant had already been assessed for the subsequent
assessment year 1956-57 in the status of non-resident, and its income of Rs.
53,11,958 from dividends was assessed under the head " Income from other
sources ". It is obvious that the loss determined for the assessment year
1955-56 could not be carried forward and set off against the income for the
assessment year 1956-57, as the latter assessment was made subsequent to the
former.
On February 12, 1958, the appellant preferred two revision
applications, one each for the assessment years 1955-56 and 1956-57, before the
Commissioner of Income-tax under sub-section (2) of section 33A of the Indian
Income-tax Act, 1922. In the revision application for the assessment year
1955-56, the appellant claimed that the quantum of loss determined for that year
having been based on provisional figures should now be revised on the basis of
the final figures certified by an Inspector of Taxes in the United Kingdom. The
appellant claimed also that the loss should be ascertained for the purpose of
carrying it forward and further that the loss should be bifurcated between
unabsorbed depreciation of Rs. 40,27,853 and other loss. In the revision
application for the assessment year 1956-57, the appellant claimed a set-off of
the loss determined for the assessment year 1955-56 against the income of the
assessment year 1956-57 on the ground that the shares held by it in tea
companies constituted its trading assets and the dividend income accruing
therefrom should be regarded as income from business. It mentioned that it
carried on business in tea in the United Kingdom and the investments were made
in the usual course of its tea business in companies also engaged in tea
business exclusively. The revision petitions remained pending for eight years.
Meanwhile, the appellant's assessment for the assessment
year 1957-58 was completed in November, 1957, as a non-resident, determining an
income of Rs. 51,85,836 received by way of dividends on its shareholdings. An
appeal was taken to the Appellate Assistant Commissioner of Income-tax claiming
that the loss for the assessment year 1955-56 should be carried forward and set
off against the income for the assessment year 1957-58 under sub-section (2) of
section 24 because both the loss and the income arose from the business carried
on by the appellant. By his order dated August 14, 1958, the Appellate Assistant
Commissioner dismissed the appeal holding that there would be no loss if the
loss for the assessment year 1955-56 was set off against the income for the
assessment year 1956-57, and that the loss could not be legally set off directly
in the assessment year 1957-58. The appellant appealed to the Income-tax
Appellate Tribunal and on July 1, 1966, the Appellate Tribunal set aside the
order of the Appellate Assistant Commissioner and directed the Appellate
Assistant Commissioner to dispose of the appeal afresh after determining whether
the appellant was entitled to set off a business loss arising outside the
taxable territories for the assessment year 1955-56 against the dividend income
arising in the taxable territories for the assessment year 1957-58. The
Commissioner of Income-tax applied for a reference to the High Court but the
Appellate Tribunal rejected the application on December 1, 1966.
On December 5, 1966, the Commissioner of Income-tax
disposed of the revision applications filed by the appellant. The revision
application pertaining to the assessment year 1955-56 was allowed subject to the
claim being verified in regard to the figures and calculation of depreciation by
the Income-tax Officer. The revision application pertaining to the assessment
year 1956-57, however, was rejected with the observation that the dividend
earned by the appellant from investments in shares of companies carrying on tea
business could not be said to be a part of the appellant's business because the
investments were not incidental to the appellant's business activities and were
not held as trading assets. It was also stated that the companies from which the
dividend was earned were not companies of which the appellant was the managing
agent so as to require the making of such investments for the purposes of its
business as managing agents. The Commissioner also rejected the contention of
the appellant that a set off should be allowed to the extent of the unabsorbed
depreciation brought forward from the assessment year 1955-56 against the
business income derived during the assessment year 1956-57. The Commissioner
observed that there was no business income in the assessment year 1956-57.
Thereafter, the appellant filed a writ petition in the
High Court of Calcutta against the disposal of his revision application for the
assessment year 1956-57, but on September 22, 1969, the learned single judge
dismissed the writ petition. An appeal filed by the appellant was dismissed by
the Division Bench of the High Court on August 14,1973.
The Division Bench adverted to the finding of the
Commissioner of Income-tax in the appellant's revision application relating to
the assessment year 1956-57, that the material placed before him did not show
that the dividend earned by the appellant from its investment in shares of
different companies could be regarded as part of the appellant's business
income. He had found that the investments in shares were not incidental to the
appellant's business activities and they were not held as trading assets. The
Division Bench held that no error of law in the Commissioner's order had been
established and, consequently, there was no case for interference with the
rejection of the appellant's claim for carrying forward the losses arising from
its business in the assessment year 1956-56 against the dividend income for the
assessment year 1956-57. On the other contention raised by the appellant, the
claim to carry forward the depreciation allowance pertaining to the business
activities of the assessment year 1955-56 for deduction in the assessment
proceedings for the assessment year 1956-57, the Division Bench appeared to be
in favour of the appellant, but it declined to express any final opinion on the
point. The judgment of the Division Bench is under appeal before us.
At the outset, learned counsel for the appellant stated
before us that he would not press this appeal if we clarify that the Appellate
Assistant Commissioner can proceed in the appeal relating to the assessment year
1957-58 pending before him without being influenced by the observations of the
Commissioner of Income-tax and the High Court in the case relating to the
assessment year 1956-57 on the aspect of carry forward of loss under sub-section
(2) of section 24 and that if such clarification is not possible, then, we
should, in this appeal, confine ourselves to the case relating to the assessment
year 1956-57.
There was considerable debate on the question whether the
dividend income received by the appellant from its shareholdings in different
companies engaged in tea business could be regarded as business income.
It is a cardinal principle of the law relating to
income-tax that income-tax is a single charge on the total income of an
assessee. For the purpose of computation, the statute recognises different
classes of income which it classifies under different heads of income. For each
head of income, the statute has provided the mode of computing the quantum of
such income. The mode of computation varies with the nature of the class of such
income, for the deductions permissible under the law in computing the income
under each head bear a particular relevance to the nature of the income. The
statute operates on the principle that it is the net income under each head
which should be considered as a component of the total income. The statute
permits specified deductions from gross receipts in order to compute the net
income. The net income under the different heads is then pooled together to
constitute the total income. The process of computation at this stage takes in
the provisions relating to the carry forward and setting off of losses and of
unabsorbed depreciation. On the conclusion of the entire process of assessment,
what emerges is the figure of taxable income, the quantum of income which is
assessed to tax. Ordinarily, when income pertains to a certain head, the source
of such income is peculiar to that head, but it is not unusual that commercial
considerations may properly describe the source differently. For instance, a
banking concern may hold securities in the course of its business. The
securities constitute its trading assets and income from them would, in the
commercial sense, be regarded as business income. However, for the purposes of
computation under the income-tax law, the income from such securities would be
computed not under the head "Income from business" but under the, head
"Interest on securities". In United Commercial Bank Ltd. v. CIT [1957]
32 ITR 688, this court pointed out that business income was broken up under
different heads only for the purpose of computation of the total income, and
that by such break-up, the income did not cease to be the income of the
business. This principle was followed by this court in CIT v. Chugandas and Co.
[1965] 55 ITR 17 and it was reiterated that business income was broken up under
different heads under the Income-tax Act only for the purpose of computation of
the total income, and that by breaking up, the income did not cease to be the
income of the business. It was said (p. 24) :
" The heads described in section 6 and further
elaborated for the purpose of computation of income in sections 7 to 10 and 12,
12A, 12AA and 12B are intended merely to indicate the classes of income: the
heads do not exhaustively delimit sources from which income arises. "
The point was elaborated by this court in CIT v. Cocanada
Radhaswami Bank Ltd. [1965] 57 ITR 306, where this court was called upon to
consider whether the securities owned by the assessee formed part of the trading
assets of his business, and income therefrom could be described as income from
business, and the court reaffirmed that section 6 of the Indian Income-tax Act,
1922, which classified the taxable income under different heads made such
classification only for the purpose of computation of the net income of the
assessee as under (p. 310) :
" Though for the purpose of computation of the
income, interest on securities is separately classified, income by way of
interest from securities does not cease to be part of the income from business
if the securities are part of the trading assets. Whether a particular income is
part of the income from a business falls to be decided not on the basis of the
provisions of section 6 but on commercial principles ... If it was the income of
the business, section 24(2) of the Act was immediately attracted. If the income
from the securities was the income, from its business, the loss could, in terms
of that section, be set off against that income."
Accordingly, the mere circumstance that the appellant
showed the dividend income under the head " Income from other sources
" in its returns cannot in law decide the nature of the dividend income. It
must b
