COMMISSIONER OF INCOME-TAX VS VIJAYA PRODUCTIONS (P.) LTD., 2001 PTD-MADRAS-HIGH-COURT-INDIA 3693 (1998)

Income‑tax‑‑‑

‑‑‑Loss‑‑‑Set off‑‑‑Same business or separate business‑‑‑Letting out of facilities of film studio and hospital‑‑‑Accounts, finance and control of two 'activities common‑‑‑Two activities to be treated as single business.

For the assessment year 1975‑76, the Income‑tax Officer held that the assessee was running two distinct businesses, viz. one such being' a studio and the other being a hospital, and therefore, the loss incurred in one activity could not be set off against the profits of the other. The Commissioner on appeal disagreed with the Income‑tax Officer and held that the business though more than one was essentially a single business. The Tribunal found that the accounts of the two activities were common, finance was common and the control of the two' activities was also common. On a reference:

Held, that the two activities were to be treated as a single business for the purpose of assessment.

B.R. Ltd. v. V.P. Gupta, CIT (1978) 113 ITR 647 (SC) fol.

CIT v. Blue Mountain Estates and Industries Ltd. (1985) 151 ITR 616 (Mad.) ref.

C.V. Rajan for the Commissioner.

M. Uttam Reddy for the Assessee.

JUDGMENT

R. JAYASIMHA BABU, J.‑‑‑ The Tribunal's findings that the business of running a hospital as also the business of running a studio by the same assessee was a single business on the ground that both the properties owned by the assessee were being let out with a view to earn an income, the hospital was earning its income by making the facilities available to patients and doctors and the studio by making the sets available to film producers on payment of hire charges‑‑‑and, therefore, was essentially an integrated business, inasmuch as earning income from hiring of the properties owned by the assessee was the common object, and that the assessee had carried on both these businesses within the same compound that it had maintained common accounts, and that the management as also finance was common, have been questioned by the Revenue in this reference.

It is contended by counsel for the Revenue that the running of a hospital is not in any way linked with the business of running of a studio and the mere accident of the studio owner using his property for .the activity of running a hospital cannot make what are otherwise two distinct businesses into a single integrated business of running a studio. The running of a hospital, it was submitted was not necessary for running a studio, as each activity could be carried on independently of the other. The mere use of the premises used by the owner of two different activities would not render these otherwise different activities into a single common business.

Though the argument advanced by counsel for the Revenue is' attractive, it cannot be sustained in the light of the law laid down in the case of B.R. Ltd. v. V.P. Gupta, CIT (1978) 113 ITR 647 (SC), wherein the Court emphasised the fact that in order to determine whether the two lines of business are to be regarded as one, when the businesses are run by the same assessee with the existence of a common control and management by the same board of directors of the business, the unity of control would show the interlacing and interdependence of the two businesses. The Supreme Court in that case was concerned with an assessee, who had claimed that his business of import and sale of woollen fabrics as also the business of export of other goods which was carried on by him constituted a single business. The Court rejected the argument of the Revenue that because the export activity was different and the goods exported were different from the import activity and the goods imported, the two businesses could hot be regarded as a single business: when the business was run and owned by the same assessee and was with common management and common control.

The facts set out by the Tribunal in its order show that the assessee Vijaya Production (P.) Limited, was a partner in a firm, owning an extensive property, wherein a studio was being run under the name Vauhini Studios, till that partnership was dissolved in the year 1974, when it became the owner of the property. Under the terms of the dissolution, tile property was allotted to the assessee. The partnership firm had in the year 1972 constructed a hospital building on a portion of the land. belonging to Vauhini Studios. The accounts of the hospital as also of the studios were regarded as one by the firm. Even after the dissolution of that firm, the assessee was assessed on its income from the studios as also from the hospital by treating the two lines of businesses as a single business .for all the years up to the assessment year 1975‑76. The hospital came to be transferred before the end of the financial year preceding the assessment year, to a trust known as "Vijaya Educational and Medical Trust" on February 1, 1975. For the assessment year 1975‑76, the Income‑tax Officer departing from the manner in which the assessee had been assessed to tax in the earlier years, held that the assessee was running two distinct businesses, viz. one such being a studio and the other being a hospital and, therefore, the loss incurred in one activity could not be set off against the profits of the other.

The Commissioner on appeal disagreed with the Income‑tax Officer and held that the business though more than one was essentially a single business as it was to let out the facilities owned by the assessee to those who make use of the sets available in the studio, and to the doctors and patients in the hospital from whom charges were collected for making the facilities owned by the assessee available to those patients and doctors who made use of those facilities. It was the specific case of the assessee that the consultation and other fees payable to the doctors were paid by the patients directly and the hospital collected only charges for making the wards available to the patients as also for the operation theaters and other facilities. The Tribunal found that the accounts of the two activities were common, finance was common and the control of the two activities was also common. The tests formulated by the Supreme Court, therefore, were held to be answered and the two activities were held to be a single business for the purpose of assessment. We do not find any error of law in the order or approach of the Tribunal.

Counsel for the Revenue, however, contended that the decision of this Court in CIT v. Blue Mountain Estates and Industries Ltd. (1985) 151 1TR 616, has laid down the principle that notwithstanding the unity of control, if the activities are distinct and are capable of being carried on notwithstanding the closure of one or the other activity then the business cannot be regarded as a single business. That decision was rendered without taking note of the law laid down by the apex Court in the case of B.R. Limited (1978) 113 ITR 647.

The questions referred to us are, therefore, answered in favour of the assessee and against the Revenue. No costs.

M.B.A./590/FC

Reference answered.