Commissioner of Income Tax vs Vijaya Productions (P.) Ltd.

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 for 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. Limited Vs. V.P. Gupta, Commissioner of Income Tax, Bombay, , wherein the court emphasised the fact that in order to determine whether

the two lines of businesses 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 not 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 Productions (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, the 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 theatres 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 Commissioner of Income Tax, Tamil Nadu-I, Madras Vs. Blue

Mountain Estates and Industries Limited, , 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 Vs. V.P. Gupta, Commissioner of

Income Tax, Bombay, .

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