TMI Blog2007 (12) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... loan having been given during the course of money lending business. We, therefore, are of the opinion that the assessee s case was not covered by the provisions of section 2(22)(e) and the CIT(A) was quite justified in deleting the addition. The order of the CIT(A), on this point is therefore confirmed. Expenditure on account of foreign travelling of its managing director - HELD THAT:- Assessee was able to make export to Taiwan which was claimed to be as a result of the managing director s visit to that place and the fact that the Revenue had not disputed the genuineness of the export sales, we are of the opinion that the assessee s explanation that the visit by the managing director to the places in question was in connection with the business is quite plausible one and supported by evidence. Consequently, we do not find any reason to interfere with the decision of the CIT (A), wherein the assessee s claim was allowed and the addition was deleted. We uphold the order of the CIT (A) on this point also. In the result the Revenue s appeal is dismissed. - I.S. Verma Judicial Member And N.S. Saini Accountant Member For the Appellant : M. B. Parmar. For the Respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uity capital of Rs. 21,37,080. So in this way the Assessing Officer came to the conclusion that Shri Shashank I. Shah was holding more than 20 per cent. shares in the assessee-company and more than 10 per cent. share capital in M/s. Indulal Dahyabhai Investment P. Ltd. Based on this information, the Assessing Officer proposed to invoke the provisions of section 2(22)(e) of the Act with respect to loan of Rs. 37,77,474 taken by the assessee. The assessee was given the opportunity to explain its case and in response to that the assessee submitted that the main business of M/s. Indulal Dahyabhai Investment P. Ltd., was of money lending and giving of advances or to give credit on such terms and conditions as may be expedient. Reference was made to the memorandum and articles of association of M/s. Indulal Dahyabhai Investment P. Ltd. The assessee s case was, therefore, to the effect that M/s Indulal Dahyabhai Investment P. Ltd., had given the loan in question to the assessee-company during the course of its ordinary business of money lending and, therefore, the provisions of section 2(22)(e) were not applicable. The Assessing Officer did not accept this explanation on the ground that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Departmental representative has supported the order of the Assessing Officer by submitting that the object of money lending was not the main object of the payer company as is evident from the memorandum and articles of association. According to him, money lending was one of the six main objects and therefore, it cannot be such that payer company s main business was of money lending. He further submitted that others were also the income earned from dividend by the payer company being more than income from interest. The assessee s case was rightly considered as covered by the provisions of section 2(22)(e) of the Act. 8. Learned counsel for the assessee on the other hand relied upon the Commissioner of Income-tax (Appeals) s order by submitting that the provisions of section 2(22)(e) refers to the words substantial part of business and not to the word main business or substantial business or main or substantial income and therefore the assessee s one of the object out of six main objects, admittedly being of money lending, the loan given to the assessee has to be accepted as having given during the course of ordinary business by M/s. Indulal Dahyabhai Investment P. Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent. of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits ; but dividend does not include (i) a distribution made in accordance with sub-clause (c) or subclause (d) in respect of any share issued for full cash consideration, where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets ; (ia) a distribution made in accordance with sub-clause (c) or subclause (d) in so far as such distribution is attributable to the capitalised profits of the company representing bonus shares allotted to its equity shareholders after the 31st day of March, 1964, and before the 1st day of April, 1965 ; (ii) any advance or loan made to a shareholder or the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ans that to find out as to whether a given case is covered by the provisions of section 2(22)(e) of the Act or not, income criteria from a particular source is not relevant. However, these provisions take the case out of the scope of section 2(22)(e)(ii) of the Act only if substantial part of the business carried out by the payer company is found to be that of lending of money and therefore, to find out substantial part of business of the payer-company, one should consider the objects and deployment of the funds by the payer company because there can be cases where the company might have deployed more funds by way of loans during the course of business of money lending at the fag end of the previous year and may not have earned any interest or earned a small interest, but might have earned more dividend on investment having been made before the declaration of dividend on shares bringing dividend, even if the investment so made may be quite less as compared to money given by way of loan. We are, therefore, of the opinion that if income criteria is taken into account, there will be absurd results. Consequently, we discard such system to be adopted for finding one as to whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object of foreign travelling undertaken by the managing director was (i) to explore the possibilities of expanding export sales ; (ii) to acquaint the company regarding the latest automation machinery concept to get the desired production within the existing set up of plant and machinery and (iii) to explore the possibility of cost optimization by adopting latest innovated technique which are being followed by the foreign capacitor manufacturing industries. Reliance was placed on the decision of Calcutta High Court in the case of CIT v. Woodcraft Products Ltd. [1996] 217 ITR 862 and also, CIT v. Malayalam Plantations Ltd. [1961] 53 ITR 140 (SC), Birla Cotton Spinning and Weaving Mills Ltd. v. CIT [1967] 64 ITR 568 (All), Sree Meenakshi Mills Ltd. v. CIT [1967] 63 ITR 207 (SC), Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 (SC) and Sassoon J. David and Co. P. Ltd. v. CIT [1979] 118 ITR 261 (SC). 14. The Assessing Officer, however, did not find the assessee s explanation as satisfactory and came to the conclusion that the assessee has not discharged the onus put on it that the expenditure was incurred in connection with the assessee s business and therefore disallowed the foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the visit was not for business purpose. The learned authorised representative further drew our attention to its submission made before the Commissioner of Income-tax (Appeals) vide submission dated February 23, 2002 and submitted that it was the result of this visit that the assessee, in fact, could make export to Taiwan, as is evident from the copy of bills etc., placed at page Nos. 125 and 126 of the assessee s paper book. 19. After having considered the rival submission and the facts of the case especially the fact that the assessee was able to make export to Taiwan which was claimed to be as a result of the managing director s visit to that place and the fact that the Revenue had not disputed the genuineness of the export sales, we are of the opinion that the assessee s explanation that the visit by the managing director to the places in question was in connection with the business is quite plausible one and supported by evidence. Consequently, we do not find any reason to interfere with the decision of the Commissioner of Income-tax (Appeals), wherein the assessee s claim was allowed and the addition was deleted. We uphold the order of the Commissioner of Income-tax ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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