TMI Blog1997 (4) TMI 513X X X X Extracts X X X X X X X X Extracts X X X X ..... i Naidu v. CIT (1966) 62 ITR 686; decisions of the Bombay High Court in the case of CIT v. Public Utilities Investment Trust Ltd. (No. 1) (1983) 143 ITR 236 and in the case of CIT v. Cooper Engg. Ltd. (1968) 68 ITR 457; and the decision of the Andhra Pradesh High Court in the case of Addl. CIT v. K. Ramabrahmam Sons (P.) Ltd. (1978) 115 ITR 369. Section 9 is claimed to be not applicable because the money is not utilised in any business or profession carried on by such a person in India. The revenue';s claim on the other hand is that if any interest is paid to a non-resident, therefore provisions of section 195 apply and the assessee was liable to deduct tax thereon irrespective of the fact that the interest was not taxable in non-resident';s hands in India. Reference in this connection was invited to the decisions of the Supreme Court in the case of Aggarwal Chamber of Commerce Ltd. v. Ganpat Rai Hira Lal (1958) 33 ITR 245observations at page 253; and in the case of Associated Cement Co. Ltd. v. CIT (1993) 201 ITR 435/ 67 Taxman 346. It was further submitted that the money borrowed was utilised in India and, therefore, the income accrued in India and taxable under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these transactions, one could only come to the conclusion that it is just not an investment but a business of purchase and sale of shares. One has to look to the provisions of Income-tax Act only, to ascertain whether such transaction could be said to be in the nature of business. Section 29 of the Foreign Exchange Regulations Act refers only to business activities other than approval under section 28. In such a situation the interest income will definitely be chargeable to tax in the hands of the lender and being a non-resident lender, tax should have been deducted at source. In this view of the matter also, there is no scope for allowance of the deduction of the interest payment to the non-resident. 4. The relevant section 58(1)(a)(ii) reads as under : 58(1)(a)(ii) any interest chargeable under this Act which is payable outside India (not being interest on a loan issued for public subscription before the 1st day of April, 1938) on which tax has not been paid or deducted under Chapter XVII-B; 5. Section 195 reads as under : 195(1) Any person responsible for paying to a non-resident, not being a company, or to a company which is neither an Indian company nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eems apparently contrary to the plain language of section 58(1) of the Act. The decision of the Bombay High Court in the case of Cooper Engg. Ltd. (supra) and the decision of the Andhra Pradesh High Court in the case of K. Ramabrahmam Sons (P.) Ltd. (supra) are the authorities for this proposition, wherein it was held that there was no liability to deduct tax if the payment is chargeable to tax under the Act. We therefore have to see whether the interest paid by he assessee-non-resident to another non-resident company is chargeable to tax under the Income-tax Act. 9. The Commissioner of Income-tax states that the provisions of section 9(1)(v) apply as the assessee a engaged in the business of purchase and sale of shares/debentures and he justified himself by pointing out the short span of the transaction of the purchase and sale and making of profit therefrom. The learned Departmental Representative supports this finding of the CIT by relying upon the aforesaid decision of the Supreme Court in the case of Dalhousie Investment Trust Co. Ltd. (supra). The assessee';s contention is that the shares/debentures were purchased only on account of investment and the profit has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only three scrips yielding capital gain and 5 scrips resulting in capital loss. Even out of the total short-term capital gain of ₹ 20,45,350 on three scrips only, the Appellant made capital gain of ₹ 20,21,850 on a single scrip, viz., the ';F'; Series Debentures of Reliance Industries Ltd. which constitutes nearly 99% of total short-term capital gain. The gain on the other two scrips of Kinetic Honda and Orkay Silk Mills was ₹ 25,700 only. 6. The Appellant had sold in a period of two months only his large investment of 37,650 Debentures of Reliance as he learnt that the prices of the Debentures would go down as the Non-Convertible Debentures of ';F'; Series will not be allowed to change to Convertible Debentures for issue of Equity Shares and, therefore, the price would go down substantially. He, therefore, sold the Debentures at prices ranging from ₹ 200 to ₹ 120 between 8th May, 1986 to 8th July, 1986. The Appellant could not sell such large number of Debentures, viz. 37,650 Debentures in one day or even a week. The learned Commissioner had wrongly stated in his order under section 263 that all these transactions have been don ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Foreign Exchange Regulation Act, 1973. The assessee in this case had not obtained or being granted any such approval. It is not the assessee';s line of business. No business either in India or abroad is stated to have been carried on by the assessee for dealing in shares/securities or debentures. The solitary transaction of 2 scrips in this year does not give an impression of any business venture undertaken by the assessee in violation of the provisions of Foreign Exchange Regulation Act. Section 9(1)(v), therefore, does not make the interest payment chargeable to tax in India. 11. The learned Departmental Representative made a point that interest accrued in India on the utilisation of money and therefore tax was chargeable under section 5 itself. Firstly, it is not the case of the CIT and his order cannot be supported on a new ground not taken by him, and secondly, in view of the decision of the Madras High Court in the case of C.G. Krishnaswami Naidu (supra) the interest accrues where the loan transaction is entered into and not where it is utilised. Here in this case the loan is taken outside India and, therefore, the interest thereon cannot be held to have accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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