TMI Blog1971 (9) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... s must be considered as having not been property granted. The resulting position was that the appeals brought on the strength of those certificates became unsustainable. To get over that difficulty, the Commissioner of Income-tax, Gujarat, invoked our jurisdiction under article 136 of the Constitution to appeal against the judgment of the High Court. The special leave asked for was granted and thus he came to file Civil Appeals Nos. 1313-1316 of 1971. The assessee is a private limited company and the concerned assessment years are 1957-58, 1959-60, 1960-61 and 1961-62. The only question for decision in these appeals is whether the assessee company comes within the scope of section 23A of the Indian Income-tax Act, 1922 (to be hereinafter referred to as the Act ) ? The assessee company was incorporated on October 11, 1941. The objects clause in the memorandum of association contains the usual string of objects. Confining ourselves to the objects relevant for our present purpose, we get in clause (3) of the memorandum power to acquire and hold shares, stocks, debentures, debenture stocks, bonds, obligations and securities issued or guaranteed by any company constituted or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided in section 23A(1). He ordered accordingly. In appeal, this decision was affirmed by the Appellate Assistant Commissioner excepting in regard to certain deductions with which we are not concerned. Aggrieved by the order of the Appellate Assistant Commissioner, the assessee took up the matter in second appeal to the Income-tax Appellate Tribunal. The Tribunal agreed with the conclusions reached by the Appellate Assistant Commissioner. Thereafter, at the instance of the assessee, the following two questions were referred to the High Court under section 66(1) of the Act : (1) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the assessee-company is an investment company for purposes of section 23A of the Income-tax Act, 1922 ? (2) Whether the Tribunal was justified in law in holding that while determining the undistributed balance of the total income for charging super-tax under the provisions of section 23A of the Act, no deduction can be allowed in respect of the expenses actually incurred by the assessee company but disallowed for the purposes of computing its assessable income ? Before the High Court, counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thirty seven per cent. in the case of any other company on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any... Explanation 2 to that section says : For the purposes of this section, statutory percentage means,--- (i) in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments .... 100% We have now to see what exactly is the meaning of the expression in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments in the main section 23A and the expression in the case of a company whose business consists wholly or mainly in the dealing in or holding of investments in clause (i) of Explanation 2 to section 23A. The Act contains many mind-twisting formulas but section 23A along with some other sections takes the place of pride amongst them. Section 109 of the 1961 Income-tax Act which has taken the place of the old section 23A of the Act is more understandable and less abstruse. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner of Income-tax came to the conclusion that an individual who merely invests in shares for the purpose of earning dividend, does not carry on a business and that the only way he can come under section 10 of the Act is by converting the shares acquired by him into stock-in-trade, i.e., by carrying on the business of dealing in stocks and shares. In that case this court was considering whether the dividend income of the assessee-company therein could be considered as business income under section 10 of the Act. Therein this court was not considering the scope of section 23A. But all the same in that case this court proceeded on the basis that no one can make a business of investing. But then section 23A speaks of the business of holding of investments . We were told by the counsel for the assessee that that expression is an incongruous one and that we should, following the decision of this court in Bengal and Assam Investors Ltd. hold that there is nothing like a business of holding of investments . We feel unable to accede to that contention. We cannot say that the legislature did not know its own mind when it used that expression in section 23A. We must give some reasonable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be convenient to set out the same now : ASSESSMENT YEAR 1957-58 1959-60 1960-61 1961-62 Rs. Rs. Rs. Rs. 1. Managing agency 209,999 2, 56,315 2,41,705 1,96,384 2. Dividend on shares of managed companies 1,95,179 2,58,511 3,21,746 3,12,251 3. Income from shares held as stock--in-trade, (i) interest on debentures 369 342 309 312 (ii) Dividends 3,40,695 4,68,775 5,48,325 5,53,999 (iii) Dealing in shares 23.867 16,755 28,329 22,100 (iv) Share transfer fee to 10 10 10 10 Total ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it cannot be said that in the relevant previous years the assessee-company's business consisted wholly or mainly in the dealing in or holding of investment. Now let us look at the question from the point of view of the assets employed by the assessee-company. Here again we can take assistance from the schedule given in the judgment of the High Court setting out in detail the assets used by the assessee-company in its several business activities. That schedule reads thus : 1. SHARES OF MANAGED COMPANIES Treated by the income-tax department as investments not forming Part of the business of dealing in shares. 1. New India Industries 6,91,084 6,96,883 6,96,883 6,96,883 2. Cotton Fabrics Ltd. (i) Ordinary shares 3,69,285 3.69,285 3.69,285 3,69,285 (ii) Preference shares 88,463 88,463 90,483 90,483 Total 11,48,832 11,54,631 11.56,651 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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