TMI Blog1999 (12) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal was correct in holding that the interest income in respect of the compensation paid by the Government of Kerala should not be assessed in entirety on receipt basis in the assessment year relevant to the previous year in which it was received but should be assessed on actual basis and spread over the years between the date of acquisition and the date of actual payment?" At the instance of the Commissioner of Income-tax, Tamil Nadu-III, Madras, the Appellate Tribunal has stated a case in T. C. Nos. 1258 to 1260 of 1990 under section 256(1) of the Act and referred the following two questions of law for the assessment years 1975-76, 1978-79 and 1979-80 : "1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that after its acquisition of the electricity undertaking of the assessee-company in 1963, the assessee was carrying on business through its subsidiaries and that its loss shall be set off against income of the assessee-company ? 2. Whether the Appellate Tribunal was right in holding that interest receipt of Rs. 1,160 was assessable as business income and no portion of the expenses is disallowable ?" The fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer assessed the dividend income under the head, "Income from other sources" and did not set off the business losses brought forward from earlier years on the score that the business of the assessee-company, viz., supply of electricity was closed subsequent to the acquisition of its undertakings by the Governments of Kerala and Pondicherry. The assessee preferred appeals before the Commissioner of Income-tax (Appeals) and contended that the Income-tax Officer was not correct in assessing the dividend income of the assessee under the head "Income from business" (sic). The Commissioner of Income-tax (Appeals) rejected the request of the assessee for a direction to assess the dividend income under the head "Income from business" on the ground that there was a total termination in the assessee's business because of the operation of law and the assessee did not carry on any business during the accounting years relevant to the assessment years in question. Though an argument was sought to be raised by the assessee that the business of the assessee was carried on through the subsidiary companies, the argument was not accepted by the Commissioner of Income-tax (Appeals) who held that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the income from the subsidiary companies should be treated as income from the business of the assessee. Learned counsel submitted that since all the tests formulated by the Tribunal are not fulfilled, the Tribunal was not correct in holding that the assessee-company carried on its business through the subsidiary companies and the dividend income was correctly assessed under the head "Income from other sources". Mr. P. P. S. Janarthana Raja, learned counsel appearing for the assessee, on the other hand, submitted that except one test, all other tests are fulfilled, and the Tribunal was correct in holding that the assessee had the intention to carry on business and effectuated the intention by acquiring the complete control of the subsidiary companies and the assessee had acquired the shares of the subsidiary companies with the permission of the Government of India. Learned counsel submitted that the assessee was carrying on its business through the subsidiary companies. He made a reference to the objects of the memorandum and submitted that in view of the fact that the business of the assessee was holding the subsidiary companies, the Tribunal was correct in holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding company. There was also other evidence to show that the claimant had complete control over the affairs of the other company and it was found that all tests laid down were satisfied and in the peculiar circumstances, it was held that the business carried on by the subsidiary company could be regarded as the business of the parent company. The House of Lords in Odhams Press Ltd. v. Cook [1941] 9 ITR (Suppl.) 92, considered a similar question and laid down the following test to determine whether the profits of one company can be treated as the profit of another company : "... there can be no doubt that limited companies who carry on business are separate taxable persons, and the profits and gains of their several businesses are separate profits and gains for the purposes of the Income-tax Acts. This is none the less true if one of the companies should be the parent company, and the other or others may be its subsidiaries of which the shares are held are owned by the parent company." The observation of Viscount Caldecote L. C., in Odhams Press Ltd.'s case [1941] 9 ITR (Suppl.) 92 (HL), is also relevant for the purpose of this case : "It is tempting to treat what I have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re separately assessed and there are no materials to show that the entire profits of the subsidiary companies are treated as the profits of the assessee-company. The Tribunal, in our view, was not quite justified from the materials produced before it to come to the conclusion that the assessee-company carried on its business through the subsidiary companies. Though the materials relied upon show that some control over the activities of the subsidiary companies was exercised by the assessee-company, yet the control was consistent with the investment it made towards the entire share capital of the subsidiary companies. Since the first test is not satisfied, viz., subsidiary companies' profits are not treated as profits of the assessee-company, we are of the opinion that even if the other five tests are satisfied, it does not follow that the assessee-company carried on its business through the subsidiary companies. We are of the opinion that the control exercised by virtue of voting power would not make the business of the subsidiary companies the business of the holding company. We hold that the right of the assessee by virtue of holding shares in the subsidiary companies was to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is carrying on business. The above decision of the Supreme Court would squarely apply to the facts of the case and since the assessee-company was not holding the shares as stock-in-trade, it must be held that the income by way of dividend received from the shares is assessable under the head, "Income from other sources" as it is a specific head of income under section 56 of the Act. Realising the difficulty, learned counsel for the assessee submitted that the business of the assessee itself is the holding of the investment in subsidiary companies. In this connection, he relied upon the decision of this court in the case of CIT v. Amalgamations (P.) Ltd. [1977] 108 ITR 895. Learned counsel for the assessee submitted that before the Income-tax Officer, an argument was advanced that the holding of investment in subsidiary companies was itself a business of the assessee, and hence, he may be permitted to urge that point before this court. We find that though before the Income-tax Officer, some attempt was made to show that the holding of investment in the subsidiary companies would amount to carrying on the business, the Income-tax Officer rejected the same. The assessee did not pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the head, "Income from business". Accordingly, we answer the first question of law in T. C. Nos. 935 to 944 of 1988 in the negative and in favour of the Revenue. We answer the first and second questions in T. C. Nos. 1258 to 1260 of 1990 also in the negative and in favour of the Revenue, as the answer to the said questions is consequential to the answer rendered by us to the first question in T. C. Nos. 935 to 944 of 1988. In so far as the second question in T. C. Nos. 935 to 944 of 1988 is concerned, the said question is answered in favour of the assessee and accordingly, we answer the said question in the affirmative and against the Revenue. Accordingly, we answer the various questions as under: Tax Cases Nos. 935 to 944 of 1988 : First question: Answered in the negative and in favour of the Revenue. Second question: Answered in the affirmative and against the Revenue. Tax Cases Nos. 1258 to 1260 of 1990 : First question: Answered in the negative and in favour of the Revenue. Second question: Answered in the negative and in favour of the Revenue. In view of the divided success, there will be no order as to costs. - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
