TMI Blog1982 (1) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... red from the partnership firms, the respective firms did not have adequate cash resources to pay the amount due to the assessee on the settlement of accounts, by way of capital contributed by it and the share of profits due to it. In those circumstances, the amounts due to the assessee were transferred to a current account. The statement of case shows the particular amounts due from the different firms to the assessee as on the date of its retirement. No interest was paid by the firms on the outstanding amounts due to the assessee. Before the ITO, the assessee claimed exemption under s. 11 of the Act. The ITO came to the conclusion that the promoters of the assessee-company were the authors of the trust and they had substantial interest in the partnership concerns. Consequently, the amounts due to the assessee from the partnership concerns must be deemed to be amounts lent within the meaning of s. 13(2)(a) or amounts invested within the meaning of s. 13(2)(h) of the Act. He held that, therefore, the assessee would not be entitled to exemption under s. 11 of the Act. The assessee carried the matter in appeal before the AAC. The AAC held that there was no agreement between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributions shall, in the hands of the trust or institution receiving the contributions, be deemed to be income derived from property for the purposes of that section and the provisions of that section shall apply accordingly." Section 13 of the Act provides that s. II shall not be applicable to certain cases. Section 13(1)(c) provides that the income of the charitable trust shall not be excluded from the total income if any part of such income or any property of the trust or institution (whether created or established) is, during the previous year, used or applied directly or indirectly for the benefit of any person referred to in sub-s. (3). The list of persons referred in sub-s. (3) of s. 13 of the Act are, the author of the trust, the founder of the institution, a person who has made a substantial contribution to the trust or institution, any trustee of a trust or a manager of the institution, any relative of any such author, founder, person (member, trustee or manager) as aforesaid and any concern in which any of the persons above referred to has a substantial interest. Sub-section (2) of s. 13 enumerates certain categories of transactions which would be considered as tantamo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d during the previous year without either adequate security or adequate interest or both." It is argued on behalf of the Revenue that the amounts that remain with the various partnership firms as due and outstanding to the assessee must be deemed to be property of the assessee " lent " to the said partnerships for the period during the previous year without any adequate security or adequate interest or both. Mr. Jayaraman, learned standing counsel for the Revenue, argued that the very fact that the monies are shown in the current account of the partnership firms as due to the assessee would show that the character of the amount Was a loan from the assessee to the various partnership firms. We are not inclined to accept the contention of the learned standing counsel. On retirement of the assessee from the partnership firms, there was a settlement of accounts and the capital contributed by the assessee and its share of profits were transferred to the current account. As the partnership firms had no adequate cash resources, the amounts were shown as outstanding in the books of the partnership concerns. As rightly pointed out by the Tribunal, the fact that the amounts were shown as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that it was a debt and not a borrowing. The learned judge further observed as follows (p. 123): Of course, money so left could, by a proper agreement between the parties, be converted into loan, but in the absence of an agreement mere inaction on the part of the managing agents cannot convert the money due to them, and not withdrawn, into a loan. A loan imports a positive act of lending coupled with an acceptance by the other side of the money as a loan. The relationship of borrower and lender cannot ordinarily come about by mere inaction." From the above it is clear that for an amount to fall within the mischief of s. 13(2)(a), there must be a loan. To constitute a loan, there must be a positive act of lending coupled with an acceptance by the other side of the money as a loan. The relationship of borrower and lender must come into existence by the act of parties. The mere circumstance that partnership concern was not in a position to pay the amounts due to the assessee on the date of his retirement from the partnership and the fact that the amounts were shown in the books of account as due to the assessee cannot convert the amounts due as an amount advanced by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot been satisfied. The word " investment " has come up for interpretation before courts both in England and in India. In IRC v. Brodway Car Co. (Wimbledon) Ltd. [1946] 29 TC 214, 222 (CA), the Court of Appeal, while construing the expression " income received from investments ", occurring in the Finance (No. 2) Act, 1939, held that the word " investment " must be construed in the ordinary popular sense of the word, as judged by businessmen, and not as a term of art having a defined or technical meaning. It was observed that rents from leases or underleases could properly, in suitable circumstances, be comprised within the phrase " income from investments In IRC v. Total Broadhurst Lee Co. Ltd. [1949] 29 TC 352 (HL), the House of Lords had to consider the question whether the royalties received by a company in three groups of patents constituted " investments " within the meaning of para. 6 of Pt. 1 of the Seventh Schedule to the Finance (No. 2) Act, 1939. Lord Simonds, in his speech, observed as follows at p. 372: " It appears to me that the problem may be solved in this way. would take a schedule of the assets of the trading company concerned and, omitting assets such as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loans would not, therefore, lead to the conclusion that income arose from investments as contemplated by s. 109(11) of the Act, prior to 1966 amendment. The learned judge further observed that since no income-yielding property can be said to have been acquired as a result of the loans advanced by the assessee-company, the company cannot be classified as an investment company. The Bombay High Court followed the English cases referred to above. From the above, it is clear that in order to constitute an investment, the moneys must be laid out in such a manner as to acquire some species of properties which would bring an income to the investor. Viewed in that sense, we are unable to conclude that there has been an investment of any moneys by the assessee with any of the partnership firms. The various partnership firms are bound to return the moneys due and payable to the assessee-firm as and when demanded. It has not been found either by the Tribunal or by the lower authorities that the said moneys have been invested by the assessee-firm as understood in business parlance with a view to obtain any profit. It necessarily follows that cl. (h) of sub-s. (2) of s. 13 is equally not at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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