TMI Blog1981 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... laim. The assessee company, being aggrieved by the aforesaid decision of the ITO, went up in appeal before the AAC. The AAC while giving relief on some other points, however, held that the short-term and fixed deposits in the bank should not have been excluded in making the capital computation for the purpose of determining the relief under s. 84 and partly allowed the assessee's appeal. The revenue being aggrieved by the order of the AAC went up in appeal before the Appellate Tribunal. It appears that there was a difference of opinion between the Accountant Member and the judicial Member on the issue whether the short-term and fixed bank deposits could be included in the capital computation for the purpose of working out relief under s. 84 of the Act as it stood at the relevant time. The President of the Tribunal was, thereafter, moved to refer the case for hearing by one or more members of the Appellate Tribunal as required under s. 255(4) of the Acton the following points of difference: " Whether, on the facts and in the circumstances of the case, the bank deposits should be left out of account in the computation of capital for the purpose of working out the relief under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be left out of account, but where any investments in the beneficial ownership of the person carrying on the business are so left out of account, the sum (if any) to be deducted under sub-rule (1) in respect of borrowed money shall be computed as if the principal of the borrowed money were reduced by the value of those investments." As mentioned hereinbefore there was a difference of opinion between the Members of the Tribunal. It will, therefore, be material to refer to the relevant portions of the order of the three different Members of the Tribunal. The judicial Member of the Tribunal after setting out the facts in the context observed that he was taken through the assessee's annual report for the year and it was pointed out from the balance-sheet of that year that provision had been made there to the extent of Rs. 38,45,740 for tax payment and in that year, as advance tax, only Rs. 9,78,326 had been paid in fact. It was submitted that the deposits with which we were concerned and with which the judicial Member was concerned were really for a short period of three months and six months and the amounts were, it was emphasised by the judicial Member, really necessary for payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts in the bank the assessee had kept the same in its own till without using the same in any way, no argument could reasonably have been raised that the money was not being employed in or required for by the business. If that was so, then according to him, it could not be contended otherwise simply for the reason that instead of keeping it itself, it deposited the amount with the bank for safe custody and for earning interest also thereon at the same time. At the end of the earlier year, the amount in fixed deposit was Rs. 2,83,950 and at the close of this year the amount in such deposit was nil. That itself, according to the judicial Member, was an indication enough that those deposits had been withdrawn during the year and employed for the purposes of the business. Though the short-term deposits in the earlier year was Rs. 15 lakhs and at the end of the year it had risen to Rs. 35 lakhs, the very fact that the deposits were for a short-term with liberty of withdrawal on a week's notice, according to the judicial Member, shows that far from these moneys being withdrawn from the business, they were only kept ready for use for such provisions as had been made in the balance-sheet. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, with very great respect to my learned brother, the judicial Member, I am unable to agree with him." There being a difference of opinion, the matter was referred to the Vice-President, as we have mentioned before. After setting out the rival contentions, the Vice-President observed as follows: " It is an admitted fact that the interest earned by the assessee has not protested against the same before any of the income-tax authorities nor before the Tribunal (sic). This necessarily shows that making deposits in banks is not the 'business' of the assessee. Moreover, under section 84 of the I.T. Act, 1961, tax shall not be payable by an assessee on so much of the profits and gains derived from any industrial undertaking as does not exceed 6 per cent. per annum of the capital employed in such undertaking. This clearly indicates that the assessee has been distinguished by that section from the industrial undertaking. An assessee may have an industrial undertaking as also another trade or business activity or source of income but such trade, business activity or source of income is not entitled to any exemption under section 84 of the Income-tax Act, 1961." Then he referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereinbefore, has been referred to this court. We may incidentally point out that in the question, as printed in the paper book, there appears to be certain typographical errors, and we have corrected the question in the manner, as we have indicated before, so as to give the true purport of the question. Therefore, the material question with which we are concerned in this case really amounts to the applicability of r. 19(4) of the I.T. Rules, which we have set out hereinbefore. There is no dispute, as it appears from the facts, that the amount involved was capital employed in the industrial undertaking. Indeed, there is a categorical finding of the learned judicial Member that the amounts in deposit with the bank were part of the circulating capital and had been withdrawn to meet the tax liability which was not immediately necessary. On this finding of a basic fact, there is no divergence of opinion, though we have set out the views expressed by the learned Accountant Member as well as by the Vice-President of the Tribunal. It further appears that before the Tribunal a statement was handed over which is referred to in the rectified order of the Tribunal, as to the details of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor and he had used the expression " pecuniary investments". Mr.Justice Farwell had observed at page 58 as follows: " The question is, is that sum a 'pecuniary investment' so that it passes under the specific gift in favour of the brother's sons and daughters ? In my opinion it is not a pecuniary investment, bat falls into residue. I think that no one in ordinary parlance speaking of money which he puts on deposit account at his bankers at a short call like this-ten days-taking the usual banker's interest, which is 1 per cent. below bank rate would treat himself as making an investment, or as investing in a mode which could be intended by him as an investment to be continued after his death by his trustees in its present state of investment within the meaning of those words. It is a little difficult to dogmatise about matters of this sort, and I quite feel the force of the observation that people do use the words 'invest' and 'investment' nowadays in very odd collocations. On the other hand, the rules of court distinguish between money on deposit and money invested; and certainly Kindersley V.C. in Wilks v. Groom [1856] 3 Drew 584, when he was speaking of the cases in which a tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business which had only the business of a new industrial undertaking and when there was no other enterprise carried on by the company, that would not make the amount ineligible for being taken into account in the computation. In this connection, reliance may be placed on the observation made in the case of CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC). There, the assessee-company carried on banking business and also held securities as part of the trading assets of the business. For the assessment year 1949-50, it incurred a loss of Rs. 64,400 under the head " Business " and earned Rs. 8,488 as interest on securities and the net loss amounted to Rs. 55,912. For the three succeeding assessment years, the ITO allowed this loss to be set off against the income under the head "Business " but refused to set it off against the income computed under the head " Interest on securities". It was held by the Supreme Court that the assessee was entitled to set off the loss of Rs. 55,912 brought forward from the assessment year 1949-50 against the entire income including the interest on securities in the succeeding years. Under s. 24(2) of the Indian I.T. Act, 1922, income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section, be set off against that income." In the instant case, we have noted the fact that these amounts were deposited with the bank in order to make a payment of the income-tax. Therefore, in our opinion, the basic fact remains that these amounts, though deposited in the bank, could not (sic) be treated as trading assets of the assessee. In this connection, reference might be made to the observation of the Supreme Court in the case of Rajapalayam Mills Ltd. v. CIT [1978] 115 ITR 777. Learned advocate for the assessee further contended that in any event user of money for the payment of income-tax would be for the purpose of business. He, in this connection, emphasised the significant difference between the expression " for the purpose of business " and the expression "for the purpose of earning the income ". In this connection, reference was made to the observations of the Supreme Court in the case of CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, where at p. 150, the Supreme Court observed as follows: "The aforesaid discussion leads to the following result: The expression for the purpose of the business' is wider in scope than the expression 'for the purpose of earni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 40, cl. (a)(ii) of the I.T. Act, 1961. He contended that this exclusionary clause was needed to exclude the payment of income-tax from the deductions, which would have been eligible under the provisions of the Act. Therefore, if money was kept for the payment of tax liability of the business as also for a payment of bonus to the workers, then it could not be contended that it was not for the purpose of business. The second limb, therefore, is also not fulfilled in this case, that is to say, this could not be described as money not required for the purpose of the business. As we have mentioned before, the learned Accountant Member has tried to suggest in his order that the fact of deposit indicated that there was no necessity of this fund for the business. We are unable to accept that this was the proper approach to the fact. It is true that it was not required for an immediate payment. Immediate payment does not necessarily mean that the money is to be kept for meeting the liability of the business, that it was required for the business or that the money was withdrawn for the purpose of the business. On behalf of the revenue learned advocate drew our attention to the observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f advance tax is not made for any purpose of commercial expediency but for the discharge of a statutory obligation imposed upon him under section 18A of the Income-tax Act. 'the interest paid by the assessee, the Patna High Court is of the opinion, on money borrowed by him for payment of advance tax cannot be deducted under the provisions of section 12(2) of the Income-tax Act. We express our respectful agreement with this view. In our judgment, income-tax is not part of an expenditure of an assessee. Therefore, the interest that is paid by the assessee on any sum borrowed by him for payment of income-tax is not deductible from his net income. In other words, when the tax is not an allowable expenditure no expenditure in relation to the tax can also be allowed. An expenditure to become liable must be, in our opinion, incurred in the earning of the income or profit. " Here we are not concerned with an expenditure that was, for the purpose of earning profit. We are concerned with an amount that was required for the purpose of the business, not for the earning of profit. In that view of the matter, the ratio of the said decisions would not be applicable to the facts of the case. L ..... X X X X Extracts X X X X X X X X Extracts X X X X
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