TMI Blog1979 (1) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment for the assessment year 1962-63, the total assets of the company won as follows : (a) Fixed assets Assets Rs. Rs. 253 (b) Investment Shares and securities 8,77,688 Properties 2,17,137 ------------- 10,94,825 (c) Current Assets Rent, dividend and int. receivable 8,964 (d) Loans and advances 14,47,194 (e) Cash and bank balances 52,944 ---------------- Total 26,04,180 ---------------- The ITO found that the investments in shares, loans and advances and house properties were the investments of the company and since the business of the company consisted wholly or mainly of dealing in or holding of investments, he held it to be an investment company and charged super-tax under s. 104 of the Act at 50 per cent. In appeal before the AAC, it was contended that if the amount of loans and advances which were shown as current assets is taken out, the investment in the shares will be less than 50 per cent. of the total assets of the company and that the super-tax could be charged only at 30 per cent. The AAC found that the main holding of the company was in shares and in securities and properties and whatever surplus was left, was invested in oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66, has done is to make clear the legal position and that even in its original form, the definition of investment company in s. 109(ii) of the Act, would become applicable to a case where the income derived by the assessee-company was such that if it had been the income of an individual, it would have been regarded as an unearned income. We shall, at the outset, deal with the definition of investment company, as it originally stood. As already observed, in order that the company should fall within the category of investment company for the purpose of determining the super-tax to be charged, it must be found that it was a company whose business consisted wholly or mainly in the dealing in or holding of investments. The determination of the question, as to whether a company is an investment company would, having regard to the definition, fall in three parts. Firstly it must be determined ; as a fact, whether any investments as contemplated by the definition were made by the company. Secondly, it has to be determined whether, the company could be said to be holding investments and thirdly, it had to be found whether the business of the company consisted wholly or mainly in the holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of property shall be deemed for the purpose of this section to be a business carried on by the company or society. " In Part I of the Seventh Schedule to the Act, certain principles as to computation of profits were set out and the words " income from investments " appear in para. 6(1) and (2) which were as follows : " (1) Income received from investments shall be included in the profits in the cases and to the extent provided in sub-paragraph (2) of this paragraph and not otherwise. (2) In the case of the business of a building society, or of a banking business, assurance business or business consisting wholly or mainly in the dealing in or holding of investments, the profits shall include all income received from investments, being income to which the persons carrying, on the, business are beneficially entitled. " Dealing with the meaning of the word " investment ", Lord Normand has, in Tootal Broadhurst Lee Co. Ltd. [1947] 29 TC 352, 373, observed : " The meaning of 'investment' is not its meaning in the vernacular of the man in the street but in the vernacular of the businessman. It is a form of income-yielding property which the businessman looking at the total as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, it is obvious that moneys lent by way of loans cannot be said to result in acquisition of any property in specie which, for the purpose of the definition in s. 109(ii) of the Act, could be said to have been held by the a company by way of investment. The mere fact that a large part of that income of the assessee-company consisted of interest from these loans would not, therefore, lead to the conclusion that that income arose from investments as contemplated by s. 109(ii) of the Act. Since no income-yielding property can said to have been acquired as a result of the loans advanced by the assessee-company, we must confirm the finding given by the Tribunal that the company cannot be classified as an investment company. It is obvious that if the basic criterion of an investment company is not satisfied there was no further question of considering whether the business of the company consisted wholly or mainly of holding of investments. It is also not possible to accept the argument of the learned advocate for the revenue that the new definition introduced by the Finance Act, 1966, must be accepted as merely clarificatory of the intention of the legislature originall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing without holding that the aforesaid expression as used in section 23A of the Act has a legal character, it would not make any difference in the result as the expression " investment companies " has been defined in the Dictionary of English Law by Earl Jowitt (Volume II) (1959 edition) as 'companies whose income consists mainly of investment income, i.e. income which in the hands of an individual would not be earned income' ". Relying on these observations, it was contended by Mr. Joshi, that even the Supreme Court has adopted the meaning of investment companies given in Jowitt's Dictionary of English Law and that in that context the test, that if an income in the hands of an individual would not be an earned income, it would be investment income, should be applied in the case of an investment company and thus, according to the learned counsel, the income from interest earned by the assessee-company from the loans advanced by it being an unearned income, the company could be classified as an investment company. It is not possible for us to read the observations of the Supreme Court as meaning that the Supreme Court adopted the definition cf investment company given by Jowitt. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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