TMI Blog2001 (8) TMI 271X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA 293 /Bang./1996 filed by the assessee and ITA No. 283 /Bang./1996, filed by the Revenue, the order impugned is that of the CIT(A)-I, Bangalore, dated 3-1-1996 for the assessment year 1991-92 and in these appeals also, the main dispute is as to whether the assessee is entitled to claim loss under the head 'business' for the purpose of carry forward and set off for the future years and also for set off of earlier years' losses against the current year's income which, according to the assessee, is to be computed under the head 'business' and not under the head 'other sources'. The Revenue is aggrieved only by that part of the CIT(A)'s order, wherein he has directed the Assessing Officer to allow deduction of expenses towards interest while computing the income under the head ,other sources'. 4. ITAs 1057 1058/Bang./96 are appeals filed by the assessee and are directed against the consolidated order of the CIT(A)-I, dated 10-10-1996 for the assessment years 1992-93 and 1993-94 respectively. Here also the only dispute involved is whether the assessee's income is to be computed under the head 'business' or 'other sources'. 5. From the above, it is clear that the central issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 2,05,945 under the head 'Profits and gains of business' and this was allowed to be carried forward. For the assessment year 1988-89 also (previous year ended 30-6-1987) the company's share capital and investment remained the same. There was neither any dividend nor interest receipts during this year as well. However, in the assessment the assessee claimed loss of Rs. 4,59,871 under the head 'Profits and gains of business'. The claim was allowed. There was no change either in the share capital or the investments made during the periods relevant to the assessment years 1989-90 and 1990-91. On 2-6-1988 the assessee advanced an amount of Rs. 2,70,000 to M/s. Khoday Finance (P.) Ltd., a sister concern. During the previous year relevant to the assessment year 1990-91, there was however, no fresh advance. The interests accrued on the said advance to M/s. Khoday Finance (P.) Ltd., amounted to Rs. 30,375 and Rs. 40,500 respectively for the assessment years 1989-90 and 1990-91. Deducting substantial interest payments and other expenses like bank charges, audit fees etc., loss for these years was returned at Rs. 9,36,180 and Rs. 7,67,990 respectively. The Assessing Officer accepted these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Preliminary expenses Rs. 935 Filing fees Rs. 260 Bank charges Rs. 1,270 ---------------- Rs. 6,23,731 Loss for the year Rs. 5,83,231 Add:- Loan taken from Investment Co., Rs. 27,00,000 considered as income under section 2(22)e) --------------- Income from business Rs. 21,16,769 Less: set off of carried forward losses: Assessment year 1987-88 Rs. 2,05,945 Assessment year 1988-89 Rs. 4,59,871 Assessment year 1989-90 Rs. 9,36,180 Assessment year 1990-91 Rs. 5,14,773 Rs. 21,17,769 --------------- -------------------- Total income Nil --------------- -------------------- ------------------------------------------------------------------------------------- 2. Giving detailed reasons, the Assessing Officer passed an assessment order dated 29-3-1994, holding that the assessee has not done any business and that the income is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88-89 Nil 4,57,234 1989-90 33,503 9,64,518 1990-91 41,445 8,07,059 1991-92 40,500 6,19,966 ------------------------------------------- The particulars of source and application of funds as on crucial dates as appearing in the relevant balance sheets and schedules are as follows: ------------------------------------------------------------------------- As on Share Unsecured Investment Loans advances capital loan from in shares (other than current banks a/c balance in banks) ------------------------------------------------------------------------- 30-6-1986 10,01,980 24,66,752 29,75,980 -- 30-6-1987 10,01,980 29,23,986 29,75,980 -- 31-3-1989 10,01,980 38,88,503 29,75,980 2,96,538 31-3-1990 10,01,980 46,95,563 29,75,980 3,28,290 31-3-1991 26,19,980 53,26,275 34,49,080 15,11,975 ------------------------------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly interest charged, at 15% (simple interest) from Khoday Finance Pvt. Ltd., is less than that payable to the bank on the loan utilised for the purpose and that too on compound interest basis. Apart from interest on loan used for investment in shares in group companies which do not yield any return, this is the single factor contributing to the interest payment being in excess of interest receipts and the loss claim of each assessment year. (vii) The notable financial activity of the assessee other than the investment in shares of the group companies initially and also in the current financial year, and the relatively small loan at concessional rate to Khoday Finance Pvt. Ltd. incurring loss is giving interest free loan to Directors and Elkay Finance Pvt. Ltd., the latter two activities being in the previous year 1990-91 relevant to the financial year 1991-92. (viii) The assessee does not maintain business establishment for running business. The only activity of the assessee has been the investments mentioned above which has been designed from the beginning to ensure that it would not yield any income." 11. On the above reasoning, the learned CIT(A) held that the assessee com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of total income filed with the returns, the following adjustments were made by the appellant: ------------------------------------------------------------------------------------- Asst. Year 1992-93 : Rs. ------------------------------------------------------------------------------------- Net profit as per P L A/c 22,56,133 Add.- Share of loss from M/s. Thiruvonam Wines 35,852 ------------- 22,91,985 Less: Dividend not considered as income under section 2(22)(e) to the extent set off against loans offered asdeemed dividend in the assessment year 1991-92 20,16,153 ------------- 2,75,832 Add.--Share of profit apportioned from M/s. Thiruvonam Wines 49,986 ------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in law in ignoring the case laws cited in favour of the assessee and in taking a narrow view of the matter while drawing an adverse inference against the assessee. According to Shri Sukumar, the business of the assessee company has to be viewed as a whole for the various years as an integrated and organised activity and not in isolation on the basis of a few transactions occurring in a particular year or years. 15. On the other hand, the learned DR, Shri Raghavendra, vigorously opposed the arguments advanced by the learned counsel and drew support from the detailed orders passed by the learned CIT while passing the revision order and the learned CIT(A) while passing the appellate orders impugned in these appeals. 16. We have carefully considered the evidence on record, the rival arguments and the ratio of the case laws cited before us. We find that the assessee company was incorporated on 21-1-1986 with a paid up share capital of Rs. 10,01,980, the first assessment year being 1987-88 and the previous year being 21-l-1986 to 30-6-1986. During the said previous year, the appellant company subscribed to the shares of seven investment companies, as listed below: (a) M/s. Vy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pes of mobilizing large funds and earning huge incomes through all these business activities. However, they could venture only step by step with the availability of the funds. Because of huge incomes during the later years when the company had large income from dividends and also availability of further finance and credit facilities the company ventured into all the other activities viz., further purchase of shares, trading, leasing etc., as originally intended. All the business activities could not be carried on in earlier years due to financial constraints. Therefore merely because there were few lines of activity in the earlier years as compared to subsequent years it could not be said that the assessee did not carry on the business. It could not venture into other fields only due to paucity of funds. The assessee is engaged in various activities such as investment in shares, financing, trading and leasing, all of which have to be viewed as part of the integrated and organized course of business. 17. The company also earned dividends from later assessment years i.e., 1992-93 onwards and the dividends received are as follows: ------------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nised course of activity or conduct with a set purpose." Even though the Court was interpreting the provisions of section 42(2) of the Indian Income-tax Act, 1922 with regard to a business carried on with a resident, the above general observations of their Lordships have to be viewed with respect and are still applicable in a case like this before us where the pertinent question raised is whether the assessee is doing a business or not. 19. In the case of United Commercial Bank Ltd. v. CIT [1957] 32 ITR 688 the Hon'ble Supreme Court considered the fact that even though interest on securities fell under section 8 of the IT Act, 1922, as a separate head of income and could not be assessed under a different head of income under section 10 of the said Act under the head 'Profit and gains from business' Even then, the Court found merit in the contention raised by the assessee that purchase and sale of securities was as much the assessee's business as receiving deposits from clients and withdrawals by them and the securities were held by the assessee as part of its trading assets in the course of its banking business. If that was so, the assessee would be entitled to set off of loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the earlier decision was explained by this court in Commissioner of Income-tax v. Chugandas Co. Therein this court held that interest from securities formed part of the assessee's business income for the purpose of exemption under section 25(3). Shah J., speaking for the court, observed: "The heads described in section 6 and further elaborated for the purpose of computation of income in sections 7 to 10 and 12, 12A, 12AA and 12B are intended merely to indicate the classes of income; the heads do not exhaustively delimit sources from which income arises. This is made clear in the judgment of this court in the United Commercial Bank Ltd.'s case, that business income is broken up under different heads only for the purpose of computation of the total income; by that break up the income does not cease to be the income of the business, the different heads of income being only the classification prescribed by the Indian Income-tax Act for computation of income" The same principle applies to the present case. We, therefore, hold that under section 24(2) of the Act the income from the securities which formed part of the assessee's trading assets was part of its income in the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment. 25. Respectfully following the ratio of the decisions mentioned by us in paras 18 to 24, we find considerable force in the submission made by the learned counsel for the assessee. It is clearly established in the present case that the assessee has been carrying on a systematic organised activity starting with the initial business activity of investment in companies and followed by venturing into different kinds of activities of business like lending of monies, entering into partnership, buying of further shares in other companies and later entering lease transactions. Merely because the investment or the business activities carried on during the years did not result in sizeable interest or other receipts, it cannot be said that the assessee did not carry on any business during the relevant period. It is well known that profits may not be earned immediately in all business activities. Some activities may yield returns at a later stage. But this does not mean that there was no integrated business consisting of investment in shares, lending of monies to sister concerns, trading by becoming partner in firms and entering into lease transactions. In view of the clear enuncia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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