Brijmohan Lakshminarayan vs Commissioner of Excess Profits Tax, Bombay City I, Bombay

Chagla, C.J.—This reference arises out of the excess profits tax assessment. The assessee carries on business in cloth, cotton, bullion, seeds, etc. at Kalbadevi Road and he also carries on business in the Share Bazar in shares and securities, and the question that arose for determination for the Tribunal was whether the interest received by the assessee from shares and securities which were entered to excess profits tax.

With regard to shares, the position was that certain shares were transferred from the Kalbadevi shop to the Share Bazar shop, and therefore the assessee gave up his contention with regard to dividends received on those shares, but with regard to the securities which entered in the books of account of the Kalbadevi shop the assessee maintained the position that the interest received on those securities could not be assessed to excess profits tax, and the Tribunal merely records its opinion that interest from Government securities clearly stands on the same footing as dividends from shares. In our opinion, the position with regard to securities on the casts stated is entirely different from the position with regard to shares. No securities from the Kalbadevi shop were ever transferred to the Share Bazar shop. Prima facie, therefore, when a businessman dealing in cotton, bullion and seeds purchases securities and those securities are entered in the books of account of that business, the securities cannot be looked upon as his stock-in-trade. They must be looked upon as his investments.

The rule in question which has to be interpreted is rule 4(2) and rule 4(2A). Rule 4(2) applies to case where the assessee''s business consists wholly or mainly in the dealing in or holding of investments. Now, that is not the case here. If such was the case, then all income received by him from any investment would constitute assessable income for the purpose of the excess profits tax. But the case of the assessee falls under rule 4(2A) and that rule provides :

"In the case of a business part of which consist in banking, insurance or dealing in investments, not being a business to which sub-rule (2) of this rule applies, the profits shall include all income received from investments held for the purpose of that part of the business, being income to which the persons carrying on the business are beneficially entitled."

Undoubtedly, part of the business of the assessee consists in dealing in investments and that business he carries on in the Shares Bazar, and to the extent that the investment are held for the purposes of that part of the business, rule 4(2A) would apply, but if investments are held by the assessee not for the purposes of that part of the business which deals in investments, but are held in respect of another business which has nothing to do with investments, rule 4(2) has no application. In substance what rule 4(2A) provides is that where investments become stock-in-trade of an assessee, part of whose business is dealing in investments, then the interest from the stock-in-trade would be income liable to excess profits tax. As there is no finding in the statement of the case that the securities were stock-in-trade of the assessee''s business of dealing in investments, the Tribunal was in error in coming to the conclusion that interest from these securities was liable to tax.

The result is that the question submitted to us must be answered in the negative. The Commissioner to pay to the costs.

Reference answered in the negative.