Commissioner of Income Tax vs Motlay Finance P. Ltd.

This is an appeal u/s 260A of the Income Tax Act, 1961, filed by the Commissioner of Income Tax, Indore (MP), against the order dated October 28, 2005, passed by the Income Tax Appellate Tribunal in I.T.A. No. 570/Ind/1999.

The facts briefly are that for the assessment year 1996-97 the appellant filed a return on November 14, 1996. In the said return the assessee had disclosed that it had earned a business income of Rs. 14,36,077 but had showed set off of the said income of Rs. 14,36,077 against the losses brought forward from the previous years and after such set off had declared a business loss of Rs. 11,87,397. By order dated October 23, 1998, the Assessing Officer held that for the assessment year 1994-95 the income of the assessee from purchase and sale of debentures and shares had been held to be income from other sources and hence, no set off was allowed against the so called loss carried forward from the previous years. Against the said order of assessment, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) and by order dated March 26, 1999, the Commissioner of Income Tax (Appeals) held that the income claimed by the assessee was income from business and as such, the income was liable to be set off against the loss carried forward of the previous years.

Aggrieved by the said order dated March 26, 1999, the Department went up in appeal before the Income Tax Appellate Tribunal in the said I.T.A. No. 570/Ind/1999 but the Tribunal dismissed the said appeal by order dated October 28, 2005, following its decision in I.T.A. No. 569/Ind/1999 in respect of the very same assessee for the assessment year 1994-95. This appeal has been filed by the said order dated October 28, 2005, of the Tribunal raising the following question:

Whether, on the facts and in the circumstances of the case and in law the Tribunal is justified in treating the loss out of investment in unquoted shares and debentures of its own group concerns as ''business loss'' and not as loss under the head ''Income from other sources'' particularly in view of the fact that investment in shares of such group concerns were treated by the assessee-company itself as ''capital assets'' while claiming capital loss on account thereof in the assessment years 1998-99 and 1999-2000?

Mr. Jain learned senior counsel for the appellant submitted that the income or loss arising out of sale of shares and debentures carried on by the assessee has to be treated as income or loss from other sources and not from income or loss from business.

But we find from the order dated June 29, 2004, of the Tribunal in I.T.A. No. 569/Ind/99 for the assessment year 1994-95 which has been followed by the Tribunal in the impugned order for the assessment year 1996-97 that the Tribunal has given the following reasons for coming to the conclusion that the income or loss of the assessee out of the transactions of shares and debentures is to be treated as income or loss from business and not as income or loss from other sources.

(5) We have considered the rival submissions carefully and have also gone through the relevant materials on record and judgments cited by the parties, we agree with the contention of the learned authorised representative that for determination of the nature of the business of assessee-company the main objects of the memorandum of the assessee-company are most important determinant. From page 4 of the compilation, we find that the following are the few of the main objects in respect of the investments:

To carry on the business of an investment company and to buy, underwrite, invest in, acquire, hold and deal in shares, stocks, debentures, debenture stock, bonds, obligations and securities, whether issued or guaranteed by any company constituted or carrying on business in India or elsewhere and debentures, debenture stock, bonds, obligations and securities, issued or guaranteed by any Government, Central or State, Commissioners, public body or authority supreme, municipal, local or otherwise, firm or person whether in India or elsewhere.

To acquire any such shares, stock, debentures, debenture stock, bonds, obligation or securities by original subscription, participation in syndicates, tender, purchase, exchange or otherwise and to subscribe for the same either conditionally or otherwise, and to guarantee the subscription thereof and to exercise and enforce all rights and powers conferred by or incidental to the ownership thereof.

To lend money on securities and properties or otherwise to or with any company, firm, person or association whether falling under the same management or otherwise in accordance with and to the extent permissible under the provisions contained in the Companies Act, 1956, with or without security and on such terms as may be determined from time to time. However, the company shall not carry on the business of banking as defined under the Banking Regulation Act, 1949.

From these objects it becomes clear that the assessee-company is an investment company. This also becomes clear from the findings of the Assessing Officer and contents of the balance-sheet enclosed at pages 27 to 37. From page 36, we find that the assessee has made investments in public limited companies quoted in various stock exchanges. On page 37, the list of shares of unquoted companies is there. This means the assessee has invested in public limited company as well as private limited companies, though the Assessing Officer was right in observing that the main investment is in private limited companies. The hon''ble Supreme Court in S.G. Mercantile Corporation P. Ltd. Vs. Commissioner of Income Tax, Calcutta, has observed that "the residuary head" of income can be resorted to only if none of the specific heads is applicable to the income in question; it comes into operation only after the preceding heads are excluded. Similar observations were made in Commissioner of Income Tax, Orissa Vs. Govinda Choudhury and Sons, Gosaninuagaon, Orissa, . On the other hand, the decisions relied on by the learned Departmental representative are quite distinguishable. In the case of Cochin Company Vs. Commissioner of Income Tax, , the issue was whether the profit derived by the sale of import entitlements can be considered as profit derived from export of goods. That decision of Hindustan Lever Ltd. Vs. Commissioner of Income Tax, Bombay City-I, was again concerned whether deductions from income were derived from export. In the case of Orissa Tyres Limited Vs. Commissioner of Income Tax, , interest received on deposit was held to be not as business income but it was so because the assessee was a manufacturing company and was specifically prohibited by the memorandum of association from investing its funds not immediately required for business except in the scheduled banks, which is not the case before us.

We have already noticed that the assessee-company''s main object is carrying on of business of investment and it has actually made investments in quoted as well as unquoted shares and debentures and income therefrom is definitely business income. In this circumstances, we find nothing wrong with the order of the learned Commissioner of Income Tax (Appeals) and confirm the same.

It would be clear from the aforesaid reasons given by the Tribunal that the main objects of the assessee-company included the carrying on of business of investment company and to buy, underwrite, invest in, acquire, hold and deal in shares, stocks, debentures, etc., and the assessee-company was carrying on the business of acquiring and selling share stocks and debentures as authorised by the memorandum of association of the assessee-company. On these facts, the Tribunal concluded that the income or loss from the transactions of sale and of debentures was a business loss. This is purely a finding of fact within the domain of the Tribunal and the High Court in exercise of its powers u/s 260A of the Income Tax Act, 1961, cannot go into the aforesaid finding of fact. Thus, there is no substantial question of law involved in this case and for this reason we are not inclined to admit this appeal.

The appeal is, accordingly, dismissed.