1982 (1) TMI 32 - HC - Income Tax

Summary

Issues Involved:
1. Whether the amounts due from various partnership firms to the assessee can be considered as "lent" within the meaning of section 13(2)(a) of the Income-tax Act, 1961.
2. Whether the amounts due from various partnership firms to the assessee can be considered as "invested" within the meaning of section 13(2)(h) of the Income-tax Act, 1961.
3. Whether the assessee is entitled to exemption u/s 11 of the Income-tax Act, 1961.

Summary:

Issue 1: Lending u/s 13(2)(a)
The court examined whether the amounts due from the partnership firms to the assessee could be considered as "lent" within the meaning of section 13(2)(a). The court noted that for an amount to be considered a loan, there must be a positive act of lending coupled with an acceptance by the other side of the money as a loan. The court found that the amounts due to the assessee were transferred to a current account upon its retirement from the partnerships due to the firms' inadequate cash resources. The court held that this transfer did not constitute a loan as there was no agreement or contract indicating that the amounts were advanced as loans. Therefore, the amounts could not be considered as "lent" within the meaning of section 13(2)(a).

Issue 2: Investment u/s 13(2)(h)
The court then considered whether the amounts could be deemed as "invested" within the meaning of section 13(2)(h). The court referred to various legal definitions and precedents to conclude that an investment involves laying out money to acquire some species of property that would yield income. The court found that the amounts due to the assessee were not invested in the partnership firms with a view to obtaining profit but were merely outstanding amounts payable to the assessee. Therefore, the amounts could not be considered as "invested" within the meaning of section 13(2)(h).

Issue 3: Entitlement to Exemption u/s 11
Given the findings on the first two issues, the court concluded that the assessee did not use or apply any part of its income or property directly or indirectly for the benefit of any concern in which it had an interest during the relevant period. Consequently, section 13(2) was not attracted, and the assessee was entitled to exemption u/s 11 of the Income-tax Act, 1961.

Conclusion:
The court agreed with the findings of the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal, holding that the amounts due from the partnership firms to the assessee could neither be said to be "lent" nor "invested" within the meaning of section 13(2)(a) and section 13(2)(h) respectively. Therefore, the assessee could not be denied the exemption u/s 11 of the Income-tax Act, 1961. The question was answered in the affirmative and against the Revenue, with costs awarded to the assessee.