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Issues Involved:
1. Whether the assessee-company is an investment company within the meaning of section 109(ii) of the Income-tax Act, 1961. Detailed Analysis: Issue 1: Whether the assessee-company is an investment company within the meaning of section 109(ii) of the Income-tax Act, 1961. Facts and Background: The assessee, a company in which the public are not substantially interested, had a distributable surplus of Rs. 11,637 for the assessment year 1963-64 and declared a dividend of Rs. 7,200. The revenue contended that the assessee should have distributed 90% of its distributable surplus, as it was an investment company under section 109(ii) of the Income-tax Act, 1961. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all held that the assessee was an investment company, based on the precedent set in the previous assessment year 1962-63. Tribunal's Findings: The Tribunal found that approximately 80% of the assessee's assets were advanced as a deposit to a single party, generating regular interest income, which constituted the major part of the assessee's income. The Tribunal held that this constituted an investment, rejecting the assessee's contention that it was not capable of being dealt with and therefore could not be considered an investment. Legal Arguments: - Revenue's Argument: The revenue's counsel, Mr. Suhas Sen, argued that the expressions "investment" and "holdings" have a wide connotation, including loans and deposits. He cited English cases (In re Lewis's Will Trusts and Inland Revenue Commissioners v. Laurence Philipps & Co. (Insurance) Ltd.) to support his argument that deposits and loans can be considered investments. - Assessee's Argument: The assessee's counsel, Mr. Chari, referred to the Gujarat High Court decision in Distributors (Baroda) P. Ltd. v. Commissioner of Income-tax, which was affirmed by the Supreme Court. The argument was that the word "business" in section 23A of the Indian Income-tax Act, 1922, should be given its legal meaning, and the revenue must establish that the assessee was carrying on a real, substantial, and systematic business of holding investments with a view to gaining income. Judicial Precedents: - Supreme Court Decision: In Commissioner of Income-tax v. Distributors (Baroda) P. Ltd., the Supreme Court held that a company must be primarily engaged in the business of dealing in or holding investments to fall within the scope of section 109(ii). The Court emphasized a real, substantial, and systematic or organized course of activity for earning profits. - Gujarat High Court Decision: The Gujarat High Court held that mere holding of investments is not sufficient; there must be a systematic or organized course of activity to convert the holding into a business. Court's Analysis: The court noted that the Tribunal had found that a major part of the assessee's assets was in deposit, earning significant interest. However, the Tribunal had not investigated the nature of the activity, the purpose of the investment, the basic terms of the loan or deposit, or the objectives of the assessee as per its memorandum and articles. Conclusion and Remand: The court concluded that it was not possible to answer the referred question without further factual findings. The matter was remanded back to the Tribunal with directions to take fresh evidence if necessary, determine the necessary facts, and dispose of the matter according to the law. The Tribunal was instructed to provide further opportunities for the parties to adduce fresh evidence and be heard. Order: There will be no order as to costs.
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