1986 (9) TMI 2 - SC - Income Tax

Appellant Brooke Bond & Co. Ltd. now known as Brooke Bond Leibig Ltd. is a sterling company carrying on business in tea with its head office in the United Kingdom The appellant has invested in shares of other tea companies in different parts of the world and has a hundred percent shareholding in an Indian subsidiary Brooke Bond (India) Ltd. - held that dividends received is not business income as share holdings are not incidental to assessee s business

Issues Involved:
1. Classification of Dividend Income as Business Income
2. Carry Forward of Losses under Section 24(2) of the Indian Income-tax Act, 1922
3. Carry Forward of Unabsorbed Depreciation under Section 10(2) of the Indian Income-tax Act, 1922

Detailed Analysis:

1. Classification of Dividend Income as Business Income:
The primary issue was whether the dividend income received by the appellant from its shareholdings in different tea companies could be classified as business income. The court emphasized that income-tax is a single charge on the total income, and for computation, the statute classifies income under different heads. The appellant argued that the shares held in tea companies were trading assets and the dividend income should be regarded as income from business.

The court referenced several precedents, including United Commercial Bank Ltd. v. CIT and CIT v. Chugandas and Co., to clarify that income from securities held as trading assets in a business context could still be computed under a different head for tax purposes. Despite this, the court found that the appellant failed to provide sufficient evidence to show that the shareholdings were necessarily incidental to its tea business or held as business assets. The Commissioner of Income-tax and the High Court had previously concluded that the investments were not incidental to the appellant's business activities. Consequently, the court upheld the view that the dividend income could not be classified as business income.

2. Carry Forward of Losses under Section 24(2) of the Indian Income-tax Act, 1922:
The appellant contended that the loss from the assessment year 1955-56 should be carried forward to the assessment year 1956-57, arguing that it was not necessary for the business carried on in both years to be the same. This argument was based on the assumption that the shares held by the appellant were trading assets.

The court rejected this contention, noting that the assumption that the shares were trading assets was unfounded. Therefore, the appellant's claim to carry forward the loss under Section 24(2) failed.

3. Carry Forward of Unabsorbed Depreciation under Section 10(2) of the Indian Income-tax Act, 1922:
The appellant also sought to carry forward unabsorbed depreciation from the assessment year 1955-56 to the assessment year 1956-57. The Division Bench of the High Court had tentatively agreed with the appellant but declined to express a final opinion, as the assessment for the year 1956-57 had already been closed by the Revenue, and the issue was pending in an appeal for the assessment year 1957-58.

The court noted that the writ petition was directed against the Commissioner's order for the assessment year 1956-57, and the High Court could have directed the Commissioner to grant appropriate relief for that year. The Commissioner should have considered the claim on its merits, irrespective of its potential impact on the assessment for the year 1957-58. The court directed the Commissioner to dispose of the revision application for the assessment year 1956-57 afresh, specifically concerning the claim to carry forward unabsorbed depreciation. The court also clarified that the Revenue could still argue against the appellant's entitlement to this carry forward on the merits.

Conclusion:
The appeal was allowed in part. The court set aside the orders of the Division Bench, the learned single judge, and the Commissioner of Income-tax regarding the claim to carry forward unabsorbed depreciation and directed the Commissioner to reconsider this claim. The rest of the appeal was dismissed. There was no order as to costs.

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