9911796707
TMI Blog2008 (7) TMI 453X X X X Extracts X X X X X X X X Extracts X X X X ..... customers and others having dealings with the company, and to guarantee the performance of contracts by any such persons or companies. The appellant has been placing ICDs with various companies since financial year 1994-95. The amount of money lent on interest and interest earned thereon in various years is as under: ----------------------------------------------------------- Financial Inter-corporate deposit Interest earned and year outstanding (Rs. in lacs) offered for tax ----------------------------------------------------------- 31.3.1995 1,600 Rs. 358.24 lacs 31.3.1996 2,091.50 Rs. 513.75 lacs 31.3.1997 1,045 Rs. 613.66 lacs 31.3.1998 &n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; ----- 360 ----- The assessee was asked to substantiate its claim of bad debts. The assessee submitted that ICDs are placed as part of business of the company. The interest is earned thereon and offered for taxation for all these years, The same was assessed as business income for all these years. Accordingly, it was argued that the debt having become bad in the course of carrying on money lending business, the same is allowable as per s. 36(1)(vii) r/w s. 36(2)(i) of the Act. The AO held that the assessee's business is not that of banking or money lending. In the return of income, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia, made elaborate arguments. He submitted that as per memorandum of association, the main object of the company, inter alia, includes money lending to such persons or companies on such terms as may seem expedient. Placing of ICD is not like placing fixed deposit with banks. ICDs are placed after scrutinizing the worth of the firm, purpose and other terms are also dictated. It is not the assessee who approaches the borrower for placing the ICD, rather the firm approaches the appellant for borrowing by way of ICDs. ICDs are accepted where the borrower is not able to garner the public deposits which are governed by the provisions of s. 58A of the Companies Act, 1956. Even though the limits as prescribed under s. 372 of the Companies Act are exhausted, the ICDs are neither public deposits nor advances as envisaged under s. 372 of the Companies Act. Hence, only few borrowers can avail such deposits and for placing or accepting such ICDs various other formalities are to be carried out. The company is carrying on such business since financial year 1994-95 relevant to asst. yr. 1995-96. From the above chart it is clear that the company is engaged in organized activity of placing ICDs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the write off being bona fide, the claim is allowable under s. 36(1)(vii) r/w s. 36(2)(i) of the Act. 7. The learned Departmental Representative, Shri L.M. Pandey, on the other hand, relied upon the appellate order. He submitted that the ICDs are placed out of the surplus funds generated by the assessee from the business of manufacturing of piston rings, cylinder liners, etc. At all times the assessee declared its nature of business as manufacturing and trading and nowhere it was mentioned to be money lending. The assessee cannot be equated as carrying on business like bank or other financial institution. Sec. 36(2)(i) provides that deduction for a bad debt shall not be allowed unless such debt or part thereof has been taken into consideration in computing the income of the assessee of the previous year or any earlier previous year or represents the money lent in the ordinary course of business of money lending carried on by the assessee. Admittedly, the amount of ICD is not a debt which has been taken into consideration in computing the income of the assessee for any of the earlier previous year. Whether the assessee is engaged in the ordinary course of the business of money le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off which represents money lent in the ordinary course of the business of money lending carried on by the assessee is allowable. Therefore, the question to be examined is whether the debt written off represents money lent in the ordinary course of the business of money lending or not. The fact, which is not in dispute is, that for all these years the interest on ICD was offered for taxation and taxed as such as business income. The corollary therefore, is that the interest was earned in the course of carrying on business as such. Business is a set of organized activities with set purpose carried on continuously and with a view to earn profit. In determining such question, ordinary commercial principles should be applied. Whether a particular income received as a result of activities carried on by the assessee is business income or otherwise depends upon the manner of exploitation of the assets of the assessee. The same is to be decided according to the general common sense view of those who deal with those matters in the particular circumstances and the conduct of the parties concerned. From the chart of money lent and interest earned thereon it is clear that lending of money by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject of lending or advancing monies had been placed under 'other objects' in the memorandum of association and not under the 'main objects', it could not be said that advancing of money was beyond powers of assessee company under its memorandum of association and would not amount to business. It was also held that since interest on said advance was assessed in earlier years as business income and moreover board resolution authorizing said advance was in conformity with objects clause of memorandum of association, it could be said that transaction in question was a loan transaction and represented money lent in ordinary course of business of money lending carried on by the assessee. Therefore, the assessee's claim of bad debt was held as allowable in view of provisions contained in s. 36(1)(vii) r/w s. 36(2)(i) of the Act. The facts in the present case before us are much stronger. In the case before us, the assessee has been lending money by way of ICDs for several years and offering interest thereon which was assessed as business income. The object of lending money is part of main object of the assessee. The facts being not different but being stronger than in the case of Poysha Ox ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess profit tax. The Court held that the activities of assessee did not amount to a business and their receipts could not be regarded as profits of the business and were therefore not chargeable to excess profit tax. However, the facts in the present case are totally different. We are not called upon to decide the head under which the interest income is chargeable. Admittedly, the interest income on money lent by way of ICD was taxed as business income on which there is no dispute and hence the said case does not help the case of the Revenue. 9.5 In the case of Tuticorin Alkali Chemicals & Fertilizers Ltd., the Hon'ble Supreme Court was considering the nature of interest income received by the assessee prior to commencing of its business. The Hon'ble Supreme Court held such interest income is assessable under the head "Income from other sources". However, in the present case, we are not called upon to determine the nature of interest income and hence said case will not help the case of the Revenue. 10. In view of our discussion above, since we have found that the assessee had lent money by way of ICDs in ordinary course of its business of money lending, the assessee has complied w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is maintaining vegetable oil division and some of the employees as well as security guards are present in the plant and the vehicles of the said plant are being used by the 5 employees for commuting to and from the residence to the plant. Similarly, some of the furniture is also being used by the employees. The assets are ready for use but not used because of the high cost of production as compared to imported oil which the Government was importing at cheaper rate. He further submitted that once the assets are put to use, no separate WDV can be assigned to such assets. The condition of user is to be satisfied in the year when such assets are forming part of the block of assets and in subsequent years, the user conditions are not to be satisfied. For this purpose, reliance was placed. on the decision of Tribunal, Delhi, in the case of Asstt. CIT vs. SRF Ltd. (2008) 21 SOT 122 (Del), wherein similar view was taken. 15. The learned Departmental Representative, Shri L.M. Pandey, on the other hand, sought to rely upon appellate order. He submitted that for claiming depreciation under s. 32, two conditions are to be satisfied, namely, (i) the assessee is owner of the assets; (i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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