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TMI Blog1979 (4) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfy the provisions of s. 40A(8) (c)(iv). The ITO consequently disallowed 15 per cent of the expenditure on interest under the above provision. 2. On the assessee's appeal, the AAC referred to the above provisions and held that since the assessee is running a chit fund it can be stated to be providing finance by making loans or advances or otherwise and hence the assessee has to be treated as a 'financial company' for the purposes of s.40A (80 of the Act and the restriction envisaged in that section will not apply to the assessee's case. The AAC thus allowed the assessee's capital. 3. Before us, the learned departmental representative for the Revenue submitted that the business of running chit it funds cannot be considered as a busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction:- (c)"financial company" means- (iv) a loan company, that, is to say a company (not being a company referred to in sub-clauses (i) to (iii) which carries on, as its principal business, the business of providing finance, whether by taking loans or advances or otherwise." The question before us is whether a company of the present type running a chit fund business can be considered as a "financial company" within the meaning of Explanation (c). The object, inter alia, of the assessee-company, to which our attention was drawn by the assessee's learned counsel, are:- "Which To Conduct Chit Funds or Kuries of all kinds as allowed by Law............... 18. To lend or deposit moneys belonging to or entrusted with or at the disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chit amount in lump as a loan with the facility of repaying it in monthly instalments. A chit fund does, no doubt, incidently partake of the nature of a saving scheme also. But unless amounts are advanced to the prizing subscribers through a scheme of competitive bidding or by drawing lots, there will be no income derived either by way of interest or by way of amounts foregone by the bidders at the auction. Thus the chit fund is primarily intended to operate as a scheme for advancing loans from the common fund to the subscribers, their turns for getting such loans being determined either by auction or by drawing lots." The High Court has thus clearly held that the chit fund is primarily or basically intended to operate as a scheme for ad ..... X X X X Extracts X X X X X X X X Extracts X X X X
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