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TMI Blog2010 (9) TMI 726X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income-tax (Appeals) partly allowed the appeal and remanded the matter to the Assessing Officer for re-computation of interest in the light of the decision. Aggrieved by the partial rejection of the appeal, the assessee filed a further appeal before the Income-tax Appellate Tribunal, Panaji Bench, Panaji (for short "the ITAT"). The Income-tax Appellate Tribunal allowed the appeal filed by the assessee in part. It however rejected the contention of the assessee that it had an option not to claim depreciation for the purpose of availing of deduction under section 80-IA of the Act. The Income-tax Appellate Tribunal also rejected the contention of the assessee that the loan received by it from Acqua Minerals Pvt. Ltd. (for short "AMPL") could not be held to be a "deemed dividend" under section 2(22)(e) of the Act. Aggrieved by the decision of the Income-tax Appellate Tribunal, the Revenue has filed the present appeal. 3. The appeal was admitted by this court by an order dated June 24, 2002 as to one substantial question of law. Thereafter, the assessee filed an application being Civil Application No. 599 of 2005 requesting the court for framing an additional substantial question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Zainab R. Chauhan. Ramesh Chauhan held 54 per cent. share capital and Mrs. Zainab Chauhan held 20 per cent. share capital of the assessee. The same two persons were also the majority shareholders of AMPL. Mr. Ramesh Chauhan held 53.33 per cent. of the share capital of AMPL and Mrs. Zainab R. Chauhan held 13.33 per cent. of the share capital of AMPL. In view of the fact that AMPL was a company in which public was not substantially interested and in view of the fact that the said two persons held majority of the share capital in the assessee-company as well as in AMPL, the Assessing Officer held that Rs.2,18,60,949 which was a loan by AMPL to the assessee-company, should be treated as a deemed dividend in its hands under section 2(22)(e) of the Act. He, accordingly, added Rs. 2,18,60,949 as the "deemed dividend" in the hands of the assessee and computed it in the total income of the assessee. The Commissioner of Income-tax (Appeals) modified the decision of the Assessing Officer by holding that only the sum of Rs.11,68,135 which was received by the assessee by way of loan/advance during the relevant previous year could be treated as an income by way of "deemed dividend". The carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had an option to claim or not to claim current depreciation allowable under section 32 of the Act, the matter was referred to the Full Bench. Affirming the order of the Tribunal, the Full Bench held that the special deduction under Chapter VI-A of the Act, (which includes section 80-IA) has to be computed on the gross total income determined after all deductions allowable under sections 30 to 43D of the Act and any device adopted by the assessee to reduce or inflate the profits of eligible business has got to be rejected. The quantum of deduction under section 80-IA of the Act has to be determined by computing the gross total income from the business after taking into consideration all the deductions allowable under sections 30 to 43D of the Act. In view of the decision of the Full Bench, question No. 1 is answered in favour of the Revenue and against the assessee. Regarding the second question of law 8. During the relevant assessment year 1997-98, the income received by a person by way of dividend is taxable and is to be included in the total income of the person. The word "dividend"has been defined under section 2(22) of the Act. The definition of "dividend"is incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act and was specifically excluded from the definition of the dividend. 10. The amounts of loan have been noted in paragraph 25 of the order of the Income-tax Appellate Tribunal and the correctness thereof is not disputed before us. The position of the assessee's accounts in the books of AMPL was as under : Rs. Rs. Opening debit balance b/f 1,76,39,425 Add : (i) Payments made by way of advance or loan during the year. (a) on 10-9-1996 6,00,000 (b) on 31-3-1997 5,68,135 11,68,135 (ii) Provision for interest debited to the appellant's account on 31-3-1997 32,13,367 Total 2,20,20,927 Less : Adjustment entries on credit side 1,59,974 Closing balance c/f 2,18,60,953 11. This shows that during the relevant previous year (financial year 1996-97), AMPL had actually lent to the assessee only a sum of Rs. 11,68,135 in two instalments, namely Rs. 6,00,000 on September 10, 1996 and Rs. 5,68,135 on March 31, 1997. The opening balance of Rs. 1,76,39,425 was not advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or loan was made by the (lending) company, if the two conditions are satisfied namely (i) that the loan or advance was made by the (lending) company in the ordinary course of its business and (ii) lending of money was a substantial part of the business of the (lending) company. At the relevant time, AMPL was engaged in the business of production, sale and distribution of soft drinks, aerated water and mineral water. The assessee was engaged in the business of manufacture of plastic caps for bottles. A judicial notice can be taken of the fact that during the relevant assessment year 1996-97 some soft drinks were sold in glass bottles, having metal caps, some soft drinks were also sold in plastic/pet bottles bearing plastic caps. Mineral water was almost exclusively sold in plastic/pet bottles or jars bearing plastic caps. The business of the assessee was complementary to the business of AMPL. The assessee was also a supplier of plastic caps to AMPL. It is not uncommon for a manufacturer of a product to give some advance to the suppliers of raw material or other parts used by the manufacturer in manufacturing its products. Such advances are commonly made in the usual cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Rinder [1948] SASR 167 is given in support of this meaning. In the meaning No. 8, while considering "substantial amount", it is stated that out of a rent of œ 80 per annum, œ 13 per annum attributable to the amount paid for furniture, was a substantial amount, on the basis of the decision in Maclay v. Dixon C. A. 170 L T 49. In meaning No. 15, relying upon the decision of Ladbroke (Football) Ltd. v. William Hill (Football) Ltd. [1964] 1 WLR 273 (HL), it is said that in deciding whether the reproduced part of copyright material is a "substantial" part of the whole, it is the quality rather than the quantity of the part that should be considered. Black's Law Dictionary, Sixth Edition defines the word "substantial" as "Of real worth and importance ; of con-siderable value ; valuable. Belonging to substance ; actually existing ; real ; not seeming or imaginary ; not illusive ; solid ; true ; veritable . . . Some-thing worthwhile as distinguished from something without value or merely nominal." No decision was cited before us wherein a view has been taken that in order to show that a part of the whole to be treated as "substantial part", the part must exceed 50 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness of the company, because if any part of the three divisions of the business of the company was to be closed down, that would result in loss of turnover and/or business of 30 per cent., ordinarily no company would regard such part of the business as insignificant. As rightly observed in Stroud's Judicial Dictionary, it is not possible to give any fixed definition of the word "substantial" in relation to "a substantial business of a company". Any business of a company which the company does not regard as small, trivial, or inconsequential as compared to the whole of the business is substantial business. Various factors and circumstances would be required to be looked into while considering whether a part of the business of a company is its substantial business. Sometimes a portion which contributes a substantial part of the turnover, though it contributes a relatively small portion of the profit, would be a substantial part of the business. Similarly, a portion which relatively a small as compared to the total turnover, but generates a large, say more than 50 per cent. of the total profit of the company would also be a substantial part of its business. Percentage of turn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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