9911796707
TMI Blog2015 (10) TMI 755X X X X Extracts X X X X X X X X Extracts X X X X ..... e Co. is admittedly engaged in the business of loans and advances, as is clear from the memorandum of association. The Tribunal picks holes from the balance sheet of the Sarnath Finance Co. contending that under the heading "Loans and Advances" the Company had made sub groups, namely, "Loans and Advances" and "stocks on hire including hire purchase". The Tribunal, therefore, concluded that a substantial part of the business of the said Finance Company was hire purchase. In our view, the Tribunal has side tracked the issue without realising that "stocks on hire" was also shown under the heading of "Loans and Advances" in the balance sheet of the Finance Company. The break up of different kinds of loans and advances indicated by the said Finance Company in its balance sheet was for its convenience. The fact remains that the Finance Company was substantially carrying on the business of lending money which was its main business. We are of the view that the Tribunal and the authorities below committed a manifest error in holding that the loan and advance given by the Sarnath Finance Company to the appellant was a deemed dividend. In fact, it was covered by the exclusionary clause (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Finance Company is business of lending money, but, contended that as per the balance sheet, the loans and advances shown by the Finance Company had been grouped under different heads, namely, loans and advances and stock on hire including hire purchase . The Tribunal further found that the balance sheet showed ₹ 426.32 lacs under the heading stocks on hire and ₹ 56.23 lacs under the heading loans and advances and, therefore, concluded that a substantial business of the Finance Company was for hire purchase transactions and not for loans and advances and, therefore, the loan taken by the appellant was not covered under the exclusionary clause (ii) of Section 2(22)(e) of the Act. 4. In this back drop, we have heard Sri Abhinav Mehrotra, the learned counsel for the assessee and Sri Krishna Agarwal, the learned counsel for the Department. 5. We find that the following question of law arises for consideration, namely:- Whether the loan/advance given by the Finance Company to the assessee, who is a share holder in the Finance Company was made in the ordinary course of its business, hence outside the scope of Section 2(22)(e) of the Act. 6. In or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art was hire purchase transaction, hence the lending of money was not in its ordinary course of business and the same was, therefore, not covered by the exclusionary clause (ii) of Section 2(22)(e) of the Act. 8. The provision of Section 2(22)(e) of the Act states, that any payment by a Company not being a Company in which the public are substantially interested of any sum by way of advance or loan to a shareholder, who has a holding of not less than 10% of the voting powers, such advance or loan made to a shareholder in the ordinary course of its business will not be treated as a dividend where the lending of money by the Company is a substantial part of the business of the Company. The words substantial part of the business has not been defined under the Act. 9. The Bombay High Court in Commissioner of Income Tax, Panaji, Goa vs. Parle Plastics Ltd., 2011 (196) Taxman 62 explained as to what would constitute a substantial part of the business . The Bombay High Court after considering the meaning of the word substantial in various dictionaries concluded:- 11. The expression used under clause (ii) of Section 2(22) is `substantial part of the business'. We would, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the lending business of the lending company for the purpose of clause (ii) of Section 2(22) of the Act. We would give an illustration to ascertain the meaning of the expression substantial business or substantial income of a company. In the modern days, large number of companies do not restrict to one or two businesses. They carry on numerous activities and carry on numerous businesses and have numerous business divisions. Let us take a case of a first company which has 3 divisions of works consisting of three different types of business. Turn over as well as the profit of the first division is 40%; turn over and profit of second division is 30% and the turn over and profit of the third line of business is 30%. In the case of this company no part of the business has turn over exceeding 50% and no part of the business company generates profit of more than 50% of the total. In such a case can it be said that none of the businesses of the said company is a substantial business of the company. In our view not. The first business which constitutes 40% of the turn over and contributes 40% to the profit would be the single largest part of the business of the company, the second and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the question of substantial part of business . 11. We are of the opinion that it is not possible to give a fixed definition of the word substantial in relation to a substantial business of a Company. We are of the opinion that any business of a Company which is not trivial or inconsequential as compared to the whole of the business would be termed as substantial part of the business. In the instant case, the assessing officer has held that the business of giving loans and advances by Sarnath Finance Company constituted less than 20% of the total investment and, therefore, the same is not a substantial part of the business of the Company. In our view, such reasoning is per se misconceived. 12. We find from a perusal of the order of the Tribunal that Sarnath Finance Co. is admittedly engaged in the business of loans and advances, as is clear from the memorandum of association. The Tribunal picks holes from the balance sheet of the Sarnath Finance Co. contending that under the heading Loans and Advances the Company had made sub groups, namely, Loans and Advances and stocks on hire including hire purchase . The Tribunal, therefore, concluded that a substantial part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
