9911796707
TMI Blog1961 (12) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... reholder and a director in a private limited company known as Bharat Development Corporation (Private) Ltd., Katpadi, in which some of her relations were also shareholders. The said corporation required financial aid. She, for that purpose, borrowed a sum of ₹ 1,25,000 from the Mysore Bank on interest at the rate of 3 % per annum up to November 30, 1951, and at 4% per annum from and after December 1, 1951, and advanced the same to the said corporation at a higher rate of interest of 5%per annum. As she maintained accounts on the method of accrued basis in the assessment year 1952-53, she furnished the return disclosing, inter alia, the income of ₹ 4,948 as interest received from the corporation and as against that, she deducted ₹ 3,646 as interest paid to the Mysore Bank on the amount she had borrowed to advance to the corporation. The Income-tax Officer brought that amount to tax in that year. But the truth was that no interest for that or for subsequent years was actually received at any time by the assessee from that concern. On the other hand, the assessee herself waived the interest due on that account from the concern first till December 12, 1951, and then u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 3, renders the total income of an assessee chargeable, subject of course to certain exemptions. The total income of an assessee, under section 4 includes income, profits and gains from whatever source derived, accrued or arisen or received within or without the taxable territories. The income, profits or gains of an assessee liable to be charged is brought under six heads under section 6, and sections 7 to 12B quantify the tax. Sections 7 to 9 deal with the first three kinds of income shown in section 6. We are not concerned now with these. Items 4 and 5 of that section must, however, come up for our consideration and these are covered by sections 10 and 12 of the Income-tax Act. To be more precise, section 10(2)(iii) and (xv) and section 12(2) are the relevant provisions which require careful examination for the purpose of this case. It is necessary to extract them here: 10. (1) The tax shall be payable by an assessee under the head profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of section 10 ? The word business as defined in section 2(4) includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Ex facie, it is of wider import than the word profession though the vocation may be a word of still wider significance. What does not amount to profession may amount to business. But it is essential that it should be in the nature of trade, commerce or manufacture as contemplated by the definition. Whether a particular activity amounts to any trade is indeed a difficult question to answer. The Judicial Committee in Commissioner of Income-tax v. Shaw Wallace Co. [1932] 2 Comp. Cas. 276; ILR 59 Cal 1343 has observed that the words used in the definition 'business' are no doubt wide but underlying each of them is the fundamental idea of continuous exercise of an activity. Thus, the term business must connote some real, substantial and systematic or organised course of activity or conduct with a set purpose. No doubt, even a single and isolated transaction may be capable of falling within the definition of business but only if it is an adventure in the nature of trade. The transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0] 3 SCR 38; AIR 1960 SC 738, argued that the mere fact that the assessee had waived her right to interest for the period in question would not take the matter away from the province of section 10(2)(xv); that it was necessary for the income-tax authorities and the Tribunal to inquire whether the amount was given up for reasons of commercial expediency. But, as already noticed, section 10 is attracted only if there is a business carried on by the assessee. That is the prime requisite. In case that condition is fulfilled, section 10(2)(xv) would be attracted provided the alleged expenditure is laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. The case cited has no application to the facts of the present case. There the managing agent had agreed to accept only a sum of ₹ 1,00,000 as his commission even though the amount which accrued as commission for the year was ₹ 3,09,114. It was found that in the past also the managing agent had in the interests of the managed company similarly waived a portion of the commission and that the waiver of a part of the commission was for reasons of commercial expediency and though it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, that in order to justify deduction, that sum must be given up for reasons of commercial expediency. It may be voluntary but so long as it is incurred for the assessee's benefit, the deduction would be claimable. The facts of the present case as found do not bring it within the dictum of their Lordships. Waiver by the assessee was not for reasons of commercial expediency which is likely to enure for the benefit of the assessee's business, trade or avocation. The assessee was not carrying on any business in advancing the loan nor the waiver of interest was actuated by any considerations of eventual benefit in the transaction of loan that she made. This was obvious from the circumstances brought to light before the income-tax authorities. No further probe was necessary for the purpose. Nor did the assessee allege any other circumstance before the authorities concerned which, if permitted to be proved, would affect the decision otherwise. Indubitably, section 10(2)(xv) has no application to the present case. Then the question is whether the case falls under section 12. That section applied to cases where the income is from other sources . It is wide enough to cover every ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as appointed: administrator of his estate in India, needed, some money. An agreement was reached with the company whereby the company agreed to reduce its share capital. Consequently, it took over the shares that stood in the name of Lord Cable. The executor on his part agreed to forgo each payment and to receive debentures of the face value of ₹ 50 lakhs carrying interest at 5 per cent. per annum redeemable at the option of the registered h older at any time. The 5 per cent. interest was paid to Scott on these debentures. The company claimed to deduct this from its income as part of its working expenses under section 12(2). It was not disputed there that if the debentures were held by a third party, the interest payable on the same would be an allowable deduction in calculating the total income of the assessee company. The objection however was taken mainly on the ground that the person who took the debentures was the party who sold the ordinary shares. Their Lordships held that it made no difference for the applicability of section 12(2) whether the debentures were held by a shareholder or by an outsider. On merits their Lordships observed that, being an investment company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from the context in which it appears. We have to find out the meaning as far as possible from the language of the section itself and without attributing to the legislature a precise appreciation of the technical appropriateness of its own. But in whatever way we read the word 'purpose' it cannot certainly mean a motive for a transaction. Much less can it mean the ulterior motive or the ultimate object of purchasing the shares by the company. There the assessee company had purchased certain shares to the tune of several lakhs of rupees and to pay for the purchase money took loan in a large measure. In the subsequent accounting years, which were relevant to the assessment years, it paid interest on the capital borrowed for the purchase of the shares but there was no income at all from those shares. The assessee claimed to set off this payment of interest against its other income in those years. The learned judges held that there was no other finding by the Tribunal that those shares were not purchased solely for the purpose of making or earning income, profits or gains and that the Tribunal had found that those purchases were investments of the assessee company. On the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
