9911796707
TMI Blog1968 (4) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... n 11th April, 1961, for taking over and running certain concerns of the Government of Madhya Pradesh, namely, the Ratlam Power Alcohol Project, Spinning Mill, Sanawad, and the Cottonseed Solvent Extraction Project, Ujjain. The shares in the company are held by the Government of Madhya Pradesh, the Madhya Pradesh Electricity Board, and the Director of Industries, M. P. Government. During the period covered by the assessment year 1962-63, of which the accounting year ended on 31st March, 1962, the company did not actually carry on any business ; there was also no production. This was a period of capital expenditure and installation of machinery and plant. The share money, which the company received from the Madhya Pradesh Government, the Madhya Pradesh Electricity Board, and the Director of Industries, not being immediately required by it, was deposited in call-deposits in certain banks. On these deposits the company received in the accounting year a total amount of Rs. 20,763.92 as interest. The company showed this amount of interest as "cash and bank balances" in its accounts as on 31st March, 1962. In the profit and loss account, the amount was shown as "interest on deposits". In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the memorandum of association of the company in order to ascertain the business of the company. Clause III of the memorandum of association sets out the objects for which the company has been established. One of the objects stated in sub-clause (13) of clause III is : " To lend money on mortgage of immovable property or on hypothecation or pledge of movable property or without security to such persons and on such terms as may seem expedient and in particular to customers of and persons having dealings with the company." Then sub-clause (20) says : " To invest and deal with the money of the company in any securities, investments, properties, movable or immovable, and in such manner as may, from time to time, be determined and to sell, transfer or deal with the same." Clause 72(1) of the articles of association, which is material here, runs as follows : " 72. Without prejudice to the general powers conferred by the last preceding article, and the other powers conferred by these articles, and subject to the provisions of the Act, the directors shall have the following powers, that is to say, powers : (1) to invest in such securities as may be approved by the Governor and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax v. Calcutta National Bank Ltd. We are unable to accept this contention. For determining whether an act done by a company was one done by it in carrying on its business, it is not sufficient merely to look at the memorandum of association and to find out what business it provides. It is also necessary to determine further whether the particular act done by the company was done in pursuance of the objects enumerated in the memorandum or the articles of association. The decisions in Commissioners of Inland Revenue v. South Behar Railway Company, Seksaria Biswan Sugar Factory v. Commissioner of Income-tax and Lakshminarayan Ram Gopal and Sons Ltd. v. Government of Hyderabad fully support this proposition. In Commissioners of Inland Revenue v. South Behar Railway Company, Lord Sumner said : " To ascertain the business of a limited liability company one must look first at its memorandum and see for what business that provides and whether its objects are still being pursued." In Seksaria Biswan Sugar Factory's case Chagla C.J. observed : ". . . in every particular case you have to determine whether in doing what the company did it was taking a step which was a normal step in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the deposits made by the assessee in a certain bank did not constitute any business of the company, then it follows that the interest, earned by the assessee on those deposits cannot be regarded as income under the head "profits and gains of business or profession" under section 28 of the Act. The decision of the Supreme Court in Commissioner of Income-tax v. Calcutta National Bank Ltd., cited by the learned counsel for the assessee, has no applicability here. In that case, the assessee was a banking company. It owned a building and realised income by way of rent for the portion of the building let out. One of the objects stated in the memorandum of association of the company was "to purchase or take on lease or in exchange or otherwise acquire any movable or immovable property . . . which the company may think necessary or convenient, maintain and alter any buildings or works necessary or convenient for the purpose of the company". The question raised in that case was whether the income realised by the assessee by way of rent was liable to excess profits tax and could be included in the profits of the business under rule 4(4) of the First Schedule to the Excess Profits T ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
