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TMI Blog1978 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... ny: (1) the business carried on by the said firm as managing agents of Wallace Flour Mills Ltd., (2) the factories owned by the said firm known as Dharawah Digras Ginning and Pressing factories with stocks, stores, etc., (3) the immovable properties owned by the said firm in Kalbadevi, Bombay, known as 'Narrotamwadi property', (4) all the shares, stocks, debentures and other securities held by the said firm or by any individual member or members of the said firm for and on behalf of the said firm; and to enter into an agreement with the said Messrs. Vissonji Sons Company for taking over from them the said managing agency of Wallace Flour Mills Company Limited and the said factories and properties in terms of the draft agreement which for the purpose of identification has been initialed by Mr. Tricumdas Dwarkadas, Solicitor, Bombay, and to carry the said agreement into effect. (b) to carry on business as Managing Agents of the said Wallace Flour Mills Company Limited, as also to carry on business as Managing Agents, Selling Agents, Commission Agents, Muccadums and Brokers of any other company, concern or person. The issued and subscribed capital of the company was Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me in that year was Rs. 9 lakhs (roundly); to earn this income, the company had employed staff for whom the salary, wages and bonus paid amounted to Rs. 82,670. The total income assessed for the year 1961-62, was Rs. 13.77 lakhs against income as per books of Rs. 7.91 lakhs. Taking a position over a series of years, it was ascertained that from 1945-46 accounting year to 1963-64, the income from business had exceeded the dividend income approximately during half the total number of years. The provisions of s. 23A of the Indian I.T. Act, 1922, were attracted for the assessment years 1961-62 and 1962-63. In the first of these years, the ITO considered what should be the statutory percentage to be taken into account. It was sought to be urged on behalf of the company that the main business of the company was not that of dealing in or holding of investments. In all past years it had not been treated as an investment company. It was also pointed out that right from the formation of the company it had been the managing agents of Wallace Flour Mills and had also other business activities. The investments in the managed company's shares were stated to be incidental to the business of man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning to the income earned over a series of years, he found that the business income and the gross dividend income fluctuated from year to year; in some years the business income was more while in other years it was less than the dividend income. As regards investments as on March 31, 1961, the total investment stood at about Rs. 55 lakhs against a paid-up capital of Rs. 35 lakhs. But of this only about Rs. 9 lakhs related to investments other than in shares of companies in which the assessee was interested. According to the AAC, the decision of the ITO for the assessment year 1961-62 that the company was an investment company rested on flimsy grounds, viz., that its dividend income was more than the business income and the investments in shares of the companies in which the assessee was otherwise interested were to be regarded as pure investments. He held that the quantum of the respective income from dividends and business for a series of years had to be considered, and not merely for one year. The bulk of investments in other companies was merely incidental to carrying on the assessee-company's main business. Similar orders were also passed for the subsequent assessment years. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the AAC as well as the Tribunal were not justified in taking the view that the assessee was a company whose business did not consist wholly or mainly in the dealing in or holding of investments. The material question that we have to bear in mind in deciding this reference is, did the business of the assessee-company consist wholly or mainly in the dealing in or holding of investments. If the answer to this question is in the affirmative, then the revenue is bound to succeed. But if regard be had to the well-recognised tests laid down, then the assessee should succeed. The facts found by the AAC as well as the Tribunal have not been controverted at all. If those are the facts, then having regard to the settled position in law, in view of more than one decision of the Supreme Court, in our opinion, the contention urged-on behalf of the revenue cannot be accepted. The expression " wholly or mainly in the dealing in or holding of investments " has been construed by the Supreme Court in the case of CIT v. Distributors (Baroda) P. Ltd. [1972] 83 ITR 377. That was a case under the 1922 Act. The Supreme Court there had taken the view that cl. (i) of Expln. 2 to s. 23A of the 1922 A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an those used for investment in the shares of the managed companies, if the value of the managing agencies held by the assessee were taken into consideration, it could not be said that the assets of the company used in its dealing in shares would exceed the value of its other assets. On these facts, the Supreme Court took the view that the assessee was not a company whose business consisted mainly in the dealing in or holding of investments within the meaning of cl. (i) of Expln. 2 of s. 23A of the 1922 Act. The view taken by the Supreme Court in this case has been reaffirmed later on by the Supreme Court in the case of Nawn Estates (P.) Ltd. v. CIT [1977] 106 ITR 45. In this case, the Supreme Court has pointed out, that in the context of s. 23A the term " investment " is not a term of art and resort should be had not to its technical meaning but to its popular meaning. If the test laid down by the Supreme Court in Distributors (Baroda) P. Ltd.'s case [1972] 83 ITR 377 is employed, there is no doubt, whatsoever, on the facts of the present case, as found by the AAC and the Tribunal, that the assessee-company was not a company whose business consisted mainly in the dealing in or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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