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TMI Blog1985 (1) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... rtner, M.A. Lakshmana, was admitted as a full-fledged partner on his becoming a major. Subsequently, another reconstitution took place under the deed, dated 13-6-1980, which took effect from 21-10-1979. The registration was sought for on the strength of the partnership deed, dated 13-6-1980. In the enquiry for registration, Shri M.A. Lakshmana Heggade, one of the partners, affirmed that the firm was not having any money lending licence to carry on money-lending business. The firm came into existence for the assessment year 1975-76 with an intention to carry on money-lending business. However, due to the death of M.R. Appana Heggade and M.B. Manjappa, the senior partners and also due to the enactment of Debt Relief Act by the State Government the assessee-firm did not do any money-lending business but had invested the capital contributions of all the partners of the firm in the firm M.R. Appana Heggade and M.B. Manjappa (the debtor firm), who had agreed to give interest at the rate of 18 per cent per annum. Accordingly, the entire amount was deposited with the above firm. This so-called affirmation was recorded by the ITO in the docket. The ITO held that the assessee did not carry o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed gross interest of Rs. 1,01,698 and net profit of Rs. 60,519.32, According to the department, no business is carried on by the assessee and even according to the affirmation of one of the partners, the assessee simply deposited all its capital contributions, borrowings, etc., with the debtor firm and, therefore, the assessee did not carry on any business. Mere deposit of monies does not amount to doing money-lending business and on this premise the ITO holds that the assessee earned income only under the head 'Income from other sources' and it should be assessed in the status of an 'AOP'. Further, one of the strong grounds on which the revenue seeks to justify refusal of registration to the assessee-firm was that it did not obtain money-lending licence under the Karnataka Money Lenders Act, 1961. According to the learned departmental representative, under the Karnataka Money Lenders Rules, 1965, a money-lender has to obtain a licence from the requisite authority before carrying on money-lending business. In the absence of any such licence being obtained, the learned departmental representative contended that the money-lending business would become illegal and the activity carried ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the so-called affirmation said to have been made by Shri M.A. Lakshmana Heggade before the ITO that due to the death of Shri M.R. Appanna Heggade and M.B. Manjappa, they were not able to carry on any money-lending business and, therefore, they had decided to keep the money in deposit with the debtor firm was wrong. As can be seen even from the partnership deed dated 9-5-1974, Shri M.R. Appanna Heggade and Shri M.B. Manjappa who were fathers of Shri M.A. Lakshmana and Shri M. Ramachandra, respectively, passed away long back. Shri M.R. Appanna Heggade died on 8-2-1972, whereas M.B. Manjappa died on 23-6-1973. Their estate duty assessment was also filed before us. He further argued that assuming that Shri M.A. Lakshmana Heggade under a wrong impression of law presumed that the assessee could not carry on money-lending business in the absence of obtaining money-lending licence from the requisite authority under the Karnataka Money-Lenders Act, the said admission which was made under a wrong impression of law does not bind either the assessee or the person who made it. Therefore, even on that ground the refusal of registration to the assessee is not supportable. 2. We heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epayable. But when the repayment is to be made furnished the real point of distinction between the two concepts. A loan is repayable the minute it is incurred. But this is not so with a deposit. Either the repayment will depend upon the maturity date fixed therefor, or the terms of the agreement relating to the demand, on making of which the deposit will become repayable. In other words, unlike a loan there is no immediate obligation to repay in the case of a deposit. We have ascertained in this case that the assessee had advanced khata debt to the debtor firm. It is a debt repayable on demand with interest. Simply because the whole money of the assessee together with borrowed money was lent to the debtor firm only and not to several debtors, it does not make the activity of the assessee anytheless business. Suppose a contractor gets a big contract for lakhs of rupees from a Government and he obtains contractual profit, we are still calling this profit as business profit. The case of the assessee is in no way different from the illustration given above. The assessee gets its business income (interest income) from one party. In Venkataramaiya's Law Lexicon, Second edn. at p. 653, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the business carried on by the assessee would become per se illegal also does not appear to be correct. On the other hand, the true legal position appears to be that a money-lender can lend monies without obtaining money-lending licence. Lending monies without licence is not illegal. Realisation of money without going to the court of law is also not illegal business. Even in the absence of realisation of debts, a money-lender can validly file a suit and the Court affords him opportunity for three months to obtain the licence. In the face of those enabling provisions, it is very difficult for us to hold that the money-lending business carried on by the assessee would be illegal and the assessee is not entitled to registration because it has carried on such illegal business. We, therefore, set aside the orders of the lower authorities and hold that the assessee is entitled for registration as it did legal business. We direct the ITO to grant registration to the assessee-firm. 3. In view of our finding that the assessee is entitled for registration as a firm under section 185(1)(c) of the Income-tax Act, we hold in IT Appeal No. 165 (Bang.) of 1983 that the status of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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