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TMI Blog1985 (12) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... o various persons (other than banks) disallowed 15 per cent. Before the Commissioner (Appeals) the assessee-company claimed, firstly, that it was an 'investment company' within the meaning assigned to it under sub-clause (ii) of clause (c) of the Explanation to section 40A(8) and, consequently, section 40A(8) will not be applicable in the assessee's case. Alternatively, it was claimed that the accounts of the two directors, Mrs. Vijaya M. Piramal and Miss Archana M. Piramal, were current accounts and the interest paid on these current accounts of the directors did not attract the provisions of section 40A(8). The Commissioner (Appeals) held that the principal business of the assessee-company was export of cloth, etc., and, therefore, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from dividends, while it incurred a loss in the business of exports, the net result being a very small income, which was offset by the deduction under section 80M of the Act. Proceeding further he submitted that the total investments of the assessee-company, according to the audited balance sheet of the company, at the end of the previous year amounted to Rs. 19,21,362 out of the total assets of the company, which again, according to the balance sheet, amounted to Rs. 28,01,353. Shri Doshi also referred to the investments in the sister concerns, which were also investments and submitted to us that these investments were far in excess of the total share capital of Rs. 10 lakhs and reserves and surplus of Rs. 1,17,437. In these circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest. According to Shri Subramaniam, the carrying on of business in investments connotes some systematic or organised course of activity, which is not there so far as investments in shares or advances to associated concerns are concerned. On the other hand, Shri Subramaniam pointed out that in the business of exports the turnover was Rs. 1,32,83,573 and in these circumstances the principal business of the assessee-company was exports. Shri Subramaniam, therefore, vehemently argued before us that the principal business of the assessee-company was not investment in shares, etc., and, on the other hand, the principal business of the assessee-company was export of cloth. In these circumstances, according to Shri Subramaniam, the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w like directors of companies. Our attention was also invited to the ruling of the Hon'ble Supreme Court in the case of Ram Prashad v. CIT [1972] 86 ITR 122 wherein their Lordships laid down that a person who is engaged to manage a business may be a servant or an agent according to the nature of his service and the authority of his employment. He, therefore, vehemently argued before us that since the two directors of the company under consideration here were agents of the company the interest paid on their current accounts will be exempt from the provisions of section 40A(8) in view of sub-clause (vii) of clause (b) of the Explanation to section 40A(8). He, therefore, supported the order of the Commissioner (Appeals) that on the interest pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity. Considering all this and looking to the totality of the facts and circumstances, we cannot accept the contention of the assessee-company that the principal business of the assessee-company was acquisition of shares and not business of exports. The claim of the assessee-company, therefore, that the provisions of section 40A(8) are not applicable to the assessee-company at all in these circumstances does not appear to be correct. 9. Sub-clause (vii) of clause (b) of the Explanation to section 40A(8) reads as follows: "(vii) by way of security or as an advance from any purchasing agent, selling agent or other agent in the course of, or for the purpose of, the business of the company or as advance against orders for the supply of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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