Investment business test under income tax law requires real, systematic activity; mere share ownership is not enough.

The expression "dealing in or holding of investments" under clause (i) of the second Explanation to section 23A of the Income-tax Act, 1922 must be read broadly, but ownership of shares alone is not enough; the activity must amount to a real, substantial, systematic or organised investment business. Shares held only to preserve managing agencies were not treated as investment-business stock. In deciding whether share-dealing was the principal business, the comparison had to be made on a commercial basis, including connected managing-agency income and dividends from shares retained for that purpose, rather than isolating share-dealing income alone. On that approach, the revenue failed to show that share-dealing was the assessee-company's main business.

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Issues: Whether the assessee-company's business consisted mainly in dealing in or holding of investments within the meaning of clause (i) of the second Explanation to section 23A of the Income-tax Act, 1922.

Analysis: The statutory expression "dealing in or holding of investments" is not to be truncated by excluding either activity; both may be relevant where they form part of the company's business. But mere ownership of shares as investments is not enough: the activity must amount to a real, substantial, systematic or organised business of holding investments. Shares acquired and held only to retain managing agencies were not treated as forming an investment business. For deciding whether the assessee's business was mainly one of dealing in shares, the comparison had to be made on a commercial basis, taking into account the connected income from the managing agency and the dividends on shares held to preserve that agency, and not by isolating share-dealing income alone. The revenue, on whom the burden lay, did not establish that the share-dealing activity was the principal business of the assessee.

Conclusion: The assessee-company was not a company whose business consisted mainly in dealing in or holding of investments within clause (i) of the second Explanation to section 23A, and the answer to the reframed question was in the negative.

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