AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (6) TMI 401
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....s attracted since assessee company was not covered by the exemption because the main income did not consist of "Interest on Securities, Income from House Property, Capital Gains or Income from Other Sources". Since this issue was not examined by the AO the assessment order was set aside and the AO was directed to verify the applicability of Explanation to sec.73. 3. The assessee went in appeal before the Tribunal against this order. The Tribunal though observed that AO has not considered the issue of application of Explanation to sec.73, therefore, the order was erroneous and prejudicial to the interests of the Revenue, but at the same time Ld. Commissioner has not properly considered the facts in the light of the instructions of the Board in Circular No.2024, therefore, the matter was remanded to the file of the Commissioner. The Ld. Commissioner passed a fresh order u/s.263 on 23-3-2006 and observed vide para-4 as under: "4. As far as the object of introducing Explanation to Sec.73 is concerned, though the provision was introduced in order to curb the device resorted to by business houses controlling groups of companies, the fact remains that the provision of the Explanation ar....
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....n which it receives dividend. The company is also in the business of financial services in the area of corporate finance syndications and primary and secondary market sub-broking for which company receives commission and sub-brokerage." The above nature of business along with the main object clause through which assessee's main object was only to acquire or hold or deal in stocks and shares, only shows that main business of the assessee was to deal in stocks and object regarding lending and advancing of money was only an ancillary object vide clause 15 of Memorandum of Association. The AO further observed that assessee had completely changed its stand on its business activity. He also observed that the activity regarding giving money on bills was described as re-discounting and such bill re-discounting cannot be interpreted as advancing of loans. Accordingly, he invoked Explanation to Sec.73 and the loss incurred on account of sale and purchase of shares amounting to Rs.14,43,240 was held as speculation loss. 6. Before the Ld. CIT(A) it was mainly contended that if the main business of the assessee was granting of loans and advances, then such assessee was not hit by the provisio....
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....ing funds to Wipro Finance by way of re-discounting which is only one of the methods of granting of loans. 8. He then referred to the commentary on the Income Tax Act by A.C. Sampath Iyengar, Volume Three Page 5001 wherein the authors have referred to Circular No.204 of the Board wherein the amendment by way of an insertion to Explanation to Sec.73 has been explained. It is very clearly mentioned in the said circular that the Explanation would not be applicable to investment or banking company or company carrying on the business of granting of loans and advances. 9. He further argued that AO has objected to the proposition that assessee was in the business of granting loans and advances on the basis that main object of the Memorandum and Articles of Association was only to acquire, hold or deal in stocks and shares. He argued that the objects as mentioned in the Memorandum of Association are not conclusive and in this regard relied on the decision of IRC v. Hyndland Investment Co. Ltd. 15 ITR 698 (sic). He particularly referred to the observations made by Lord President Clyde at page 699. In this regard he also relied on the decision of the Hon'ble Bombay High Court in the case o....
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.... shares." A plain reading of the above clearly shows that some exception has been carved out in the provision itself and the same is not applicable to a company whose income is chargeable under the heads "Interest on securities", "Income from house property", "Capital gains" and "Income from other sources". Further, Explanation to Sec.73 is not applicable if the principal business of the company is banking or granting of loans and advances. We further find that the claim of the assessee that it is doing business of granting loans and advances has been rejected by the AO by observing that the main object of the assessee as per Memorandum of Association was as under: "To acquire, hold or deal in stocks, shares, debentures, securities, lands, buildings, houses, flats, bungalows, shops and such other movable and immovable properties." He has also observed that assessee has itself through its letter dated 2-7-1998 described its business as under: "The assessee company is basically an investment company trading in shares. Besides it also received interest on loans given out of surplus to various parties. It has investments in shares on which it receives dividend. The company is also ....
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.... against the assessee. That the assessee embarked upon a venture different from his usual line of business or even embarked on a venture which in law it was not permitted to embark upon, cannot really affect the consideration of the question whether the venture embarked upon was by way of trade or not. In this connection I have already noted how in the facts and circumstances of the case it would be proper to come to the conclusion that such acquisition was with a view to or in the expectation of making a profit. I have already emphasized in this connection the lack of compulsion in July, 1957, on the part of the assessee to acquire these two claims. I have further emphasized the fairly close proximity between the acquisition of the claims and the realisation of surplus in respect of the second claim." From the above it is clear that absence of mention of particular business on the object clause is not a relevant criteria to ascertain the nature of business. Therefore, it is clear that merely not mentioning the business of bill discounting or granting of loans and advances in the Memorandum of Association, would not mean that actual nature of business cannot be looked at. Th....