TaxTMI 
TaxTMI 
1961 (12) TMI 88
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....moneylender by profession or vocation. She was a shareholder and a director in a private limited company known as Bharat Development Corporation (Private) Ltd., Katpadi, in which some of her relations were also shareholders. The said corporation required financial aid. She, for that purpose, borrowed a sum of ₹ 1,25,000 from the Mysore Bank on interest at the rate of 3¼% per annum up to November 30, 1951, and at 4% per annum from and after December 1, 1951, and advanced the same to the said corporation at a higher rate of interest of 5%per annum. As she maintained accounts on the method of accrued basis in the assessment year 1952-53, she furnished the return disclosing, inter alia, the income of ₹ 4,948 as interest received from the corporation and as against that, she deducted ₹ 3,646 as interest paid to the Mysore Bank on the amount she had borrowed to advance to the corporation. The Income-tax Officer brought that amount to tax in that year. But the truth was that no interest for that or for subsequent years was actually received at any time by the assessee from that concern. On the other hand, the assessee herself waived the interest due on that accoun....
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....llowances under the statute. The Income-tax Act, it may be remembered, under section 3, renders the total income of an assessee chargeable, subject of course to certain exemptions. The total income of an assessee, under section 4 includes income, profits and gains from whatever source derived, accrued or arisen or received within or without the taxable territories. The income, profits or gains of an assessee liable to be charged is brought under six heads under section 6, and sections 7 to 12B quantify the tax. Sections 7 to 9 deal with the first three kinds of income shown in section 6. We are not concerned now with these. Items 4 and 5 of that section must, however, come up for our consideration and these are covered by sections 10 and 12 of the Income-tax Act. To be more precise, section 10(2)(iii) and (xv) and section 12(2) are the relevant provisions which require careful examination for the purpose of this case. It is necessary to extract them here: "10. (1) The tax shall be payable by an assessee under the head 'profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2)....
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.... the said business and the gains therefrom the gains of the business carried on by the assessee so as to attract the provisions of section 10 ? The word "business" as defined in section 2(4) includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. Ex facie, it is of wider import than the word "profession" though the vocation may be a word of still wider significance. What does not amount to profession may amount to business. But it is essential that it should be in the nature of trade, commerce or manufacture as contemplated by the definition. Whether a particular activity amounts to any trade is indeed a difficult question to answer. The Judicial Committee in Commissioner of Income-tax v. Shaw Wallace & Co. [1932] 2 Comp. Cas. 276; ILR 59 Cal 1343 has observed that "the words used in the definition 'business' are no doubt wide but underlying each of them is the fundamental idea of continuous exercise of an activity." Thus, the term "business" must connote some real, substantial and systematic or organised course of activity or conduct with a set purpose. No doubt, even a....
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.... or profession has no application on the same parity of reasoning. But the learned counsel for the assessee, relying on Commissioner of Income-tax v. Chandulal Keshavlal & Co. [1960] 38 ITR 601; [1960] 3 SCR 38; AIR 1960 SC 738, argued that the mere fact that the assessee had waived her right to interest for the period in question would not take the matter away from the province of section 10(2)(xv); that it was necessary for the income-tax authorities and the Tribunal to inquire whether the amount was given up for reasons of commercial expediency. But, as already noticed, section 10 is attracted only if there is a business carried on by the assessee. That is the prime requisite. In case that condition is fulfilled, section 10(2)(xv) would be attracted provided the alleged expenditure is laid out or expended wholly and exclusively for the purpose of such business, profession or vocation. The case cited has no application to the facts of the present case. There the managing agent had agreed to accept only a sum of ₹ 1,00,000 as his commission even though the amount which accrued as commission for the year was ₹ 3,09,114. It was found that in the past also the managing ag....
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....material that a third party also benefits thereby……..But in every case it is a question of fact whether the expenditure was expended wholly and exclusively for the purpose of trade or business of the assessee." It is manifest, therefore, that in order to justify deduction, that sum must be given up for reasons of commercial expediency. It may be voluntary but so long as it is incurred for the assessee's benefit, the deduction would be claimable. The facts of the present case as found do not bring it within the dictum of their Lordships. Waiver by the assessee was not for reasons of commercial expediency which is likely to enure for the benefit of the assessee's business, trade or avocation. The assessee was not carrying on any business in advancing the loan nor the waiver of interest was actuated by any considerations of eventual benefit in the transaction of loan that she made. This was obvious from the circumstances brought to light before the income-tax authorities. No further probe was necessary for the purpose. Nor did the assessee allege any other circumstance before the authorities concerned which, if permitted to be proved, would affect the decis....
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....and Government securities which belonged to Lord Cable. The majority of the shares of the company was held by Lord Gable and the balance was held by the nominees of the said person. After the death of Lord Cable, one of the executors, Geoffrey Lacy Scott, who was appointed: administrator of his estate in India, needed, some money. An agreement was reached with the company whereby the company agreed to reduce its share capital. Consequently, it took over the shares that stood in the name of Lord Cable. The executor on his part agreed to forgo each payment and to receive debentures of the face value of ₹ 50 lakhs carrying interest at 5 per cent. per annum redeemable at the option of the registered h older at any time. The 5 per cent. interest was paid to Scott on these debentures. The company claimed to deduct this from its income as part of its working expenses under section 12(2). It was not disputed there that if the debentures were held by a third party, the interest payable on the same would be an allowable deduction in calculating the total income of the assessee company. The objection however was taken mainly on the ground that the person who took the debentures was the ....
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....pression "purpose", the learned judges observed thus: "'Purpose' may, in some context, suggest object; and purpose may sometimes suggest motive for a transaction. But under section 12, we have to read the word 'purpose' in its legal sense to be gathered from the context in which it appears. We have to find out the meaning as far as possible from the language of the section itself and without attributing to the legislature a precise appreciation of the technical appropriateness of its own. But in whatever way we read the word 'purpose' it cannot certainly mean a motive for a transaction. Much less can it mean the ulterior motive or the ultimate object of purchasing the shares by the company." There the assessee company had purchased certain shares to the tune of several lakhs of rupees and to pay for the purchase money took loan in a large measure. In the subsequent accounting years, which were relevant to the assessment years, it paid interest on the capital borrowed for the purchase of the shares but there was no income at all from those shares. The assessee claimed to set off this payment of interest against its other income in those....