TaxTMI 
TaxTMI 
2017 (3) TMI 1246
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....the assessment year even on accrual basis, is also framed. Since the parties to all the reference applications are M/s Central Provinces Manganese Ore Company Limited, Nagpur and the Income Tax Department, the reference applications are heard together and are decided by this common judgment. 2. Few facts giving rise to the questions that are referred for a decision, are stated thus: The applicant Assessee is a company registered in Great Britain. The assessee has a branch in Nagpur. The assessee Company was dealing in the extraction and sale of manganese ore. The assessee had under its control about 21 mines and in the year 1962, the Government of India took over most of them. In 1973, steps were initiated by the Government of India to take over the remaining mines as also 49% share of the assessee in MOIL. However, the mines as well as the share was finally taken over by the Government in the year 1977. As soon as the assessee Company became aware about the decision of the Government of India to take over the mines in the year 1973, the assessee decided to venture into another business. The assessee, therefore, amended its Memorandum and Articles of Association to cover the ....
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....iled by the assessee before the Tribunal and upheld the finding of the assessing officer disallowing the set off and holding that the income of the assessee was not business income but, was income from other sources. In the aforesaid factual background, the following questions were referred to this Court in these reference applications for a decision: I. Whether on the facts and in the circumstances of the case, the income of the assessee was assessable under the head 'business' rather than 'other sources'? II. Whether on the facts and in the circumstances of the case, there was any justification in law for the adhoc disallowance of 20% of the establishment expenses? III. Whether on the facts and in the circumstances of the case, the set off of losses of earlier years could be allowed as a deduction during this year? In reference No.4 of 2002, the following question is also framed: IV. Whether on the facts and in the circumstances of the case, no income from interest on the loan to Shri Ramprasad could be assessed during the relevant year even on accrual basis? 3. The question that needs to be decided by us at the outset is the first question that ....
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....d that the activity of the assessee of advancing moneys to various parties was a sort of an organized activity undertaken by the assesseeCompany and, therefore, the income from that activity was liable to be taxed as profits and gains of business and not as income from other sources. It is stated that the facts involved in the present case and the case before the Gujarat High Court are not only similar but are almost identical. It is stated that the case of the assessee in the present case is on a stronger footing as the loan is advanced by the assessee in this case to almost eight parties while carrying on its business of financing. 5. It is then submitted on behalf of the assessee that the heads of income are mutually exclusive and the time of the receipt does not decide the question under which particular head such receipt should be assessed. The learned counsel relied on the judgment of the Hon'ble Supreme Court in the case of Nalinikant Ambalal Mody Versus S.A.L. Narayana Row, reported in 1966 (61) ITR 0428 to canvass that the heads of income must be decided not by considering the assessee's income but, by applying the common notions of practical men. It is submi....
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....t since the income could not have been realized by the assessee, the addition was liable to be deleted. It is submitted that the case in hand is on a better footing than the case before the Bombay High Court. It is submitted that it was therefore necessary for the assessing officer not to include the income on accrual basis but the claim of the assessee was wrongfully rejected. 7. Shri Parchure, the learned counsel for the respondentdepartment, supported the order of the Income Tax Appellate Tribunal. The learned counsel relied on paragraphs 11 and 12 of the order of the Income Tax Appellate Tribunal in the appeal arising out of the matter pertaining to the assessment years 1980-81 to 1983-84 to canvass that a finding of fact is recorded by the Tribunal that the assessee has not discharged its onus that it was actually carrying on the business activity during the period under consideration. It is submitted that the Tribunal has rightly held that it was necessary for the assessee to prove not only that it had obtained prior permission to carry on business but, also a special license to carry on the banking business. It is submitted that it is observed by the Tribunal that the ass....
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....nturing in the business of banking and money lending as a fresh avenue. Advances were made by the assesseeCompany to about eight parties and it is not in dispute that the loan advanced to Ritz Hotel was recoverable in July1990 as per the order of the High Court and the MOIL had not cleared its dues even in the year 1990-91 and efforts were made to recover the same. In the instant case also, like in the case of the assessee before the Gujarat High Court, the assessee amended its Memorandum and Articles of Association and included the business of banking and money lending in its objects. It is not disputed that the assessee had advanced loan to about eight parties in the 1970s, as could be gathered from the facts incorporated in the order of the Income Tax Appellate Tribunal in the appeal pertaining to the assessment year 1984-85. Since the loans were not recovered and the business of banking and money lending was being wound up, the assessee had to continue with its establishment at Nagpur and also had to incur expenses for the business establishment. The facts involved in the case before the Gujarat High Court and the present case are similar and it would be necessary to hold in....
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....ing the business and the said loss that springs directly from the carrying on of the business was allowable as business loss. If the loss in the business of smuggling is allowable as business loss, it is difficult to digest that the expenses incurred by the assessee Company for the business establishment for banking and money lending without a license, should not be deducted. In the case of Dr. T.A. Quereshi (Supra), the assessee was dealing in contraband goods and was engaged in the transport and sale of heroin and it was held that the heroin seized from the assessee's stock in trade could be allowable as business loss. The incidental questions that are referred to this Court for a decision are answered by the judgments of the Hon'ble Supreme Court in the case of Piara Singh and Dr.T.A. Quereshi in favour of the assessee. It is also necessary to refer to the judgment in the case of Commissioner of Income Tax Versus Paramount Premises (Private) Limited, reported in 1991 (190) ITR 259, relied on by the counsel for the assessee to hold that the interest earned on deposits for short period with banks or given as loans would be receipts arising out of the business activity and,....