AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1965 (11) TMI 31
X X X X Extracts X X X X
X X X X Extracts X X X X
....lished are (and it is expressly declared that the several sub-clauses of this clause and all the powers thereof are to be cumulative and in no case is the generality of any one sub-clause to be narrowed or restricted by any particularity of any other sub-cause, nor is any general expression in any sub-clause to be narrowed or restricted by any particularity of expression in the same sub-clause or by the application of any rule of construction ejusdem generis or otherwise) :-- (1) To acquire and hold shares, stocks, debentures, debenture-stock, bonds, obligations, and securities issued or guaranteed by any company constituted or carrying on business in British India or elsewhere, or in any British Colony, or dependency, or possession, or in any foreign country, and debentures, debenture-stock, bonds, obligations and securities, issued or guaranteed by any Government, specially including the Government of India and a Provincial Government, sovereign ruler, commissioner, public body, or authority, imperial, supreme, national, municipal, local or otherwise, whether in India or elsewhere. (2) To acquire any such shares, stocks, debentures, debenture-stock, bonds, obligations, or sec....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Income-tax Appellate Tribunal, which by its order dated January 12, 1953, dismissed the appeals on two alternative grounds ; firstly, it held that the dividend income was assessable only under section 12 of the Act, as the assessee was an investment company. In the alternative, the Appellate Tribunal held that even if the company were to be a dealer in shares, even then in its opinion the dividend received as registered shareholders would be dividend as such and assessable under section 12. The Appellate Tribunal concluded that " in our opinion, on either view of the case, the loss of the preceding years cannot be adjusted against the dividend income of the assessee earned during the years 1949-50 and 1950-51. " The assessee then applied for a reference and suggested three questions of law : " (1) Whether, in the facts and circumstances of the case, the assessee company is an investment holding company or an investment dealing company ? (2) Whether, in the facts and circumstances of the case, the dividends earned by the company should have not been assessed under the head 'profits and gains of business, or vocation under section 10 of the Indian Income-tax Act ? (3) Whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unal at the time of the hearing of the appeal as no arguments were addressed to them on that point." The supplementary statement mostly contained an interpretation of the orders of the Appellate Assistant Commissioner and the Appellate Tribunal ; the only fresh fact included was the information that the Income-tax Officer in conformity with the order of the Appellate Assistant Commissioner revised the assessment order for 1949-50 so as to change the figures and held that the loss arising from the set-off of interest against the dividend income was a loss under the head " other sources " while the balance was a business loss and was directed to be carried forward. In this order the Income-tax Officer had stated that " loss under other sources cannot be carried forward as it is under section 12. Business loss of Rs. 532 will be carried forward. " The reference was then heard by a Bench consisting of Mitter and Ray JJ. It was argued before the High Court that " inasmuch as dividend is not expressly mentioned in section 12 in the case of an investment company-assessee, whose business is to invest in shares, dividend income therefrom should be computed under section 10 as its business....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o cases have no bearing on the question whether the dividend income has to be computed under section 10 or section 12 of the Act. They may have reference to the question sought to be raised before us by way of modification and which we have declined to modify. The main argument of Mr. Desai is that when a company is formed for the purpose of acquiring shares and making investments and generally undertaking financial and commercial obligations and transactions and operations of all kinds, the dividend income must be computed under section 10 because the company is formed expressly for the purpose of carrying on business and holding shares in the course of it. In this connection he refers to the following passage from the judgment of Lord Sterndale in Commissioners of Inland Revenue v. Korean Syndicate Ltd. : " But the fact that the limited company comes into existence in a different way is a matter to be considered. An individual comes into existence for many purposes, or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose, and if it comes into existence for the particular purpose of carrying out a transaction by getting possessio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re not stock-in-trade of the assessee-company, the dividend can be assessed under section 10. It seems that in practice an investment company was being assessed under section 12 in respect of dividend income received by it. (See, for example, Eastern Investments Ltd. v. Commissioner of Income-tax, which is a case which came up to the Supreme Court). It seems to us that on principle before dividends on shares can be assessed under section 10, the assessee, be it an individual or a company or any other entity must carry on business in respect of shares ; that is to say, the assessee must deal in those shares. It is evident that if an individual person invests in shares for the purpose of earning dividend he is not carrying on a business. The only way he can come under section 10 is by converting the shares into stock-in-trade, i.e., by carrying on the business of dealing in stocks and shares as did the assessee in Commissioner of Income-tax v. Bai Shirinbai K. Kooka. Mr. Desai laid a great deal of stress on the argument that the very fact that a company is incorporated to carry on investment shows that the company is carrying on business. We are unable to agree with this contenti....