TaxTMI 
TaxTMI 
1961 (12) TMI 5
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....ecretary, treasurer and managing-agent of a textile mill which was a limited company bearing the name of Binod Mills Company Limited, Ujjain. The appeal is concerned with the computation of the profits of the respondent to war profits tax under the Ordinance, which, it might be stated at the outset, was on lines very similar to the Indian Excess Profits Tax Act, 1940. The chargeable accounting period with which the appeal is concerned, is the period commencing from July 1, 1944, to October 16, 1944. The respondent assessee submitted its return and thereafter the War Profits Tax Officer by his assessment order dated July 9, 1951, determined the taxable income of the assessee for this chargeable accounting period at Rs. 12,16,145 and assessed it to tax in the sum of Rs. 2,02,691. Several points were raised in relation to this assessment order by the respondent, and one of them related to the inclusion in its assessable profits of a sum of Rs. 11,09,332 which was received by the respondent on July 5, 1944, being the dividend declared and paid by the Binod Mills Ltd. for 1943 on the shares held by the respondent. It was the contention of the respondent that this sum was its income f....
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....Ordinance referred to as the 'war profits tax') which shall be equal to 60 per cent. of the aforesaid amount." The expression " business ", the profits derived from which are thus brought to charge is defined by section 2(5) in these terms : " 2. (5) 'business' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture or any profession or vocation, but does not include a profession carried on by an individual or by individuals in partnership, if the profits of the profession depend wholly or mainly on his or their personal qualifications, unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts : Provided that where the functions of a company or of a society incorporated by or under any enactment consists wholly or mainly in the holding of investments or other property or both, the holding thereof shall be deemed for the purpose of this definition to be a business carried on by such company or society : Provided further that all businesses to which this Ordinance applie....
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....uestion regarding the inclusion of the dividend income in the taxable profits of the assessee three contentions were raised on behalf of the respondent which are thus set out in the judgment under appeal : " (1) The assessees did not deal in shares and their holdings in the Binod Mills Limited were purely in the nature of investments, having no connections with their business as defined in section 2(5) read with rule 1 of Schedule I of the Gwalior War Profits Tax Ordinance. The business of the secretaries, treasurers and agents of the Binod Mills Limited, which was carried on by them did not require any holding of of the shares of the company and was not dependent on their investment in the said company. (2) The dividend income accrued or arose from the profits of the Binod Mills Limited, and as the Ordinance applied to the business carried on by this company, the dividends were excluded under the Explanation to rule 3(1) of Schedule I. (3) The dividend income should be considered as income of the full accounting period, i.e., from Diwali of 1943 to Diwali of 1944, and should be apportioned on that basis." The learned judges of the High Court dealt only with the first o....
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....r, placed before us material to show that Schedule I containing the rules for the computation of profits were not rules made by the Government under section 50 of the Ordinance but was really part of the Ordinance itself. In the first place, it has to be noted that section 2(16) speaks of Schedule I to the Ordinance, and admittedly besides the one now produced before us there was no other Schedule attached to the Ordinance. It is impossible to hold that with section 2(16) in the form in which we now find it, the rules for the computation of the business did not form part of the Ordinance having been enacted simultaneously as part and parcel thereof. In this connection it might be pointed out that the Excess Profits Tax Act, 1940, which formed the basis or model upon which the Ordinance was fashioned has a similar Schedule headed " Rules for the computation of profits " and the Schedule formed part of that Act. The only ground for even a suspicion that Schedule I was not a part of the Ordinance itself is the reference to section 2(14) in the heading of these Rules just below the words Schedule I, but very little assistance can be sought from this reference, because section 2(14) is ....
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....h the learned judges of the High Court proceeded falls to the ground and the only question is whether accepting the respondent's case that the shares held by it in the Binod Mills Ltd. were really part of its investments, these investments have " any connection " with its business. It is common ground that the respondent was the secretary, treasurer and managing agent of the Binod Mills and what we are now concerned with are the shares held by it in that company. In the case of every assessee who carTies on a business activity and is in receipt of profits from that business, on the terms of rule 3(1) income from every investment held by him is liable to be included in the profits assessable to tax unless such person was able to satisfy the revenue authorities that the investments had " no connection whatever " with his business. Mr. Viswanatha Sastri, learned counsel for the respondent, sought to overcome this position by submitting that the " connection " contemplated by the rule was a direct " connection " and not a remote or fanciful one and that in the present case there was really no connection between the respondent's ownership of these shares and the office of managing agent....
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.... under the managing agency agreement. This control was capable of being used to further the interests of the managing agent in its relations with the company and whether or not this was used for obtaining advantages, it would certainly be available for avoiding any disadvantages arising from misunderstandings with the company. It could not be denied that the control would certainly be useful to keep the relations between the company and the managing agent smooth so as to enable the managing agent to earn his commission, etc., without differences or disputes. Even if therefore the word " connection " in rule 3(1) meant a " direct " connections construction which we do not adopt---it appears to us that the present case satisfies even that test. In any event the " connection " is not anything remote, fanciful or imaginary, but on the other hand real and capable of being turned to good account. It certainly cannot be equated with the holding of shares by the respondent in a company with which he had no connection other than as a shareholder. We are therefore of the opinion that the dividend received by the respondent from the Binod Mills Ltd. was properly included by the assessing a....