Case: Bengal &amp; Assam Investors Ltd Vs. Commissioner Of Income Tax, West Bengal

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 S. 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 herefers to the following passage from the judgment of Lord Sterndale in Commissioner of Inland Revenue v. Korean Syndicate Ltd., (1921) 12 Tax Cas 181 at p. 202:"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 possession of concessions and turning them to account, then that is a matter to be considered when you come to decide whether doing that is to carrying on a business or not." 10. The learned counsel for the Revenue, Mr. Viswanatha Sastri, contends that the company was not holding shares as part of its stock-in-trade, but was holding them merely as an investment company, and he says that in this respect an investment company even though it is formed under the Companies Act is in no way different from an individual who invests his own moneys or borrows and invests monies in shares for the purpose of getting dividends. He drew our attention to East India Prospecting Syndicate, Calcutta v. Commissioner of Excess profits Tax, Calcutta, 1951-19 ITR 571 : (AIR 1952 Cal 40 ), where the Calcutta High Court in dealing with the Excess Profits Tax Act (XV of 1940) held that "the mere holding of property or investments cannot amount to a business within the meaning of that term as used in the Indian Income-tax Act, 1922, and can only amount to a business as that term is used in the Excess profits Tax Act, 1940, by reason of the proviso to S. 2 (5) of that Act. The proviso to S. 2 (5) of the Excess Profits Tax Act, 1940, only makes the holding of investments or property by limited companies and incorporated societies tantamount to carrying on of business." But the assessee in that case was not carrying on any investment business at all, and, therefore, the decision is of not much assistance to us. The only assistance we can derive from that decision is that the Central Legislature in enacting the Excess Profits Tax Act understood the word "Business" to mean that the term would not include a mere holding of investments, and made a special provision to rope in limited companies or incorporated societies which were holding investments or property within the definition of the word "business". 11. Before the amendment of S. 12 by S. 9 of the Finance Act, 1955, it had been held by the Bombay High Court in Commissioner of Income-tax v. Ahmuty and Co. Ltd., 1955-27 ITR 63 (Bom), that where a company was a dealer in shares which constituted its stock-in-trade the dividend income received by the assessee in respect of its shares was income from business chargeable under S. 10 and the Income-tax authorities could to compel the assessee to show the income under S. 12. But there is not case where it had been held that even if the shares are not stock-in-trade of the assessee company the dividend can be assessed under S. 10. It seems that in practice an investment company was being assessed under S. 12 in respect of dividend income received by it. (See for example Eastern Investment Ltd. v. Commissioner of Income-tax West Bengal, 1951-20 ITR 1 : (AIR 1951 SC 278 ), Which is a case which came up to the Supreme Court. 12. It seems to us that on principle before dividends on shares can be assessed under S. 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 S. 10 is by converting the shares into stock-in-trade ,i.e., by carrying on business of dealing in stocks and shares as did the assessee in Commissioner of Income-tax, Bombay v. Bai Shirinbai, 1962-46 ITR 86 : (AIR 1963 SC 477 ). 13. 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 contention. Bhagwati, J. observed in Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, 1954-25 ITR 449 : (AIR 1954 SC 364 ), that "when a company is incorporated it may not necessarily come into existence for the purpose of carrying on a business". He further observed that "the object of an incorporated company as laid down in the memorandum of association are certainly not conclusive of the question whether the activities of the company amount to carrying on of business." 14. Apart from showing mere investment, no facts have been brought out in this case to show that the company was in any way carrying on business in respect of shares. Its position, on the facts placed before us, is in no way different from an individual merely buying shares with a view to holding them for the purpose of earning dividends. No authority has been cited before us that in the case of an individual to acquire and hold shares with the object of receiving dividends is to carry on business. We are unable to hold that if a company does the same, it carried on business within S. 10 of the Act.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]11. Before the amendment of S. 12 by S. 9 of the Finance Act, 1955, it had been held by the Bombay High Court in Commissioner of Income-tax v. Ahmuty and Co. Ltd., 1955-27 ITR 63   (Bom), that where a company was a dealer in shares which constituted its stock-in-trade the dividend income received by the assessee in respect of its shares was income from business chargeable under S. 10 and the Income-tax authorities could to compel the assessee to show the income under S. 12. But there is not case where it had been held that even if the shares are not stock-in-trade of the assessee company the dividend can be assessed under S. 10. It seems that in practice an investment company was being assessed under S. 12 in respect of dividend income received by it. (See for example Eastern Investment Ltd. v. Commissioner of Income-tax West Bengal, 1951-20 ITR 1  : (AIR 1951 SC 278  ), Which is a case which came up to the Supreme Court12. It seems to us that on principle before dividends on shares can be assessed under S. 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 S. 10 is by converting the shares into stock-in-trade ,i.e., by carrying on business of dealing in stocks and shares as did the assessee in Commissioner of Income-tax, Bombay v. Bai Shirinbai, 1962-46 ITR 86  : (AIR 1963 SC 477  )13. 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 contention. Bhagwati, J. observed in Lakshminarayan Ram Gopal and Son Ltd. v. Government of Hyderabad, 1954-25 ITR 449  : (AIR 1954 SC 364  ), that "when a company is incorporated it may not necessarily come into existence for the purpose of carrying on a business". He further observed that "the object of an incorporated company as laid down in the memorandum of association are certainly not conclusive of the question whether the activities of the company amount to carrying on of business."14. Apart from showing mere investment, no facts have been brought out in this case to show that the company was in any way carrying on business in respect of shares. Its position, on the facts placed before us, is in no way different from an individual merely buying shares with a view to holding them for the purpose of earning dividends. No authority has been cited before us that in the case of an individual to acquire and hold shares with the object of receiving dividends is to carry on business. We are unable to hold that if a company does the same, it carried on business within S. 10 of the Act.