Case: Commissioner Of Income Tax, Gujarat Vs. Distributors (Baroda) (P) Ltd

1. These are some of the appeals where the appellant unfortunately had to file two different appeals in respect of the same matter. Civil Appeals Nos.of 1968 were brought on the strength of the certificates granted by the High Court of Gujarat. No reasons were given in support of those certificates. Hence those certificates must be considered as having not been properly granted. The resulting position was that the appeals brought on the strength of these certificates became unsustainable. To get over that difficulty, the Commissioner ofGujarat invoked our jurisdiction under Article 136 of the Constitution to appeal against the judgment of the High Court. The special leave asked for was granted and thus he came to file Civil Appeals Nos.

Reasoning: 7. We have already noted that the assessee company is a Private Company. As such it is not a company in which the public is substantiallyAct contains manyfarmulae but Sectionalong with some other sections takes the place of pride amongst them. Section 109 of the 1961Act which has taken the place of old Sectionof the Act is more understandable and less abstruse. But in these appeals we are left with S.of the Act.15. Clause (i) of Explanation 2 to Sectionconcerns itself with a company whose business consists "wholly or mainly in the dealing in or holding of investments" The word "mainly" in that clause as well as in the main Sectionmust necessarily take its colour from the word "wholly" preceding that word in those provisions. In other words the company which comes within the scope of those provisions must be one whose primary business must be "in the dealing in or holding of investments." If a company engages itself in two or more equally or nearly equally important business activities, then it cannot be said that the companys business consists "wholly or mainly" in dealing in a particular thing. Further even in cases where a company has more than one business activity and one of its activity is more substantial than the others, unless that activity is the primary activity of the company, it cannot be said that, that company is engaged in "wholly or mainly" in any one of its business activities.Sectionin our opinion applies only to cases where the primary activity of the company is in "the dealing in or holding of investments".We shall presently see whether on the facts found by the Tribunal, it can be said that the assessee companys business in the relevant years consisted "of mainly in the dealing in or holding of investments" as it was not the case of the Revenue that it was wholly engaged in that business.This Court in Bengal and Assam Investors Ltd. v. Commissioner ofWest Bengal, 59 ITR 547  = (AIR 1966 SC 1514 ), came to the conclusion that an individual who merely invests in shares for the purpose of earning dividend, does not carry on a business and that the only way he can come under Section 10 of the Act is by converting the shares acquired by him intoi.e. by carrying on the business of dealing in stocks and shares. In that case this Court was considering whether the dividend income of the assessee company therein could be considered as business income under Section 10 of the Act. Therein this Court was not considering the scope of SectionBut all the same in that case this Court proceeded on the basis that no one can make a business of investing. But then Sectionspeaks of the business of "holding offeel unable to accede to that contention. We cannot say that the legislature did not know its own mind when it used that expression in SectionWe must give some reasonable meaning to that expression. No part of a provision of a statute can be just ignored by saying that the legislature enacted the same not knowing what it was saying. We must assume that the legislature deliberately used that expression and it intended to convey some meaning thereby. The expression "business" is a well known expression inlaw. It means as observed by this Court in Narain Swadesh Weaving Mills v. Commissioner of Excess Profits Tax, 26 ITR 765  = (AIR 1955 SCreal substantial and systematic or organised course of activity or conduct with a set purpose.This is also the meaning given to that expression in the earlier decisions of the High Courts and the Judicial Committee. We must, therefore, proceed on the basis that the legislature was aware of the meaning given by Courts to that expression when it incorporated Sec.into the Act in 1957. Hence we must hold that when the legislaturespeaks of the business of "holding ofinvestments", it refers to real, substantial and systematic or organised course of activity of investment carried on by an assessee for a set purpose such as earning profits.We have earlier referred to the objects clause in the memorandum of association. The memorandum permits the assessee company to take up the management of the other companies, to invest in the shares of the other companies and to deal in the shares of the companies. Therefore it cannot be said that the assessee company was incorporated primarily with the object of carrying on the business of the "dealing in or holding of investments." The objects of the assessee company areobject of carrying on the business of "dealing in or holding of investments" is only one of them. Hence the memorandum of association does not assist us in deciding whether the business of the assessee company "consists of wholly or mainly in the dealing in or holding of investments.All the shares held by the assessee company as its investments were the shares of the two companies of which it was managing agent. It invested in no other shares. The Tribunal has found that the managed companys shares were acquired by the assessee company for the purpose of safeguarding its managing agency business. Therefore it is quite clear that those investments were made not in the course of any business of investment but for the purpose of securing its managing agencies. Those investments were made for a collateral purpose viz. to have a firm grip over its managing agency business. If we are correct in this findingwe think we areIt is true that the assets used by the assessee company in its share dealing are far more than that used by it for investment in the shares of the managed company. But then we have to bear in mind that we do not exhaust the total assets of the company by merely referring to the tangible assets used by it. In addition, we have to take into consideration the value of the managing agencies held by the assessee company. Looked that way, it cannot be said that the assets of the company, used in its share dealings are far more than its other assets. At any rate on the basis of the assets used, it cannot be concluded that the assessees business consisted "wholly or mainly" in the dealing in investments.26. It follows from the conclusions reached by us earlier, that our answer to the question before us must be the same as that given by the High Court. We not only agree with the conclusions reached by the High Court but also with premises on the basis of which those conclusions were reached.