Karnataka High Court
The Commr Of Income Tax vs M/S Jindal Vijayanagar Steel Ltd on 17 August, 2011
Bench: N.Kumar, Ravi Malimath
IN THE HIGH COURT OF KARNA'I'AI{_A. AT BAN(;25;i;O:1o1§§
Dated this the 17%" day 0fAugL1s'f;, 2:3
PRESENE'
THLE HONBLE MR. Jvaériéis "$1 A
THE HON'BLE MR. JU$T:'{.CE'
figs, (gr "
BETWEEN:
1 'The C0fI'::',:1.i.sSir)1'1'e1f 'VC;f_I{=C_C::11<: Tax
Ccmpany Cif'€1e**.4 V " _.
C E; Esmlciing _ " "
Qtzeens Road '
' 'B;:11:1ga1<3r§: ' "
'§'hs: §'i'assiSt.ar}.t C0:};1rms$10i":er of
" V. 8;r§".'Ex/§_ E?' Sé;'S%h::i{E§'§%fiéE, §:d:»*:m2:§'€§
, V -E.:1i;:01:1_é" T__:.«.1x
' .C'o.z1'1"p::i9§z_i.~Ci;"¢1@»«5&3}
' C '§%'V."E%{§..%§:V'}E;1g:§
Q-;,:eé:1-S R936;
" Bgem§,§a}:§3":% « K ,z%pp€iEani'..ss
AN D :
M/3. Jinciai Vijayatiagzir Steel. L§.d.,
3"' F100;'
1.21, DiCkeI1s0'r1 Roaci
Bangalore «_ .7,;.E~1@sp{3:1<§e::*2"L"
{By S1'; A Shankar 53: Sri M Lava,
Advocates)
7..;zx:ic=s _
This ITA 111651 tif1E:€I"'_S€§3{iC}}.3.__"?i€§Q§1 of £31'. Act. 1963
arising out of order aa:ed-* }:'2~_1a1-¥2,.O0iZ passed in ETA
310.582/Bang;/2A{)_O'?, fotf...i;h«::=.Asse;3snien'L"ygazf £99598. praying
to allow E.he_ .ap13.¢a1 §_and';$au:_as.i.Ld:: the erder passed by the
Income Tax }1ia!\ppe1'1--at€=a '1'1'ibV1,11'1a;'1',------~' Ba'nga1Gre in {TA
N0.582/Bar1g';'._199'??_dafi<:dW1_2:-.'11:42.002 and confirm the order
passed by ink: ASsis;i'e».Im-A 'Can1'a1iSsi0ne3- of Encome Tax,
C<)n1pan§zi Ci17Q1'e¥fi§{3), §3.a1r_1_ga1ure_and eta,
§?ns--W¥&p6afifig¢fi»§hr heanng flfis day an KI$LAR J
C1€1iV€F€d" 311:5 f011"owir1g: V'
'JUBGMENT
*:"'.?1;5; a,p§3€ai E3 30}; 'ihfi t*e:a?§:r1'L1e Léhzziiazzgizag 'ihe iaraier
._§§"a§i~3€'{1 'Fribu'na§ heidirxgg Elaaé. 'aha inecme Sheaéd E38
s:;{";?':-"a§1m_:""":'.é'::iémdszr 111:3 '§1€%a=aZir:g §>:*<;iEé.s; ané gaigzs-5 GE '%3:::5;§a';e5sa andi
V' .. ;';%§i0aaF'§:*sg €:>;;gT:£;*;:";{§§i:::*§: {>5 :§.:{E§.§5.~'5§3§4§f},§9%fw i.§12:':z.};*§{3.{i bf; é:E2<3:
9.4.)
corporate treasury division as aéiewabie €XpfifE£'1:i"i§',i;_iTf::r."3:f'[.€I'
d€:dL1<:i.ir1g Rs.6,91.'?01/~-- .incurre«:i {awards
not allowabie. _-
2. in fact earlier this COL1:-ft ;
aiiowed the appeal and remaxlfieci :{.h§3 "r:f1.atte1; f"§)A 31$' $;<s§Ei*e:~A;:"*';:11*3.V_g
officer by setting aside the of . O§fiC¥3V£V1
COII11'I1iSSEO'I1E3I' oi' Inco::ie.__'Fa.X apd t«§'1é"c>1"c:';<v:3r passed by
the Encolne Tax A13p<3}12:1;;'<-:V"?sZ{3*1't3"zL;V:ir§;:'é?;:V. by the said order
passed on 30,2-£40.08, a Special Leave {.0
the in SLP [C] 14345;/2008. Leave was
grantévfii. ah-d both the parigies the Supréme
Court; 3%-"EviS-§~. ()i?' f§:€:._ the High Court might. to have
ansfi-Qéréd theV"i%?Gg§.§6$5t.i0ns ef iava fraxrmzé by it which amse far
A afiei" haviilg framéci ihem. Thsreibre ii': 5&5 aside
E3}? 221:5 €:a:}t:.1"1; §€m3.::d.m.g§ "%;:E1€ iilaiifir £0 "ihé
'a§ée1€$ssi;.";§.;§v'L:é?g:.§,§:1<>;.*i*ay; anci :'«im1ii;.*;.:::£*; thee. agpeai is 'éhia C«:";:m. ta
:-2::$'*§<g«::édf;.':3<% E»3ai.£§ <.':§;:€:%é,:§0'§1s E21: a;a%€;{>3"i§a_z1§:s wi§,l%: 1.2%: $3}; iééé; {}:°:f:'駧'
'*i'hat
dated 29.9.2009 passsed .'i.'I"1 Civil Appeai N0. 6555,!'
is haw this appeal is listed before us.
3. The reictvarrt assfissmeznt year _§..<3..__1'99Ex+.98<, '.113
assesses was incorporated as a F?ub11._r:j. 'i;.;i:i11€,é<j' u€}G:ru1:pa%1Vy on '
1§.3.I.99<iL under the ;)1*ovisiQn_s ei' i;'hA£§"'C0rra;p:¢'3i:i'éS ;xc:;;'
The 1'I1ai.11 Object. of ihfi c70n1paii§;tVVVV§$» ta') sef." 113911 and steel
making factilities and 'b:1;1tin::'fi3'i3sL.:pzxézing afi§:1"hbt and cold
reiiiiag' mil} pEar1t$ for p1"0.1é'€,1<§iz1§:'ei'_..§i1'1. '}:1i1'«:j1s of rneiais both
ferrous and _:1<m_ ferrcigus:§.fiCEud'irégv~_Vsie€i, etc" The objects
incidental _ Aci21* _--v guét:111ary~«.Vv_covers a wide spa-:cE:mn1 like
i:"11p<3r'E./ ézgpblfi {3i{_a§i}. 'Es;fi1:£é:13_ "oi"'é'I1e'rchandise and services. acting
as €;:?,:1s1,1If.ir"1g..,engineers,' §)rGperty' éev€:10pn1e1'1t. §er1cimg and
ad'x:*ai1C:ri:";g'§I;e:'2i6s,"§{jying and gelling of shaz'eS ané securiifiesg
§cL;»;;°;:'j,ETi:1:§;j»..V_':2;3AVbigsirzegs {sf <:>§'E'7er%ng ga:21:~aniee:~s; mv&s1.n1ez1§ of
i~":":£i»?ff§}§L1-S§v.;§.TLEi':"_5&§; £0 {i:':§a.x-2 3;CC{-.'p§ 21:13 cEis:<:<}::m ifaiiéa am? host 0%'
z:>§,%:e3;'"ggcégiviiiefig Suffiatrsz ii. "is"; 8213?. ataxrerse 3. §'§I°{}Ei£§ :'-_:pecim.m of
;«"é..{_:%;.i%;if_é£.}r 2"2:z':;;.§i;':;;" €;{2:z: mag':::§2:{:é,:.::°:£z:g €10 §t::':diz1§»: {sf 3.532232% 322%
aézévzances, Tiie {:er*:é'§E<:g2;t{~: {}f{fG§I':E:'3é'.1{:{3€3fE1t"3E"i'i1 sf busmesss zméier
T?"
the Compan.ie$ Act Was; grained on 8.?.1994. 'I'h<:. . C53._Ii:.p21ny
€;.hc:re3.fi.er mobiiizeci share ctapitai, b0:'r0xvi:3ggs§-*f..n t'h-éf';i":)f:»:3_'oV1'
debemures on private piacernent, Shori. 1_e2:'i§i"'E;érr9i.?vin'gs gran:
bamks for working capital needs afzd --'ra1ié3ed-.ifit'ef' :Ea_;rf};;;'aie
loans from v21:*i0'u5 COII1pE1f1i?3 S.'~.._ B€iB1'€'dfiiflg :§5:{}.,.':.%hV%jVV£i§3IfiLp3.fi§?
in £1153 eX?:.raordinary generraai passefi
a resolution under SAe€:V}";Qn'«_V§_b»t,he ;C;<V:Am'1panies AC2';
authorizing the f3oa;f.:§..:._Qf ijorrow amount
aggregating" the czompany in its
Board of EQV.i.I7€.';'(\?VJ[;»'C)I'S ' 1:§%::<§"t'i::_;g: "."r1'€1d '§Vo1V*i 7.1.1995 E'd,11.h{3I'iS€d the
Mar12i:_,ging_ D'iL:'i_@c1Ci7V £9 '£v:1_vaT_11£:t3 loans up to 21 Inzuiimum of
Rs.5.{3C> crores p€:'1':_je;3.iEEx_&gfiarigi on ssuch terms anci co11di'ti<ms in
the _inter6$~§' éf €'.'.f_};'f1'}%£1E1}--'. 5-'xcc0rdi;:1gEy', huge iran$a(t:1':i0ns
«seize ¢_é::':§ed <3fi~*:..o_§;a,££:2g to geverzxi hu'r1dr'<:d$ Qf crows sf "rupees
. ':§_m"inggé'.h€§~. p:'€Vé.GI.;S 35621:', 'i"h€* $.1'2mSaC:E;§<ms 1:224-*Q1x»'€é bifl
._ €353.:fs§7fi®i);;<';'%;.;§L,{';.§.§g.:"f=§iE'%.§{3'§.'L1§'¥:i{§ §'.i.z1:«m{?i:1g:.§ gr: €§'§€ Egasiséige 9%" Eei;:'i'.m" €33"
€:'r:r»s:Ci:I"i;__;'§;:::?{th:;::~3{% z-ma? sziké {:5 ':3c§::§€~x fizm»-'<:':':1mé3:2: $e€u:rit.§:3s 21:25?
" _ :::":§€s:=s:>§ 'é§'§;é.E: "E'§'z.:$'?: {ES E:'1s§§:»L :%<§z_2.§;§3§::€:":*:. '::3;1:»3i:1<__%. E.§'3€.§':§' iE{}?§}<}§:;§E,§
1../"
/M,"
6
21116': persarlzfi 1«:>a1'1s, deposits with 'she: banks Eind.«(?fi}.§i't{)é1f1.i€S,
advamtes :9 E/}IIiijI{}..&3Z'€€S§ 6%..
4. For fins as9e$:-Sm:-3111 year E995.e96:,"=.f{héE:'assséssrse
filecl 1111 reamru of income, In 21 2291.9 fiieé ;11¢:agz;_w:11i~::;1_¢ r§f:_tL;r12 '
of income, the assessee has Vsiaied 1«1'r12,>§»fg';1$; '.1'
crores during the previous ;\_Iez1'zu"VL'r:V<V::§.V1e:r,rz'»:.11t= yeér
19959963 from c1e:;:>os,;'.vr;,§;~~«-.. It moi": taxable
Owning to Orissa 1~EighH_ case of M;' S
Elecirochem I;=I}d.£E.?§f3 liowever, as an
abun£i1.ant_: ;')ré'é.:a;1_1§i"9;f:., .,as:9e3sea had paid Rs.'§§64.32.7'10,/--
as seif A .aSs::9ss::1€r;«i; * 1:b;i>1.._ é11E>:9ag wiih return cf §§';COI1'1€ and
'recy,zc.9é:ed 1.9 V--rt§}i':;s'i€i(2f' the interest €X§€ZES€S i'fiCLlZf'IT'€{'1 1.9 sarn
'V ' ihé i::é;%f>§'n."1é grief 3.9 {ax 922$}-Y the :19: 0f 'she ézaieregt iflfififlifi in $336
Eigm' ._{§§. iL%d:3}.§3ay E-iigh C{")L1%"'{, Becigien in {he {E2188 sf
E?L§€C'£.1'<>9r:'2€::EE' L*;.£'§. E2241 ETEQ 4E%9Ek "§'he3 a$$£3$s§<:£?
9399 '2:§9_§§::e{§ zétseifz. an é:":*£.€.:"'€:9§. 9? E€:';.2:E5 {%z'9:':%.s; 9.22:9 paié 9:9
" a:§§f:§:g%;r:1£.L::'<::$ aflii r;:%::§z::%9'i<*;{§ in <:<im--9E{§2:%:* ;2'aé:§§:as',«;?¢. s'::«;a§:E xZ§.'§"i'%_{}§_'i'(1§,
{':X§)€§1diE.¥.,21"€ mafia :9 €3;?.'T{§ 9:29 i§}E.€E'€§_§E 9:" R91; 5%? <7r:>z°€:9 by
raising debenture iSS'£2€;'S of Rs.17é1.?1 C1'Gi"€3S. 'Fh€"v£1§;,:3€'3s§ng
authority on <::0nsid€~x"aIic>n of the aforesaid II1'é?;*.;_g€I'i'E'L':"..Ii€i(}'.._TLh!E3
amount of im.e1'e$i earned was {mm the L3.ii3is;_giii0i1..V:oif public 'V
money received from subscriptiogj by p.u'b_1ic1"é'V1f;"fz;s1;§;§h"Vshé:re*
issue anzzi debemuzrze issue kept id§€'«1j_._:§i*--f;.}ié: dziic, G{..a13.iO'"L-_r_ii<3;éi' in
the form sf short term depos1t.s°"L~?1is has ;2L:1,hi1;g 'aL*i*£h 'Lite'
operatrion or business of the cafzypany' The' expénses which
the assesses: is c1ain1iI1g'~xver.é i:1cur.:e.d'*--:n the form of liability
ar'isi11g to pay interest on f.cA1€:F:§'<:rit:£V,:1'::;f§" 'i€s_'=.e'r1i_;i£°e1y difierem and
income ea:1'nec§ i'r.r)m §éthé:"sQtuf€,*F:_.s 'sh<>rt 'Le3:r:11 deposit
interest. Vp;'<3f3';:&§_ctus;; the debentazres were issued for
the pu'I";}0 s¢ {>'£T_Es%:'ttih;g.__ %;':;3. an integrat;e<:'i sieei plam at
':{'O§°3,{}ElgE3~§1:T..V. Eeiiary :'T}is;'U:i<:t. with 8. Capacity of 3.25 11113103';
- f;i3v'I13T};€S:' }_S?€£l';1§"§§'}§,i.I1§;'wE2§' E10': miied €:Gi1S. "$13.8 was» alga maéfi to
é3.§c?aI.;'IV"§1§;Iff§fi'CV{%"--.§.§;}.%? Casi: ef the §::'iegrai,ed 3:66} gfiani inaeiuding;
€>:_p€'nS{:$ "2j:E '::i:1%: §:3'L1b§é<:é .iS8'£.E.€= Ififizzzférsg 'abs yfiar sander
ca:;sic§V§:.%=a"i.i0::g rm gush b:s.si:1esss§ a<:£',;E2;»-*§.i,ie3ss §X.?€§°€ €:ar;*i.€:<'§ an 'S3?
V%.§f:é"_«a$;-:€$seé3:€* §'§{3§}§f'.€3,, 'il§":€i'.E'é?: 32% ms lizik be'z::zr€2?:1 §§1:El€f'i'€S'é {Ki
§.€b%mZ1%JzI§"€ :;':1<:u.r;:*@{§ far buginess pz,sr;>9$e eé S€f1E'£,§'f':§§ up an
integrated Steel plane. The intereet earned f'r0:11..:aV.V:'d.ii'fevreni.
seuaree shall not be allowed $0 eet eff
the form of interest paid on loan for business. p::_e§
operative income earned in the :{nt.ef'es1:i VVVt'.e§«:ed i.
as income from other sources. '.of*1--:ee%~§?e?f';;t§
judgments setweut in the sa»id 'e3fxc1er,A'i~t Ti»:eA1c'£:.__r1':e.re: should
be a 11€XLES between Hthe IV short téfr-{Ii
deposits and paymeni borrowed for capital
expenditure. Fu§r'Lher, 1.9 Section 5'/"'[iii) of
the 1neo111e§t2t¢««_f\.--et., ¥_a}:::§ e5<pe:dcii.t_'L:.§e fxxust be iaid out or
expemied 'V{«'i.;I!"*}VI,1_Y "QF --e2€e1p.eiVeEy for the pmrpoee of earning
'income from <;i';he:f:'e.ei;i*I:e'es'V;" This shows ihat: when there is an
expe'nditL:i*e *i;1e.L_1rredV.--e1'11y E0 earn such §I1{"1C}}'I1€,_ that
e2§;_?§}¢er3d_fit;1;e §s'eni..ii..EeC£ fer a&§:..:simen€ from such income' in
' fii'f:e. §§?.§i3Ifi'§., itase, it is eat 80. The ei2;:§r:1 ef expemdizure by the
~.aeseeeee"_~i:3:'éfie farm 4:3,? in*;e:*ess%. expeneee £5 ez§§'.ire1y different
mm §;he.i%:eenze eamefi E31 cEe'p<3e:fLi§::g a ehare agapiieaiien ezfiei
éebeeiézre :':1e;:1e'j; éaegrz. ii: fixer: §,,e:"m <ie,§2eei:i.e, rS%:az"e
V. _ag)§j1i<*:atie11 moxie}? ané debemure ieeaee we:'e :1«::=i. raiseé for the
$3
3016 purgaoss sf depogiting and eazming interest. no
11€i'}~1Li-S can be eatabiished betwaen
On the ground ihai the assessee did not 'ilaxgé
statement shewing ihe detarils fifigdsi' i.
debentures were used to earn ir1c{§1a}€:;--._ifie
adjusimexat of inierest o:1'd_é3:»§§'ntm*@ W35 2:{ndA
assessment was completed. h'6Ed ingfVV't1r1z;t*1'.fi§e":as§;é§ssee is not
entitied to any d€dL1{tt~j%}f§'S 'éggggéfises a1V'V1.éi to pay tax
of l1,0()*88,000/» the iAnc=Lt3'r:;m: in 11:16:: zmevant.
asses31"11e11t§e?€9_«1';. = = V
said order 9? ihe asgessing
authori*£3::Q .ih<::'=. §i5;§V§'3F§§.i'3.Cé . prefwred an appeai to {he
Co3;1;:11xssie§£1e§f 'cf ifzciafiia Tax iéxppeaiséw 'F236 appeliayte
heid {1i:;::':','V a Campany Canneé. U'i§.§iS3€3 'ihfi funds
V' A £i't§.7§;hGi;'-i.' J
V .VVr:?'@};§€;j<?i':';;e£,*?<:'%~ ';VB§5'€=a:-21:; sf share azzgémnii arm? §.€b€E'E{';1§'€ .{°:;=:° atarrjjézzg
'--{;é1--.€mf§*b%;2si:':;éss aciivéiy €:<.:<:<:§}'§ pa'i":¥€§§7:§ sf {E26 fzmfig in éiepssié.
§.§"'--ss::%:._eé'L'2_%é% %3a;mE~:s-3. §'§<mx:s;_%s;e:*. aha? fé.:=3$:'-E$$€;?£5 E3213 ézwesézeszé §.7%:g$€:
fi,1I};§:t} ii: 'i\.;'H?L bands amé by emcaghingg éihfizzz ané éigcazigéirgg
the bifls, had ciaimed than ':0 be irmidemal {G
said cenduci is K101, tenabiie in law in as :rn'u<:h {Q
business' wcmld arise only when__,1,h¢_ rna_i:imb'uTé§i11ésS'..oi'vL-'theL' "
conzpany had COI"I1II1€'I1C€E3d. (.f:{"3"I'.z§:#_V)8.'I"1';'/,1"?
COI1'H'I1€'1"'1C€d .21 Ilrial run. ¢§gLE€3VS[i£§f:l}'i
incidental business does net p'I;(.3:§:§;Q\Iév':,£()f:1vf'jI}1€33'}C§3T}7}f3I1t
is sun at an Emma} '1:;'i}!?;1i:§§f;':;r£"1'i¢:_»fti{}31. 'I'herE:~i'0;:e. {he
assessee was no; jE,£Sti}v."'ifi{3 .i_1v}w.:g1f€)i"€Said amount as
business in N}-{PL bonds, biii
diSCOL1I}i,iI}.:#;.ilfiin "Cf'iI"'Cé'i§II;IV;1SJ{"E},I1C€S 01' the Company
was to manufacture Steei and
a1.1.ied }V§r0E1«1.1<§i;s--{ ctammi be said ii. has carried 01}
the said __ V1T*'*;,_;1:'*i,}.3;r":':', it was heid the tempomry p2ufk1'_n.g
sf ceileééefi vfro>:f: {hes pubhc ;}er1ciziz1g 21§§0tn1e'nt sf Shams
' 'fi£;§§L§ n:3i a.1_:é*iQ:_m.1i €15) <::2i2frj;g§ng Em buiéirlfiss 38 tihfi c0mpany'S
I V;¥::;g3.:Cfi' .V:§E3j E3{?§'1E"2'_:3,:.~ '.i7E3§ .£.'u:":ds atzéiieciegi f;':;+m i.Z%'§.<;3 above Sazzme
{.afmQE; E3i% *;;_':%;£]§:i$§%é fa? §}2,:2'*§>i}Se Gf C;»',iE'i'§§'i1'1§ 6:} {E253 bus-sir1€?S$ 'NEE
'ihss e:§%:§é".:':":5.§:%'. 53?' $E1.:»}:'%=,.€a 'w'E"2§<?§: §g:>w:z°:é€{i 'Sf; {EEC E{u;E§-353; §':''2':z:2e:%d
.5
" V. in {his :"€_f.-§Ei1"CE, --
8. L-asily, whether {fie Claim 0? ihe .e:%;p?€:1Ci-iiure
incturrad an £;.h.e bridge loan etc. Cam. b6 allimieéi§§1ticiéxf*--.S?:é:'t%§it51"1
57811} aiiernativeiy. under Section 38 ofjheV.4_:$:.gt;'-TfrorgxV"ihe
material on record if; is not pmved:v.iha{,' '1.i1§:'bridge__'V1L3_a;n ééfid Vihe p
term lean etc. are sources 51" i'1§k;1d§3--._Tf'Adr 'r19i':~._§§:1*z1;§«.
Depesii wh§u::1;1 earn intere':;T§.."'--~.V.. Sinai,' due is not
carrying on any busimzzssfi !;,h'evL§L>"V<1gL1e§t.ior"1"cf?Tt}.4¥eatvifn.g the Said
income as business vif:I'1k"~2.(")ITI1€f7é#i1'd":':§}GfiS.§T;fqU€1'1i:y,V aHOVV§.E1g the
deduction under Sec£.idt':% S6 f'i.}jve §'r;Tr§c;:;1:i.Tax Act would not
arise. The incflme ea.m€d"'~.from~,f:.hé".fu.i2;dS' are ciifierent and
iI1Ci€31:)'.§i',}'1(51(*3IZixf.V'fif{}II} '{11ai'vti§f.ih€ 'bridge loan, term 1031;} etc. The
assesséa has; §"ai1t:*':_i~.:[::<..p§*aVr¢ any szexzzs 'vs-*it'h the sxpfinéiéure
i'r1c'urred ' L3_.:1d, iziaionzfi VP--..#.i:F§1e(jk '¥'heref0re§ Em: Ciaim of the
ass;Es'se:€% for iigéézitiiota GE' the im:e'res"£'. on ism: Imam and brifige
. E<>?a..fi' :2;3'h§<:§2A.2a.re zigéfifor impie:11enE,a':i:3:: 0%' ihif project: s::a;mr:>'::
V ":5i3}'{§.§%'§'€%i'*~¥%?i'1'€§€§' Segtéézm 57%;? cf %:h£:: A«::E.. 2*§{:Co':"é§z2gE};g fine
~.aip§;~eaV§L' {:é*;;::f:e;;'{{f: be €LfiSH'£iSS€d. sizggsisa»-'ed by :.h.€:§s€~. %;.w{> orzierss,
@932 21:%:5'§s'§s§;§:¥& ;3r:%i°§%r'm{§ gm ET:§}§}é?E.'§ K; ziriéé 'E":"ib'z.2:r':;iE'
7. The Triiaztnai an 3. c0i1sideraI'.i0'r1 of eiiiire
nlateriai on recerd held that what; a Company is to
carry on saverai business, if it carri.e3 on ._.flri.tj;
buairiess, it is sufficieni £0 held _1.ih..a1 it hé{S"ii';9
businesza. After obtaining ihe cei'iific:§;i<:'. :VOf:"'€i¢#§'£1iiiT:<*$fiif:€{i1€1E'i' 019'
business, the Conipaiiy s,.x,,ra;§_
business enshrined in ihe II}€I.1gi:t:£2Vi'i'-"r,V1:}'Z1C'tVV£"I.I1'} iii' aisfihciziiion. One of
the business which .iiL:~i.h0ris€dVi0 carry an is
borrowing and leasing etc.
A pe:ruSal ciearly indicates
that to sub$t:antia1 income which ii:
warii;ei:i' __"t.¥:: _ fisiablishiiig capital iriterissive
piQje--cis. .'i'Ii'~'»;i«:'iE'a1.'A'..I'V'i1€i,"1"E1~"i/lfilldiflg activity iiass been carried on
, S§:,,'i:3-iii'xi'X1'Z'fliCH&i.駧'i;iiaC§'i. "i".i_;.<2 assesssee haci earned 328 iakghs
aiiei pmfii. on ienéiiigg/ii:w?esiiii€nt.. imrice, ii.
Ciiiiipaiiy has cawied an bUSiH€fS§§ €ii1i"iiigi'.h€ year
anii" i7£'§.C€Z2i'i'i€ iifiere imiii gheiiid be <:<3'ii1pi,2":.aCi iiiicier ihe
i';i.is~:;iii€s:~; i§i=3{3i'i'1i}, 'i'i:@:.:'iéE'°<i:*i:: i.ii.z;%37 aiiiti iiisi Ei§}pE"{}"J€3 iizs
azéiian 0? iihe asgefiaiiig ai.1i.i"mrii,§; iii itsiziigiiiiiigg the iiiszimiss
under the heading other sources and they the
incame should be cnmpzzted =.m.der the
gains of business. Regarding zzllowabéiiiy _c;~§--- A T
tribunal heid that the expenses '
whether shares are 9.ctua§1y»;11_1031t€;.'d..net
app1.icati0:1s or retained. its {:F;v:~i;fé:.g;i,er i§:3vV{ié"e:3;:pens'és'
only W111 be ctorlsequentiy éiapiiail.' éXpenc§§1:.ur€. Thus,
no pan'; of share issxvxe-.§}§}x;;:efis<§s;.ié§V--.§t££;§wab1c~:. Howevez', the
extent of I5,43,40,69;/_=. i_:2:g:L1%i§f6;;;1 53%'{,1§%gVv..(fiorp0r21te Treasury
is" ' . . . .
Di\,.r'i,SiO1fi "'«7.,gV/}._flD'i7'.--'é?;b1F{: » €'xpérif'L1it._L__;;fé aft.(--:r exciuding
Rs.6,i36,7Q}1}'Tvl',_.. I; 1¥ep:<<§S£:=t1I;s_a--d<3na*;ior1 which is not aliowabie.
The €}<;'f.-.'6fE(T1i'L'VE,?1~'é: ih{_;;.s; :*1*€§fI"-:3/;,..issL:e: of r10;':~<:.0r1ve1*t§b1e portien of
Ciebeni.ur:€:f_ Cf Rs.1AQ;?.?.;L'53,??5fw was aiiewed as rwsnue
e}<;;;§31*:Ll§iL1re "'13 c:c):"n';;>:.:i.i11,§,§ the incame: sf %;h.e £1SS€SS€€.
'' ' fE7fi'eref*<Sr<3,V'A'iE,. c:§iz'€{:E.€:d that {Eras aSS<'i'SS§}1§_;: 2mi.h@:"i':§; 5-sheik} regard
V"iV'zV;.sE'<3:é:§.'@€;..:"'€:V::V€'§;:;sé',s:; of R3,: 2,0"? {TE'{}i°fi':IS§ b2;1s'rin€$s 3:992:19 a§':€§
;1§§<;";*2;v :3/:§,Ti"<>§12 ex§_::ez:.€§imz'€: ins::u:°:'{?:é 1&3; '£3613: Céézporzate
';{':°{;%a;:és:§.:°:; hi/}§"é7iS5§{}§"i zczafa' R33' §.5.<'§«3J§~§:R5§§ éi§'1{§ 332% :Ei€§:>%:m:,:z'::% is-.=,s::,:§€3,
€}§:Te§3Ii'd:i1L1F€$ {lac
eX'pendi1L:re of E~Zs.10.77,53,'??'§/~. Ag§g;§'ré<3ivc2d
fiI1diI1§§S of the "I'ri§31,1z1a1, {he revenue is in app€211:.i_
8. Ixzarned Counsel appearing rfcvériue
assailing the impug;n€d order [§:oI1>tj;H(§:i13ii<?:gi '
admittedly the assesses has :r1o'i'__ ci€:n1mf--:f:c€:;€:i 'its; 'fzzaih
business 0f manufacmring sfiasgfi' and ram. §i1(:bm£: is <:1er'ived
from the said buSin6::1sf - TIr7_1e 3f;rii3'a_1'1;{1'«w21s in tcvial error in
t
treating the interest. in.c.r,5m.e 'fr0x11"ba19u'{iV;:i'ép0sits and other
incomé ":1ri'de'r '{;hé'E°1€2idi_ng 0f "Profits and Gains
of b11 ;sAin¢3ss'.'.V'vii."é:.1gh: "t,-0'be treated under the heading
"From btiher s<>'u'ré::é'5:~'f"Sg:bE)11ci1y: he contended ihai. when the
E'zSS€:S53€€ ha"::s ._:1<;i.:i'0:1§':11e%1.ceii any bzzsizaess 22?: afii the quééséiorz
' V' A <2§3 ij h*e ;_a$ss':_::-zsee {ff 'ii-1ti'1V1g 8;'E"i.}--' €X§3tEZ§Ci§'§Lif€ urzdez" Sactéens 28 5:0
' ,4éZ?} --. Vv5<;?smVE<:§'«v§"1€3":.__ arias 2m{§ 'aha: '§'§°i'{)L::f:a1 wag me)? jusfiifiefi in
r::=£l§}:%:%:§.g":E<:_$'*:§€%{i::€:?;'§{>:"; sf iiézase éEX§}{*:E1$é?S£ {mm €.he': §EE{?€}E1'1€'. 21:35?
':36 S{i_E? i_EiI%§"2€'{§ ansgi 'aha .s;23.me E3 Eieibis 3.3 'gs: sz%i'.~,:1SE{'£€:
%;'E'§'%::--é"::%§"s:s:ia'35;? Sz::%3:§1iE.$ *;E"2e:= {}{'C§€E' §'};'i§:':'%f3{§ by éféze '§':":Z§>: 222:'; <:::.:1m{':*é'.
I
9. Per contm, the leaarned counsel a§';7ea:rir;--g :'~--f:3fi.f:_ht:
assesses supp<:>'ri;ed the {)I'd{3I' of t.heJ'}f;fif_sL1na_if." '
30. The appeal was admitieci :tc} cf0i§s§it34:f:r'----t?::::'f§§'iicgxs.zi::1g '
subgtantial questions 0f}:/1w . _
1.. Whether on the fact,és«t,;T£I1.d C:irC'u'r;is'i2ti1ce';"S.: v<'fiV'i3'VV1:1"1€:~ casié,
intemst: derived by "a<sS't:*.3see f'r$»:<n tlie borrewed
fur).d$ whichV»véf€_i3;§VessjtQt1"vsfioft term depesits with
banks,' fundsw share capital,
_i'<§r1%1 of debentures an private
§;1,atter:iefit.;ét{:_3. i&%t§t:1d be chargeable uI1der the head
u'iz'_41.é<;.1::3.(V-: .f4fQ_r:'1V.:_'{3'ther smurces' or under the head
'inc:<§::<1L:fVfz"0r§§;' baasinessé'?
Wh.e§,he£'VVb'ti«Vt:§1e facts and C§:*cums£,2tn{:es 0f the C216
*t'§*;s "«3xpe;1d.1t.u.m iE1<3:t11T€d by the assesses befere
"V"_'€;:<}1r:';;;§*zé§;.3§:.<:£~:1'§*a-szzéfg. 52? its bu$i.ness {if §':1t.€§r2:tt:e<E Steei
' 'E?A§':tt1t amamttizzg to E{$.1§,4394G,§84;'»-- fifid Z}e'§3s:r:é.'u_'re
Egsuéé exgészzsss {:5 R--s§,§§§??Z§3,"f?5=,f-- can "be: aEE{}we<i
the §.§ET{}':3E"1{i 3231:' the E}i1f*3§.'i1i"iS§'7: 9%" ihf E1215;
;:f%z*e3as:ij; §%<)§§1§i':€;":cs::'*é:§'?°" ;
égj//"
I5
1 1.. The materiai on record discieses that 1he%Vl_:e.fi_npVan3r
iseued a preseecis to raise from the public,
of R3135 crates and redeerrmble...»r:Qnve:'fib3.e'.:f§1eE$en4i:;reV:51".
RSKIOQO emres. The issue, su'ese§;pt§€>;:j t.e'x%}h£eh'{§fj'e1f1e':;§_:en
10~2-95 was over
times for share and debezxtuze:feepezeetieelgrT_ year end:
none ofthese p1'0CeedS"%a}§is 'xsgbe E0 the ceampany as
these sunas W6?'.€ account pending
alloiment in form of stack
inxiesimeei.._aeeé'}%I1;L:' meant '£0 raise funeie fer
n1u1Lige1e such as; eetab1ish'ing hot;
strip eieeié' miikVVvi.-&::1_'S"<~ij::}.%,,%'§.i::j%'1'€:V.'~ph8.S€S3 pewer planz using gases
ge1;c.;7s§ed 'ui2n.:vsaiee.;E' nfié-§§, .'i..n{egrai.ed steel miii and 21150 is part
.'if7'S~.'%'€Li£§u§§}L%"E%g1§5'iI1€iSS {seeds far bziyiiig azzd Seliing of
Czevemmem: Sficli-;§§{£€Sg etc, fize
.' *§;:1§§%a'nee. aiee ingiieaes Eiimi: {he aeiuefi berrezzrigzg mazie 'ey
;t{§'r§;p é:}.y' were $32. ssheri %:erm in zzaizgre and were uiiéiseé
ge:3e're%1E3? {er éhe §.>u:'§3e$-ea <3? Eegmiézzg zmd {'§€'f'§§'{}$§."§. eta: gmé.
":£tur:'e:<:é. aeeeis. file 132.21% b~:3r1'{>x--x;ing; em-"iezxg-glee? {er these
activitiess were in the C}'{'d€I' (if R3212?) CI"0i'€S and
c:onsequ€m.1y., the auihorigation by {he share hc;1der$,i"n.>f21v{>ur
of the Board sf Dir€<:"t:ea's mentioned supra for
shows that the Company was entitled to borr0w'fi__i1_ cxfliéséé cf
required funds for the long termS prejecixsf
12. The company 'L9Vc::,=w..§f: I';;.*.A§:>1fx 'satijxrancésé
bill ciiscounting. depQsi§s €?;'£V";;"'}V:'}.é}:.{§1'VV'1"}'L~1__'3f1f3 borrowed
funds on shert teran Shanghai Banking
Corporation its 20.10.1994 for
Rs.4~4 5O ¢i*(')';?}a;.<s,_' i'{9Qir;£§§i':§1§;"ica:1Express Bank for R375 crores,
from SCCi€¥;y in excess of R3300 Cmres and
fr9m..Intert%0'x_fpo;<a1;:e hefrgxvings several humdreci acres. The
- ' Cts~§Iip:i§s}?"'eg;r'n€d éi$.€>t,a1 i§'i{3(}E"I1€ 9fRS,11O'?".3fi lakhzs; as; :.:nde:':~
30
exper1d%1:'L1z'e for §.SS1,1€', {ref shares ix1£:It.:di;zg
proportion of ctonvetfible pC':I"1.i{}'iE of the
Rs.19,93,86,9Q6 in all to:;a1mg 'paw:§s.3Q;'r"1;i:;,58:i;_
ex.p€ndi'ture 'Has been shown in 1.136 '
head Misscelianeous €X[)€Hd§f:tiL"(f,: Eifiéf'.1jé§("1L1Cif¥.§:3; 'fi:€%fi;f1:
i:1¥;ere$t. earned of Rs.10.21 "i"h§§' {Lei
prepared any pI'Ofi1iV gkisés' f(51'"' rezxsons
menticmed in the no'; <:<:>mrnenced
commercial assessee criaimed
fghe entire net 1'.aX{:"£b1€. In the
alterrimive, tjE3..::j__A_ t;:1ai1néci.__¥;h21_i out of fghe said. inconle, the
eX;3ez1diu,;r*%:AA:i:é4,:;_::*1*xér:{ i§:..__é'a?11ing éihe said i1'1C'.OFTl€ shoxlid bfi
<:1€dL:a::§«~:d Ema, 9:113': béalazéce ar;1<::»u§;i; is ':0 be taxed made? {he
' ¢hé:'23.d <3:f'§Ts.,'£é:.iness iI.}'€E€)I"§1{i.
" _ '$53'; "'f§':--§: baiaixgte s§':<:e:' d'§.SiT:§€}Si3'S i.haA. 'aha aamezzzztt
:%3 {é:3ive:E s.=;Ef1.z;,:"s3fdebe:§2éu:'€ aggpéicaiimm 1'§1G§"§.€°:§ is; :10: uééiizfizi
.../E}
:i:}. §1:T:}?!' A2:<?.'é'.é*%_2'§é'.}* c§'%,E1.<;' {:%=:,2§:1§32mjg 3312.: Ejsifigg ._<:r;,:<>:m;;';::'21?;.€Ié:x; 2:: ':>a:':R
@i{i%::.§}:,z'1"1E3, '§."°h€: ¥;'.oi:21i GE' sash :a1j;};3Ei€21ti<m 'flE{}I",E.Ei}=' 13 E255" £339,932
E
lakhs whereas ammmi unéer bank ba1anz::€s [in::1;zf<di:f1g ':if§csc§v:
invest) is Rs.1_43,512 iakhs. Théz share: c:.21;>ii'Tz_a_:i'
pubiic issue: is Rs.37,050/~ §akh§3s...Lv1_jich
assetg {inchiding Capiial work
interest on debenture) * 0'i«7..__ VA
S€Ct1I"€5d/L£I"1S€2{).i§'r€d leans of L1t.i1i2:ed for
nxakjng C:eria.in ir1xreS;{..f_fa%*3:;t:%g " loans/advanrgss of
Rs.36,536 iakhs, 'I'l1§:...i;§.Ves1:f:1e§zi;;9'1£%:i<ii*§'1:g"acfivity has been
Carried on " assesses: has earned
R3328 ' '?i1i i,e1'esi, and pr<>f1'.1'.; on
fh2_:'vrv1.H Rs.779.31 iakhs an public
iSSL'i€3 ap'}:5'Ei.i:a't:£3_::'15 Tile as:-sessee has alse paid
£':1E éi;5st' cthaggeg and Rsw49.§'?G Eakhs as
§'§1";:>1:1.c¥§*. €r11argr.:'.s féf ':"a:1§sé:2g 'V-'arie1:s §<321;2S_ "§'h€S€ axe {he
'V:;&I1ei§iT:~T<.§:§"u&;:¥3'<¥.AV;Z7:;::§fL:s, w§::i{:h f3;I3'"1€Z'§.'§Ei' f:"s:>m the ma.1.<:=:r§aE an E'€;"'.C€§I"€§¢
E6;-- f- 33?. in 'éhiss E':»a{:E< g:'£:-2335?. 25:52 §¥1.:§3;:3 {(2 56:2': w§1€§,her
a§;he;--::; §:2'r:;$ mm mzz:.2z:€:2s:7a%{i §:";a:§:"; %:a.z::~§§1§:%s~;s {sf
n1'fia£:f:12§a€,éu?'§ng 23%;' 53:65:: ami €8;'.E'°§E€& arty Eizgtsme Gm. <2? me: 323%
buisiness 21:16; admiitecfiy whegz it has earned income: by
Czxrrying on the business 01' bi}! disca'L'1.I1tmg facilities:fiésnding
money etc" whéjther the aforesaid income
Couid bt: eensiclerrszci as a b'usine$$ incom<:'»vo7.f:'~..i1ic%§3111€ from
eiher sources.
1?'. In order to answer the Vaferesaidé é:§ues£1'<)f}--s, v«{<~:
have to see the 'iVI€'f3'10F£1IlCi{1IFi'"€31:}3§$.SOCiai.iQI1u.ifi§'_:fififi 'dint whafis
the object with which 1136 con"1'1'5aA:1_y w*:;:..-is €si'.ab'EishAéd, Ciause 3
deais w*i1'.}:1 objects for "'&3.;"'f_': }'.e";'.5. is estab1i.shed. it
readgas u_riA:iéI;"~, .V _ _
"'f{If. ._ The 'a'$igg'e€:1.3 '=f§§;.i. which the Company is
esmbléished are; " '
" ;2:z2:;Lw"voi;;}ECTs OF THE COf1»IPAE'é'§' 35$
BEV...2?URSVUEI3 BY ma: COMPA;'\I§r' ON ifs
A. .§E'v'CO§{P'ORATION:
N2 "'E'.:7; 59;": up Ema 5:, 85:66: inakizzg'fa/:€£i.z"€.e8 and
V' ¢ " V"=::<3:é£.*£:'z::0::s z:?as:i':'z2g azzei 530%' and C9555 rsééirzg
miii §Zcm,:i..:;*fQ:* pr0d'uci:2,§_fér:"aa:s and. mm-
ferr::>::s méstais, aiéay sfjeeis, 35.9525 ingeza
85:52:95 Ségzbs E3z'§Ee£.$ zfmgf 52,25 §<;rj:"z5és and 5:55
Siéféffi <';;":Tran &E":.{?§ ségei r€«m§§€£E :;re<:?£:'z'<;::s? 5.1;».
%'¥"§0.§;<~L fsrzgleg, Rfiiéfléffi, Ssgzgczreg. §€a,€§:<;1.
J{:»is;€:5~;. {Z'%1ar2i":.s3§;3. Siabs, S:":r'{ps5 Caéisfi
E;
[NJ
2,»)
Slwefa Plates, De,3formed. Bars, plain
cold Iaslsrecl. bars and ShC§flIifIQS. *
$53
To Carry on zllle business of rna{:aj:a¢l'1:l:fe5,
processors, rcgllners, _l ..&;nf_nelIer*_;s'. " inalcersg ' ,
Corwerlers, firlishers. ; i.fT1}9é)'."l,el"S,i3.x}2J§)? lers, " ' "
agents, merchanls. ;,\._u.ye;'r3.. sé:llers" ahl:'lL..__
dealers in all kinds of 'j_'orn1s of "3.z'e~els:. A'
including tools afnd C:l.loy-_sieels.2'VSla£:.1less_}
and all other specrzfal" x2frO:1A av.:1clV":()ll1ér
metals and alloys}u_all_ klrzasafi of gaocls.
products, arlic:lzas«. an znércllazidlse
u:l'1also<3u£21f_ }?aaz1.9,gfa{3?.lired. _L.lJf'10lly or partly
from steels ' and "Ql.l:;g.r rflz3ll.allS"' and alleys;
and also l:'h§3_ "la_:,lsz'ne§;s --"ar1cf..VV_':ren masters,
steel =-_an:f;l Vmezal °~..'(~7Qni)e"1z'l:érs. collzaxy
p_rop;lLiel:o:s'.'-- ¢ cakfé T"ff£Vf.lAIf"l.l'l_,'fCl(';{fE'é?"(3I'£-3. ferroalloy
V "I:ia_;1t§-fa¢i.ureV£$, V r3éirle7's,_' smellers and
._e7égi;s_1eer"s-" ln'~.all_ ":,l1'eir{réspecz.ive branches
---- _ and .searcl_1 jbr,--»_«;1£>v::f work. raise, rnalce.
lA1TeLé.,rcl2.az'1z;abl'éz, rilazlzgflclclzlre, process; buy.
sellaand .,O'fi1§3l'ar;:f)l;S€ deal in from Fig Iron,
Gr'a.nt1l.a;led Iron Ore. Firm-as, sljeel and
Cillelf _r71c2lals'j_.'aV coal. coke. bf'iCk~€Cll"l}1, fir»
Clay,» Ibrz'£k's_f' ores, minerals and mineral
s:zl3.$lanCes, alloys. melai swap.
A cl2.ezIti.é'z':i£;é and Chemical s:ll>sl:aI2c@s 53,!" all
_ , .'}'::'z?.ds.
T. }E€,fZlfl::T';l%l'..l_G;l§%<},E,'C% §E'JCIl3lE§§'J'f'AE; OR ANCf§;LAE€Y 'l"'O
"}"§~1§:%;f_ }:"}'f'¥Z4ENl'vfEl¥'§' OP' Tm: gmxigsv G§i}'EfC'fS:
. 'f'o sgéarrgg an 3.52:» §;lis:.m2s.$ Qf r"i2ecl":.5m.:'.Cal
= erzgézmers and {La €§f,'S§§}I'3. {,'{'}l"ES'l.?"li{'E.. j"a.E3z°i{?a§.le>
azzsf z'§':ar'1:z.;fa{:i.m"€ all §€iF'ldS Qf maCl2i.n£3S,
:'ar:;§$ amfl. impl;'>:'*as3:':3.;';. {ran and §}?'{E.§S
j"T(3:.£:'a{2'9rsa=2 §'?"§§f§i(é§ §,l,?:'}f"§£f€??"S, :?z5z{%§2iz'2§$§:a lzzm
and s:;sa%l :.:s{}:'§:::rs. $§"?"i§f,§"lS§ 2*3'":e:3:.all:zr§€s;£l
pr0a'z,:g?5r'$ Qf' elearéric :.>rlerg_zj, C€§}f}E€&l§"ZCé'S: 56
§:
.
carry our r"esea.rch and developmerufor. "
aciiviiyg operations process 0_}"sy3i8m_:«~~I'<3 act- V any ffl€!C§£iiLrg_iC(1I.,_" '-
as consultants for chemical or ertgirzeering work; {Q p.zjod:1€e. purchase, refine. prepaffi. [3!'f}C'€3'S'S,-., 'fZZl'i'E'Tj'_ fmporrt; export; sell aid gériezfally' ciézrzf, Viri"
" d'f:i€i--..
connected therewiih: '7,_:O"'.vC1;C€i"[E,£i?"'£;'v,. "c<3ra'-*3cI;:. "
construci'._ establish. operam '1f1Ci1'??9iC:?giT?.¥_'§CLiII,_,§ ferrovallays and if; :_rna,.c:f1ir':er"g factories, qu.ames;~..uL£;~c3rkshops;V go «i*:::nSf,Iii&I., mainlain, irnprove, "manage. 'mark', control and superin.£'en.dAV-'arm. fads. undergrotznd tunnels, lr__c;u'nwa.L;s rgiiuqay lines and siding n1i.lLS; T'Acm_s'?1:.;~2g hydraulic works, eleci'ri.C wcfk fac'i'c1ri€:s1_;v ._wareh.ouses, shopz;_,_ leuralé; Vs}*1g;,f?.s;«.¢<)aiir1g«..s iiations.
" ?~'~W?
V .
''--'I?T'<}_ {end and advance rnorzey eizfzer' with . 0r Lzsiifibui secur€i.y and give Credii; {.0 such }:2£','}'SO?IS finciuding GOI)€!'?1I'f2!-3'f1II} and upon. ;2=_:1.c_;%1 {arms and candiéions as the Csmpzmg; é':"éz::§; §;?<air?d%: fir, pravédeai ihai 1515:' carngaarzgg L' .;<$§2.;9:E§ no?" Cam; 0:': §3a,3"z§~:i.r2g busézzegs as dqfimsd in Bankirzg I~3e'5gu.Eo:.z:€on;<; Act. £945}. Xwax éézé y°*{/'$32135 "/ $353053 Z am 'J1 17, To draw, make. accept, eraciorge, ::Ez',seoun1', negaiiaie, execuie and issue biiis cf exchange: hunciies, promissory notes,-'--.._ bills qf Iading. warmtnls, debeniures cL{1<>f_ other negoiiiable or i'rar1sjj"er€fljie. ' instruments orsec:1,m'1'ies." 4- * 18- in Order to ascertain tvi1'e"i:usiriessVsofilgeV{:vQ§inp'any;~ its memorandum has to be leaked iszflfj, provides the key to what the --Eg'£Lrs_iness' 0_i:>;e§:tVs-V_o£".j;h'eV»VCempa1"1y are and it has 110 be fmfiher as-ee'r€ra.ii2.ed Whethe§_£}*1ese objects are stifi being pursued; ' it r:;afi;?§3e'V'i1ria:.Ma _par*dcu1ar business activity whichézs V__<:ar1tie"d' b§r..ih_e dorsgéxany may not be the main.:pafvi'_eAi'ivfi£S business carried on by the COfI1pe":f:jy: iS' for which the company was fors1e@, "be said than the <:0:n;_semy' has not
- ¢ V<:'e--3;1n5:enee:;1& they «%:§iééihess« We 'gem: business is a ward; of very no meams c§et'.em1ins;t.e.3 SCi}§T)€. it has rightly Ab;e'en i:1§udi(':§a.': decisiess :3? high 21%.§'i§.'E3E'§.§}--' {hat ii: is 11e§%2}:e_'_f1~ 'pm£:€.ieab§e E181' £'ies%;"2§'::sEe is make 311:; aéiempi 21%. x the zmiééii ef' izs :::e:2:2ei.s€:§s:'L §§:":":€?§1 has be ea éete:'mimed Wifiih zrefesenee is éhe sagfieaziar kind sf zzeéfisiéfg amti 1 %:§fi 26 GC(ZL£§)'c1U(}}'} of the person ctotlcerned. 'f'i?1011gh"<é1"din;1ri.1.y ""bus.i11ess" implies :1 C0:1€.ir1u<>:,is a<:ft.ix--'i{y 'C}::1 -ab particular {'.I'ad£"3 or av0cai.ion.
Section 283] of the Act' C§éAfin€:_VsT§".~';1e ""9;§<§'1'cV;§" as . 1,:mder:-
;/g3usirless" in.clud{:s az1§,;§v:4fi*c*'g§ie31V co:%€h1.s;f§<; {3l*' }fl"I(;1I1Li;]'€1;:'I;L.£?'E3 or any adveniure or Qf trade, Cammerce or mamgfaclfure. * h h V ' >~m-"4 19,2: }:m~: Ap{'1a:d down that far the purpases _df' v?};h;;-rgss a1 'i§1c0_m+::~1ax and cemputaiion of i:ot:a.l ine::0me; be ?.'"4',i$fi'E$;'S_i'i'i€'4i,.C'1~1,i'I'1-'.:'i'.E',"'£'i{I16 foE§<}wi:r:_g hrszads oi" i11<:0me:~ S'ai;1:*ies"
. "§:3{eres%;V Vécéié '$€C:LlE'§§.iEi¥S ~E%*:e::Q3%1;fm {rem ééause ;}:'0pm"'z.j§£ F1 L;7'?w:*$'£'i£'.s; amé ggfaina mi' 'mzsémess <31" §"3I"€3f€',SS§{':'£"1.
" _ Caipiiaai gaimg ?''''Y"'€ '} §§E{f{E§"§"§f §:"{}:33 {::':E3s3.:' ${§:2:'<":§:%-55 Z?
20. The Compuiaiiozz of inconie under ez:a"C1":if"--«.::5f7_ALhe above: 313 heads wiii have to be maée iI1.d_e'f:e:2dérifi~;.r separaiely. There are spec:i_fic Jr:..:1_es Q'fv"'d€f§'.}C£i'OVI;Lx§ ._g;dé; "
aE1<3war1c:eS under each head. N0 ldi-3€:1f.'1'C,'£;';'V()I'i"'QI"aCijii:€3fiI1€fi:tOI} account of any expe11cEifure c.-'az";~..be 111.2:-de cxcepi' éjagggjgxzicied by' 2}. Re1ia.nc.e ;}_1acedV'E5y'A1;:1*1:=2 fexfenue Gr: the judgment.
of the Apex Court in" 'HJTICORIN ALKALI CHEMICALS '£§RT£Li'Z'E}§S Vs; Vvcom/Irssrogvgze OF INCOME v:?¢.pqr7§:¢'a «@997; 22? Im .172 {SC}.
' in _€4h:.% ';214..f<::'T§"¢Se__i.c:%I' _1__L1dgmer:t, the Supreme Court has 'made {hf/'qqqE3'--*.'.«"?\S:§£ic3%'>. .CE?::;?_a?' af.7'p8*ra. 4;, which readg as u.mfe1':»~ . jffijgga. §:>as:'.c pm;:><::s€.§:2'<m {Emir has is be .zf_n mind. in $31513; cause is zfzai. if: is pazésiijie __,f1:2r as
-- 31:3 flaw-3 Six {§?_;:flf{,<"?'€£?"i§4 sceurcani: Q? a':':{:<}m(3., 9:21:52 55?' azzfzigrfz wfii £39 ::f:.a::'§ea£"3£e is z'rzg?{3r7:2:3 §I'€?;'=C. <:m::% §;€1i?"iS Q5" 5:>:.:.s;z'::.e§:'; 5;? prsgfégsézéri fa; {2?'2§.§; 'v§:«§ée Qf {fie Ezeacfg z,§;'2gEer :z:?:.£::t%?; E:'§:.e €a:*z'zpa%Ig;'s income is liable to be assessed to tax. {fa co.;fz;i§:z1§;"-VV has not commenced business, there c<1r2:::§'if"i3el'_'§.z.f:;_g;; quesiion egf assessment, of its profiis Nc:_;zi«:iu business. That does not n1em'i"l*h(;£ the company cemmencses its b_;:;sirsies;~t.K_ if jean': any other source suziil riofbe cerrzpartg. even befbre--»l.l fi;l. comz1"zef1ees'_= invests the sz1rp;l;1sk[i:nd----irfi"£fs'he1ndfer ;?A;1r(:l"case of land or house V_;31"_e3)erilg_,( Q1': "lr_1l,ef~.s_ells it at prqfil", the gain made by the be assessable ur1d.er_ v--.l1ea{:jl Similarly, :1" a eorr_q2c:m4y__(,1 r_enf§':<2ei and gets rent, SlL(,;:11VV.LU.i'H tax under 5.22 as profiyefigv. Likewise, a company }'s:c:lv'el:'ir:ee.rfie*,f%*e1f'nhoiher sources. It may buy a1'2d"ge£.. eliulelertds. Such dividends will be taxeible L':.fl:id£3f'.'VS.é"Z">fl5 qf the Aezz. The Coznpany rnag as is: Case, keep {he sur_plusj'und in slzerzv £e:':?2:Vl"*clepesi:s in erder is eczm ir'z£'eres£'. Such 1 "'v4€?:E:eres§::s" will be chargeable ameier 53:56 Qf the eels C{}f'"i'lf_'}Q_?"i§} has elzesezz 320:; ée keep ézs sw*pEz,:s . eagéi£.ai éfile, Em: has cieeideei E0 §?EE}é3S§, §§:'j}":,::'{:fi:El§;. '}"'}z.e VV"fmi.§:;-; Qf smelt £§"a?}8S§i??Eff§'"é§, will eleemlgg Ese Qf ;s°eee:me naiszzre 3
23. Therefbre, from the aforesaid judgnzent;'*£§"§s 'dear, 'ihat till the Company {'.OI}1I'i1€Z'i{2E":S its bL1si11€;SS'4.ég:1c:i'hams iI1CO1'11€, if they have kept their surplus in order ':0 earn interesi. that ini':ereS't«i¢_nc0I1;ze.Vi'::« ch£1i4ge2*{b1ef under Section 56 of {he Act. (:3'r1c§'é ..?; i1.§ cummences business and €E'iV'11S'Vif1CC;Ii1€ ';£tIfi€i1 its income so €£1Z'1'i{;'d, the Cor;1pafiyL &Eso eaii"r.z_S'V"i:1V'ier.€3:3t by way of such depasitsfi than i11e__saiciV'i€1é:%ji::1€"{:§1nn<§i'be"é}:)ns*;me:ci as inccsme fE'OI¥10ih€'I'SO£fi:C€.S;' ' 'V a V .
24. 1 i_1'1.ihe case ofAPOL-LO TYRES LT D M. cb;»q:z~41s:31Q;>3'1§:R '0f*~-meoaxaa TAX repmfiad in }TR (2002; 255 ITRv.de'aEi:ig_v '¥.a;'«ijQ'?:1 thc quegtien Whethey {he dividend §n.=:té}me'~ earn§ed,. b3,.r fyhe El-SS€$S€€ in 2,1 Cempanjg iron: its A «i:1%§?a3si'£:1:t:r_:%5:;~3._._ made in Emir Unit '§'ms;"t. (3? indie: zmd ificiuded in 'V'Q¢:>§.*:;.Tg';§.;1;€_*§.r1£.g§4VA'e3T£' §:.3"z::»fi': ihes eiégébie bzsséinesg EEIEQEEE" Secéziegz 32~:'\B .' §}f ?E':€ [En{t?f:';1:€: T2:z:>:1 hald &$ zmderv 'V '"§"'§":a'> §=:§ae:m:E §;;:e3§.:':>zf: j'%a.r%'ze{E 5);; :55;
-.E.':7e-:33' 'i?'7iQ5:'§L'%3 arises fog' oar cc:n32icE.erc::'ia3n in size 3% 30 jbllozping _fa::'r.ua1 background, 'I'f'z.e czssesseef .. _ * cornpany in its beaks Qf accozzzet had __.§'7i'c:az':z. certain sums Qf rnoney representing "Ci'I:"t'Z:.§C1(3?':7;{;i."*:
from units of the UT! and I":.c1d;"'{nci;Ld.ed sums in the compuieaiion. 0]"-fis :;3:7Q}"i.t as from "eligible business It also cfaims 1h.r:;2L_£'. A€.}itfi':Q]*':'. . such incorne f?'C}¥H "e£i§}_i.£*;Z.e bLis2'n.e5:--.Sf"', :21': S purchased certeaijfx new 1j_1:;zeihLne:ies~jE3:* «f_f$__{aeE0r1; because of "f.L}?'?.I'C'E.".ii"«~Cla1:%?"t€dA vf.I"£1::1'.(i£'1L{3'iI'{)I1 Qf 20 per cent. Of the said irzebiiteizs in section 32AB qjffrze Irz¢'a%7ie;:-gs:_'A¢;{':;.._V zfiazm qr the compqfiy beer1.XqIlowed 5yVV'i,i"re Tribunal and conj?rrned._». The argument; Q1' :' z'heV 'Ré%é;ier1LL'eJi.;2, 1i%f;i;s: regdfd is that the income "received %éhe'afiissessee-conlpany fr::3m its irmesirnerife i%i.Ai't1e.Li"TI has been dedared by the * » corrlpiamitg iirseif as £112 "incomefrom oiher seurces"
;»_z.;;§1;°z:i"a §2.ee:%:iv*------sj" imrczme is oi§ijf}"ere;r1{'j'm:n ineeme .,Avfr*:3m.fjt;r§3j'i::s and gains ef business er profession"
"a{;='::i_ zsfzder SQCEZEOIE SQAB, éraeeme from E3a;:3z'.ness éliflfiéi? Es emfzjied. jéigr Ehe §3enef:': (3,? i,h.::z,§ s'ee£'z'e:"z. .. ?,2"§:e ezeseesee eem'.er2;és mag.' 55:3 :'neemej%*em sezie me _g3:.gr<7E:a.:=;e Q)' :,::":z'£.:§ Qf she U75'? 3'5 par: :_;+~;'" £533 reggzgziaz" ?;::si.z2.e5;:-s §;?"2<'i (has. if fzm; heézi fheee :.:.?':i§.§; as s:eeE~:--:'.n--::razffe azrtd Ems been céaéng {he business qf buyizig and seiling the same, "
assessee alss eemends that {is income_j}*gé?i*a"{his-«..__" ' business Qf investment, in {he 11I1fiS Of the éfZ'I 'c:if1d its business Qf ma:1u_faciure 3:!u'z'd"s.r1le5_of {_,yI"es'4afe' pooled Iiogeiher in 0. cc>mmé--n c;Cceur2i».Qf7 which is managed by size corzfrzzofx m€Lr1ag§;en/1eni'. Ii is also the SL£bW1fSSiO'fIV: .'(.}f the 'a.sse.ssee'"1.;i:?5Lei1' these few-0 businesses, 3 er-*.«.e2sQ<>£y';~~.. _i:'I1e I::$usrf.ness qf buying and l1L'."'lil'..E?{_' and the marlufacture and s_a'[ie_Q fes--"afe 'i-nLeri;wi:':eci and im_te.r {fiat 'senile: separcuied andtreaifieii_ifldejgiemienr'1y,:f¢'£vI1eref0re, this income 'f%sni..{:11e_?_g"§'I £§s:ii1.g'}é_t:ri" bLL9iH€SS income, it fis Terzétiiied eZw[f:'rc ifleuflbenefit Qf section 32 A up'erusa:_ ggii "32AB, as 2: stood cut the :'elee:.1r*:£ time. As?1e~:1}s irhat if an assessee has a is-2",'a{ i:"aeG=:2";e in;7{uc:iir2g inesme ehargeabée is {ax "':;}'::i_e';=._;,f1e head "Prs3;'fI'.s and gains Qf business er V' - ,,j£::.::;5;;'2->;s:;s_:'e';e and gj' {size i:'z.esmej'}*om such Eimsirzess is 'e§eri:L*e§j%em; an "eéigibie business" and if' {he sssessee has Géifi sf" sage}: irzeseze zséifsed. any '«f:aé':e:2;:1§': e§m*€:'2g {Fae previezgs g;eaz'j'é:s* éfze §}?.£§'C??.{ES€ Q? new g:;§e;fii er mzzeE3;€3':.ez"'§g éfzen if, is eniziiieif its :5; seff r:;;f}'s;?'e sass equai is 2?} per semi. Of E25163 §rQfE:: 1/4
ix) Qf such eligible business as computed in accounis 9f the assessee which accoimtz }1.:L;§;mZj:'3er- " ' audiied in a1:cord.anee wiilh 8libwS€C§iQi"i'~.VV{5}::_'Gf.
secticm 32AB, The dispute in the preseni:;Cu;s'e t's».iIi'~r_egaur'.fisi---.. ' {:0 {he question wiaeiiher ._ih'e a;;sesse€'s investmeni: in the U1'! is 'L*Li.§'ii1€SS, cend'§j7_s.0, is iigwa business which, . qLia1ij7ie.<{"1_c3 afi--v..fTei.igibie business" Lmder"«se'Cii0:_1 B? ' it i regard to the first aspect, we r:i_1isi"._{zci{i::eV i__'iI:'3unaI as Ci qiiesiiim fact' or-:_ Af3*it1ii:e;'i'ai: vii record has coz7je..--io 44iiiiei_e0nCZ.i:s'it;ri1 i:Ijaaifi.i1e iiiiiesimerit, in the UT! by 'izfiiijassesseeecoinfiaaziy is in the course of :'i'r:s iVb12si5ness1:'fVei}:d' ' bazsiriess of fi1G[fILi_fC1CitH'€ and Esaie qf tyres VCm_cVi=ss_§£1i.r2. and purchase of urliis Q1' the UT! iiire" .¢e..::iin0i1 in nature and. both. ihe » busiriesses '15Z?'E?'V'i?'"tf€I'"§f£I)i?".Y,{;'d and inigeriacedi Tfihis ;jii§1::£ii;1g is"ae--<:--ep1,ed by the Efigh, COéii"Ei ciiso. We ._aZso,ji:1__d. ihai' ijiiis b§!,S{.f1€SS sf fifléf assessee-
"'e;?}:>ii_§<:2§':'s;Ji" {gf bugging and seiiing sf zmiis is a %?ui駧}'f:e'iS$ as esmempiaieei imeier seeiien 32;%B of .. éjiée Ac; 1?' ize :g:sesi:'ie:2. i'f2,ez*; is: is ii. an eiigibie V§2:.asi.::ess :.m.e:ier ii";.e said seei.i{3zé.? like igemz; "e£i§;i.3'}Ee imsizzessi' is {§§;ffi2'E€€§. §.i.i'E§€?" §Z.E4§}**S€{.?2".E.{}?E {2} Q5" seei.i<m 32AE%. As per ziizai ziejiriiiiiazz, 5313 %.»»»~»---
business of an assesseecompany will. be eiigibie business unless it: falis under me ~ ' business enumeraied in subclauses {a,'H§1'r'"u::i:
seciien SZAB (2). It is r1ob(;a'y'»::.
business of the assesseencorf'2par3yi$' o'r1:;'oj'Vi.hegg§.ee,,,. ' businesses which gffilll «'u_rz der .
erlumeraifed in Sub-CI(ZL'tS!§?5u$.'b(a} E1r2_d' seciiorz (:2) 0_]'seei__1on "f:'?'.l¢¥"€ no doubt. that: the Qfl ifi.'e« ..g1s§:'e33ee-comparty is an eligtbie busmeee. ':17 is shown under a' _:Cf,§f]eref1"t"V}1eV§x:i wouid. not depfi'vé"v ,»/;:p1:1}§a?'t::;j eff' _i4_tts}.k)'e}ie;g"i1" under section the investment in :.'iI'eVV'desessee Company is 7i.r1 the cdu:9:§'e.%4(3ji,i(}S*e.ef%eiiQ1bIe busirzess". Therefore, izi oweeopi:1--i.ofi,.:ih.e"Eiiiiieierid. income earned by the . A, asseéeee~Co.27zpisIz;f!fro7n. its £.r1.ues:'menz; in the UT! E'SA§;1CLgilC"§. 'izzeéuded in cempuzling the prqfiiis Q)"
_eiigif3Vi'e-- business wider seciien 3:1?-'ii? Qf the 5163:; "' Apex Ceuré. in the case of BGEVEEEEE' S'E'.E=z%f£VE AA E's§;5;':i;€3;;s"§'§'1fSI*€ CG§§'EPE'*._i'€Y5 €QEEfEE'~s'Z§SrS:ZGL. Q?' §E\§C$MEZw'E2%§{ ";"s?:g:;§é:"é;e{§ in {l§%€s§E éé 3.35%' 53%"? {SEE} §§§s3§.i.2":;_>;u§5hes;j 's:.E.:e, 34 features between. Cap§'.i:a3 €.5{.§}E3¥}Clil',L11'f3 and I'€V€ITE_£€ .«:é:s;}§%:--r1if§iVEur€:
and held as u1f1c§<:r:--
"Whether a pari:icul_g1r.. .__exp<:?idiVt1::Egf. revenue expendiiure IZr1CI,trré:§:l V l .' business must be deLetmin£2cl'<)rl"::z consbic£efc2£fofi':.' l' Of all the facts and Cir<;lirJ7.S£a,I1}i-(>5, 33$',/;:3?:§« application. qf' principles :VlG_f_:CrC3}"l'1I'I'L(3.I;Ci(1l_'llfadilflg. Tlw question F71Li.él."~b(:' u_iélL;é}t"E llrliie.largefl't:<§Alz£ext qf business necééshfigl' ::ex;§ell'ic{riCy. if the outgoing or e.x:pe'ridil:i;ré" to the carryirfgl t)r.a:é'Qr1£i.L££:l1 VLI/!)'E./V£V.S£k¥'1eSS$ that it rnag} part, of the prqfiiw ln0{;..;.fc;r acquisition Qf an
-plermaneni characiezt the j'9:OSS'€SSl:L7{llQ:féflll{Cli'l?3"(l condition. q;''' the Carrying _ on 'Lt;-,5' 'z';hVeV the ex_pendimre may be regardécti V-:15 Hrebfenue experidiézzre.
2'-'apex C{}'£'£'f'§.' in {he Case 0:" CGEVIMESSEONER OP' ._:?<i:;%Q*:\:i§'é:*_~v..%f§3;§<'"Rs. Lé';KSE--£ME 1*»r§,£«2,.€zlli:N§;'( 'sfv'OE{§iS :°€§3:}z:"{,£=:d 31:';
g?;€:«é3?;~..';2:§aCz""£T§:: 551335; 25:25 as 1md€r:--
"'£;".)..'.$vw"I'V $.24?"
\ "If, is irvlportani, to IEGIB that tax under {he .' upon inc:0me, prqfits and gains. I1". is not a. =c$_%';- ' grass receimzs. Under seeciiorz 2{24) Qj'_€I1§";s?:{:zj word "income" includes pfQf'¢if§'(1F?'d 1_:;a.irfz..s;,AT'~» charge is not on gross recefpfs bmi {in ;E2:.'{3j"iIS' a;id'"'----. gains. The charge is :1<:.ii:§3r1 gr:i:;s"r~2cei;:£'sM' $131.41: on prqfits and gains progé>'<ef1g;. S(}-CCJ.i_€{'i.1 Gross receipts or saie. pro::je::{iS.'--. 'I:<:3Lvevé'r.*~._in:?iiz.de prqjflis. AccordVing:"i.{)A Z'%1.ej_ /cia:_.> ' Practice of Income Tax: by Kangc; fI3aiicii1;a:{2!a;;~ me word.
"prQfi£'s'f in ':3_eci'i:3n sli;<§uII§.£'}je> Vundersigood in nornf_1aI_prc:p¢r_ 5-Lfrlse, if However, su.I:3,fec:2': to special 'i:jT§::}L1if(§??1£3fif.E§_' inc:ome~i.ax, pzrqffiis ZéaDé' to f}foL>ided they are red j9_:'qfi:ts.' _S:.:L <'3.?j __?1ci.ve go: :0 be assessed pro~z2idc>.d they" prgfirs, Such prqfiis have
-.90: :0? I:;e'aScef'f'czi.}ic3d on ordinary principies of _{_:.();:?";;t32e2':;'-z'c;1;'.'§.":--r::'z;d::2g Qiid 0:cc0asn:z':2g, ZA§0z,ve::(2:*, éhlff' f?T;L§;{5vf?:Z£3--fG.X Ac: 310:5 Said dam}. <:*er:'ain miss :0 1 "Z:»é'*« Er: c€e:::z'di.:2g 3101;: zfze fast: :2~;?:0:.z.£££ be g:;.:;sé.as;:>%3{i amé even gj' {fie :"es;:.z.E:' is :0 mx as: pn:;;'%:.s .. :§2§':a{ <:ra.m'2@::' be <:<ms£:*:;:e>d as ;j§f{§f§§.§$ 52:5: Iihe :'é;?{g::£§*e>22::>:z::; 9;" 351:'? §?"£{?€}F"§E§-3--E.{$}C _.»*"-"am. mags; 2%:
{?{}f?'E§)§.§if§§ ii/"i§'§'E, i%'='§":.e:"g> :2: €f€{§.§.i{?i'§.0fZ is; wg>s:t°a>::;§{:z"§g in arzéer 325:: a$e:rer:a.z'n. aim) prqffzs and gains. E>'£.i:'Z'?'E 3 6 deciuctions should be ailowed. Prqfits shouiri Cornputed qfzer deducting {I163 experzses ' for business though such expenses r}r.1V:j;y".;jg.0I':VA_i£}£3.4 admissibie expressiy under frié AC1, L'.'iT1l€_?:'S%'"$"'a':§'§JC?'l'~.A'~ expenses are e.=cpressig.; d.IsalZc>u.>e;'d[ by the " V' 2?. The Apex Court C?$_S.€ x1}\¥;DIj*é. C;A?EZ1\.r'E vs. COMMESSIONER OF' INCOME mx. iviA:T_3'I%2AsV} reported in {TR (50) 1966 page "i-3'»2if1'~Qutg0ing by means of which 3. Company pr0(:u§"£::si uééév é>'i*V. Va; "thing by which 1%;
makes a }31*o"fit ;%1i1gi {cl4 Siff'I;i1§iI"-~0L1iZgOi}'1g it shouid be ded11§::iedT'fmri§. ihé§:'fVii=:r%_é:'ip.'f)'s to giééértain the taxabie profits and gains 'wh§;Qh'ihé CQn1»pei12_y' tfiazrns whether there is an €X}_Z}1'f3SS prohibiiibn,"a;1"'QaiAg0»i2:}.g;. by §I"}.€-38J3.$ Gf wh.i.ch. the assessee ;:>rc::;:'u'::€S the'-»;£S€e s}f thing by which 2'1; rziakes 2: §):¥'{)f§E is &tag:2i;b§%3L'.f:*'e-{:1 éhéV":*ééeipi's of the business :0 a${::'::'tain the V .'ia:s;::ab£x:%' flé.:j:.:;::i§:*1":e« En §.:~r§2'3§%i§:si€:. apart frémtz 31:33' :'sf;:a;i:ué0rjy"
'~p%@7=V,»["'i3i3c»'1:3;<'::~véé; Ema :23 di§§§.im:¥L'éGn Eéetwsezi {Eve i:2%:én':S':. in :*<~:s«§}€<:t €§§""-éhii: E{;é1.::+'§-:.::.:§ 22:: s:x§3sz§d.§i.:,::'€ %2":<:'%L:::°z":::§§ ii? a":':3z.:3;éz"; iiléé Egzm. 'W-
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28. Saction 40, £L0~A§ 438 and 58 an:
:3 the Income Tax Act which expresséy iiianas which are moi deductible 'J01? ,part§--2i1I'y"lféé» comptfiixxg ihe inceme for being Therefore ali other lawful <:vI.i t'«--§;§Qin§§S-..x$}?1;,ich earning profits, the income dviézductibie as expenditure. bath S_Ae:§?iis:;--:*.A 3"??_';1L§""*»Vf:11 as ur1der 28 and
56. The ir1':.eresi.__paiC§ monsy for issue of inéerest on bridge loan and til'? rufiééTii\:éti':'%';efi1V"iiirunning the office are not of.';t;?1V'ose p'r0v1'si0nS. Therefore 2131 those than {>323}? ihe i1'lCO'IZ1t'Ei' on which £136 3'SS€S;S'€<é VhE".":'3'V FL£5"'E3;€i§e*"'»%VZad.x is is be arfiveci at: when {he a$s.§§:s?$eE:* haS V':*€:a:.€:§7${je'§_r::0r1e3: as debenture ioans, the assessee V' §:n%';e:"eS'¥; or: the 32116 103113 T313365}. Sir:1iEar§y Qaihéfz V":§€;e::}:_é;;~n.$ are iaimzgz 8.E'2§ inwséed if} 21%./:29, %z:sz;§":<3ss the .é::~§§§és;§¢§:.'ivéégéééible is peg? imereesz; 0:": {he semi Easing. E1: is; fmm {he $2§§£'§ §2:;g«m.5-5; he is <::;2:*rj;'%§2§§ cm {fie bUS§.§.E"§.§_?$E§ zzszzgi z:::;é.;'11£1";g;§ E pmféis and therefore 1;.her<~: is 2; d'i.r<:ct£. zzfixus beéxveezgV.ti1§: ;:;jrr:}f'i'£ earned and the experlditure iI'1C1LIZ"I'€d in t.hiS r£3§,>;a:_jd';" « .. 'T ~
29. When a share holder subs€:ribcS"-._*g.0v1:126' 9ha§re7 capiiai 01° when they advamce naarieéy' Edi" p_u1:ch.as<-3'"d.cb€t:*1€iu'rCs.
if the 8.8888886 has multipie bL:si:_1és_s"ac'£iviti€3 :13 ILt is7r:1€:'a1j frem the rnemo'rar1d'um of ass0'£:ié'Lib0;2, {rm m.z.3ri'_<:yV"$e:S"éidvanceCE by the share:-. holders mrad who waiitia ~30 purchase debenigures is for the'$bL1si1<1§.éE3s<:s_'$03 be carried by the assessee/ co111p21{Iiy"~.,_ s.=sa.id_ AE1:F, '1'1QE.£1'i'{,"¢i$ not advanced in respeéfi; of__a:1y pi¢::<f::i%:u}ar,business. if the business ta be set up is 011137 dnté. as in ih(f?V'J§'.Qfli7.C"S'3:jd case, then tiii such business is Comgmerleed, i'§3.Q 0i;;"1i€ is": zmrarneég a:1y intgereist earneé by way of suéh c?;'{4§3r3Si'i$ is ta be treated as an incarne zzhargeable undex' S::j<t'{.*§{>m .'§':...6 'V ACL Sui. GE1{3€ the bzgsézzess =::c;r.:1r;.':.e§;.<*,e$ men iii, g-}§°E1C"'E}§{f'9,_H::§.:~ £21%»;€s ":.E"1«'3 s::hara.c'é€r mi' £f}i;.e izmésiizeéssa 1m"/s:::m::*.. (.3 .2' "aij{., 3&3 <.%§5%.§z2<:§.§(;§2 {EEEH E36: séégziiaf E§€:2*s,2,»-*&s=:::": éhe zzzaézz buésémesg 21:15 éghf: €:X2:s*:.ing 'm1..si:1§rs:»;g When 1i:§:;e Sharehséders iib/'/W. .
3'4} and the debemure holders advanced m<:me3: tea ihe Cempany they advanced money by loemng into the bLiSifi6{-3..§'._tO be Carried on by the assessee are set out in the mez1f1ergir'1£i';.1:iéu0i' association. The money which they have 21d*v';2éI1ce<ieV.zzi3dV eueéeeii' for Sheri; business, eamrzei, be :'1'ea?;eifiM21s .r:3c;».'ney s§O'ie_1},2fi g'E¢=en"'for T. the purpose of setting up of steel Revenue and as heid by Oficze tee' assesses: eomtmeneed game of \2ef1ie'11. mentioned in the I116-fif1OFE1I'"IdUI11 and if it is earning amy Llnder the head of pro.fi{:§ a-ndT';.r;;:-mas; b.;£'si_:1ess-- or proiession. and the interest. inc0r:1eA"wE:ieh' .15'..§ieriVe_{i"vii"0rz1 the depesits made by the arssessee iii :12-u:7.as Ezniitfiiseci funds are eeneemefi is aéso to beve..t§e;1-i.ea'v~-- EES anVVi':§'e'en2e frem busiziessze and me: {rem eiher 'i2e;_::£:'ees..§2je»v eerrterzéecé 'e3; {he Revenue, 3': ---- the i§'iS{::EIEE§E eaee. i:§':s:>. eempangg was e::>mm.e:1<:e;:§ 2:; {'3§"%}:V{§::*£, e;e::;e'§'a_§ bueieeeseee '"E"%1eref:>z:°e: s;§'::;«:3'e azzzezzgéi 'am: éebenizzree amemzi degeeited :5,-viéh ihe Cer:;pa;:ay is fez' 45} earryi.r1g on 311 the business memiened in {he Meme1"2u:d'L'1m of Assoeiafien. It is nest in eiispxlte that wiéihin 3 rr10nthf'i'rQm the certifiieate of Commencement of the business Companies Act, the assessee commenced ef lending money, bill discounting f activities' AdzI1.it'€ed1;,>', it 3359 mam.z'fae'cu1'e of steel did I1otVe13._f:»1.5:31e'ne.e year. Once the company eeme:':'£c#fiee'&"-»i:.s be£Sines.:;,§ the income derived by the czonxpaefii is to be treateé as the ine0n1.e'_1'fm_1_n event of the said income nei " ;f2'v;_1Ei;1g1>x-ai§_u}.1i~;t.1V the profits and gains business or prei'es5';Qr1'; it ee.;x'ELi.jff'a.11";s;if;'hi':%: the heading ef éneeme from ether sou:e.es.
'i"E{e'1"e'€Gre; {he e<3;1£ent;3'.en ef the revezgue that as ' _*{%;eV m;;i:~":. '»';§:Ve:';;~«:£__§_1es¥§ :3? the aseeeeee net'. ye: e<m':mem::e<':E the {rem {he ;m<7iEi23..:*j_a bueéness em: be iaészen inze {tag}$.§£§'e*%°2i%.§;:}§: <}'2":§'jJ éififi? 'Lhe zzmézr: bE§E:9i€§E{':§§i$ is: {:<}'::e_me:";:.ee{§ amii " §§:e.:e§;e§°e ihe eaid dedueiiene pe:"':1":§§.1;ed by the 'E"'r§§§u:t:3.Z in 14%/X, respect sf {she a,r1c:1'.]1az'y business is withsul: any In Iaw there is no prshibiiion {er 3. Company' business first and "then stari the ::_1a;i..11__bus_iriééss~;:".';§sf%:C§:.«;n»s. 1 facts sf this Case, {he main assesses is a stéeei industry {hs asrIf;'s.I~V,:§:e.'1.A;fSs take coupie of years for set .1i;3: s§.ndvVvf? productisn commenced so as is amtiiiary business which are carried on '(fay the Company is being set they lravs done.
within 21 issuing of Certificate of COI"{1I1Z,£'[c"v3I1C'v€%1TAiA§':'I:'L"LV _'fi1ey are into the business of Ieadi'n§'1tgs:§e§s and they have earned plrsfits is ihssaixé said business is aiss one of the b*t{:;;1fi1s.ss Esq be "eV:é'é;i:':*'§'é:V{i on by 11:16 Compangs is which it was '§;;:s§s'5;}{j:g1€;«.:iiAVi;s§Eawz 33,~".'f---- §vE7:{'.iL$ {he 5E'r§bs:z:':s.§ has sat eziiswsfi 31:32 aisésécégészz as '%:§;>z?;1f3é?{?§ b§ aha: is f€i*$§§é;"{'i"é sé' sxpzztzzsss sf §€2,s..E§ "C*:'s;_:*sss.s ii. is has 'as be is $1518 izsmre of capitai sxpsnziétfigs. §'%";E=///":'w They also have 1101 aiiowed deduction in res§3iaC"1" -._ C-f "{§ffie€ expendiiure at Tlaarangai x.-'i1.1age where steel <i':{}_E§3_§2 up and 3130 the expenses if}C'L1I'I'€?d 313 ' Qfi"ir:<é" -at Bangalore. The reason being Ehélf bi:'sim3s«s (sf .1§:*1:C§éng'Vm0§1eyf ciiacountiing of biiis 3:10., are Corporate 011306 at B0r:x1baj% .'"'---._Thef€:*§(%re, _ xxr'i1;4.?1 reference to the said office hasVL ":3§§enVV givhia' £0, whiie cornputing the inc0r11ejt§£'A' s}§{idAVvar;1ou;1t. aiso i:1<:1udes the inéerest peiiwdgio'11<i£3;Vpe;;SoVi:$bwho have advanced money for debenture. V 'V
-- ?h:'Ef€f6f€."§§f§n'E}T;€:' iéécts Gf this C€£S€, we are satisfieé thai. i;.h'e«_fi-ndiz1'g§ 1?'e C.o,r¢i'@_;:1" by ':.he Trtibunal, is on a proper ap§;re'c§L;1i§0:1 (3%: r;1.aé':.<e;".i22E an rscordg keeping in Izimfi ihe Eaw V' .Q:i"'ihé' :;;3§%:?'¢_ and :55 jugi 83¢? prepay? azlci @0215; 'r10i. @2111 {Gr an}:
i1'3ji.e'rA:éz'éV:1{7:% VAV."-.5?§'Ci€(}F§.iE1§:§}.§;' {E16 s;':.2%}:=sta:1iE211 §Ei€3S'iI§.{}£1S of .'ie=.u»-* are a;:;swe_:*£:€i.:é<i §a'a:a:;s.:r ef ihéf 2183885266 am? agaizwti. f;.E:a€ 1'°{3'if€§'Ei,£€:?.
3.
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