Income Tax Appellate Tribunal - Hyderabad
Vijaya Family Trust vs Assistant Commissioner Of Income Tax. ... on 25 August, 1993
Equivalent citations: (1994)48TTJ(HYD)1
ORDER
T. V. RAJAGOPALA RAO, J. M. :
Though the assessees are different, the point involved in all these appeals are one and the same, namely, whether from the facts and circumstances of the case, each of these assessees can be said to be carrying on money lending business or deriving only interest from the deposits made by them.
2. The assessee, in each of these appeals, is a trust and they were all sister trusts constituted in the same lines. First let us state the facts concerning each of these trusts. For asst. yr. 1986-87 the previous year ended on 31st March, 1986. In the IT return filed by each of the three trusts for asst. yr. 1986-87 it is stated that each of them was carrying on money lending business. Vijaya Family Trust, Uday Trust and Sitaratnam Family Trust, all of Kakinada filed their returns for asst. yr. 1986-87 on 29th Aug., 1986 declaring total income of Rs. 18,417, Rs. 40,220 and Rs. 40,710 respectively. The whole of the total income was stated to have been derived from money lending business by each of these assessees. Each of these assessees was represented by a common representative Shri Ravi Sharma, Chartered Accountant of M/s. Sarma & Co. before the ITO. The total incomes were accepted. However, tax was levied at maximum marginal rate by the ITO by applying the provisions of S. 161(A) of the IT Act in the case of each of these assessees. These assessments were completed in the case of each of these assessees under S. 143(3) of the IT Act by separate assessment orders dt. 26th Nov., 1988.
3. Aggrieved against the tax being levied at maximum marginal rate each of these assessees went up in appeal before the CIT(A), Visakhapatnam. Before the CIT(A), the assessees relied upon certain favourable orders passed by this Tribunal for earlier years and he contended that their income are not liable to be taxed at maximum marginal rate but only at ordinary rates. In fact the assessee relied upon the decision in Sitaratnam Family Trust vs. ITO (1987) 22 ITD 117 (Hyd) before the CIT(A) and it is contended that following the said decision it should be held that tax should be levied only at ordinary rates. Thus CIT(A) held that the earlier decision of the Tribunal in (1987) 22 ITD 117 (Hyd) (supra) dealt with a different matter relating to application of S. 164(1) and S. 164A. That decision relates to asst. yr. 1981-82. The point involved in that decision was whether cash gift made in favour of the assessee trusts in that decision can constitute oral trusts, whether the beneficiaries of the trusts were determinate and their shares known and if the beneficiaries are either unknown or their beneficial interest cannot be ascertained with any certainty then under S. 164(1), the income of the assessee trust should be assessed at maximum marginal rate. The Tribunal in that case held that each of the cash gifts received by the sister trusts involved in those cases cannot be said to have received the amounts in pursuance of an oral trust/trusts within the meaning of S. 160(1) Expln. 2. The Tribunal held in that case that because declarations were filed by each of the donors who gave cash gifts before the GTO, those declarations amount to written gifts and as such none of the donors can be said to have given amounts to the recipient trusts under oral gifts. It was further held by the Tribunal that beneficiaries under each of the trusts involved in that case were known and their names clearly ascertainable and the beneficial interest each of them held was also ascertainable and as such S. 164(1), does not come into play and, therefore, the maximum marginal rate cannot be applied under that provision. However, the point involved in these appeals before the CIT(A) for asst. yr. 1986-87 is quite different. The question involved in all these appeals is whether the maximum marginal rate can be applied by virtue of S. 161(1A), i.e., whether each of these trusts was carrying on money lending business and earned income during the course of that business and if so whether maximum marginal rate should not be applied under S. 161(1A) which was introduced into the Statute Book on and from 1st April, 1985. In fact, the point involved in these appeals was never considered by the earlier decision of the Tribunal now reported in Sitaratnam Family Trust vs. ITO (supra), and, therefore, the plea of the assessee that following (1987) 22 ITD 117 (Hyd) (supra), ordinary rates should be applied to the incomes returned was not accepted and their plea was rejected in that regard. For the first time, the learned CIT(A) pointed out that a plea was raised before him by the learned counsel for the assessee that the assessee did not carry on any money lending business and since no business was carried on, the income earned does not fall under the head income from other sources and if no business was carried on by a trust, the application of maximum marginal rate should be set aside and the application of ordinary rates of tax to the returned income should be ordered in the case of each of these assessees. The learned CIT(A) dismissed this contention also holding that it was never raised in the course of assessment proceedings nor could the claim be supported by any relevant material on record, inasmuch as, the return together with computation of total income furnished by the assessee clearly declared the source as income from own business (money lending) barring an amount of Rs. 6,014 in the case of Vijaya Family Trust from bank interest and dividends which was exempt under S. 80L, having been shown under the head other sources. The learned CIT(A) applied the principles of the Supreme Courts judgment in Addl. CIT vs. Gurjargravures P. Ltd. (1978) 111 ITR 1 (SC), and held that it is not open to the assessee to put forth for the first time new contention that its income was not derived from any business activity in the absence of any ground filed before him and also in the absence of permission sought for raising such additional ground. No material facts and circumstances were placed before him that the failure to raise such ground was not wilful or unreasonable. Therefore, that contention was rejected in limine and the appeals were dismissed by similar orders all dt. 27th June, 1989, passed in the case of each of these assessees. Aggrieved against the similar orders passed by the CIT(A) in the case of each of these assessees, the assessees came up in second appeals before this Tribunal and thus the matter stands for consideration of this Tribunal.
4. After hearing both sides, this Tribunal is of the view that rejection of the additional ground raised on behalf of the assessee before the learned CIT(A) following Gurjargravures case (supra) can no longer be justified in view of the later decision of the Supreme Court in Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66. In para 6 of the judgment their Lordships had distinguished Gurjargravures case and held without overruling the same that it should be taken to be an authority on the particular facts and circumstances of the case only. The reasoning of the Supreme Court for distinguishing (1978) 111 ITR 1 (SC) (supra) is as follows :
"In Gurjargravures (P) Ltd.s case (supra) this Court has taken a different view, holding that in the absence of any claim made by the assessee before the ITO regarding relief, he is not entitled to raise the question of exemption under S. 84 of the Act before the AAC hearing appeal against the order of the ITO. In that case the assessee had made no claim before the ITO for exemption under S. 84, no such claim was made in the return nor any material was placed on record supporting such a claim before the ITO at the time of assessment. The assessee for the first made the claim for exemption under S. 84 before the AAC who rejected the claim but on further appeal the Tribunal held that since the entire assessment was open before the AAC there was no reason for his not entertaining the claim, or directing the ITO to allow appropriate relief. On a reference the High Court upheld the view taken by the Tribunal. On appeal this Court set aside the order of the High Court as it was of the view that the AAC had no power to interfere with the order of assessment made by the ITO on a new ground not raised before the ITO, and, therefore, the Tribunal committed error in directing the AAC to allow the claim of the assessee under S. 84. Apparently this view taken by the three Judge Bench of the Court in CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC). It appears from the report or of the decision in Gujarat High Court case the three Judge Bench decision in Kanpur Coal Syndicates (supra) was not brought to the notice of the Bench Gurjargravures (P) Ltd.s case (supra) In the circumstances the view of the larger Bench in Kanpur Coal Syndicates case (supra) hold the field. However, we do not consider it necessary to overrule the view taken in Gurjargravures (P) Ltd.s case (supra) as in our opinion that decision is founded on the special facts of the case, as would appear from the following observations made by the Court :
.... As we have pointed out earlier, the statement of case drawn up by the Tribunal does not mention that there was any material on record to sustain the claim for exemption which was made for the first time before the AAC. We are not here called upon to consider a case where the assessee failed to make a claim though there was no evidence on record to support it, or a case where a claim was made but no evidence or insufficient evidence was adduced in support. In the present case neither any claim was made before the ITO nor was there any material on record supporting such a claim.
The above observations do not rule out a case for raising an additional ground before the AAC if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made or that the ground became available on account of change of circumstances or law. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the AAC is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the AAC should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the AAC depends upon the facts and circumstances of each case and no rigid principles of any hard and fast rule can be laid down for this purpose."
However, this Tribunal holds that the ground on which the additional ground raised by the assessee at the time of arguments before the learned CIT(A) was rejected was not correct under law and can no longer be supported under law.
5. However, assuming that the additional ground can be raised by each of these assessees before the learned CIT(A), let us see whether the main plea involved in the additional ground that each of these assessees in fact was not carrying on any money lending business but were depositing monies and getting interest amounts thereon can be supported by the evidence on record. Firstly, it may be mentioned that the returns were filed specifically stating that the incomes were derived by carrying on money lending business. Secondly, it was never the contention of the assessee trusts in the assessment proceedings that they did not carry on any money lending business but were deriving only interest income under the head other sources. Thirdly, they did not mention in any of the grounds raised before the CIT(A) that in fact they were not carrying on any money lending business but were deriving interest amount only on deposits made by them. Fourthly, they did not file any additional ground before the CIT(A). For asst., yr. 1986-87 Vijaya Family Trust derived gross interest income of Rs. 19,423.90 which is shown under the head business income in its computation of total income filed for asst. yr. 1986-87. The said trust filed its trial balance as on 31st March, which disclosed, inter alia, the following amounts as interest receipts :
13.9.1985 Sri Bhavani Castings Pronote interest 965.65 1.1.1986 Sri Bhavani Castings Pronote interest 7,086.54 31.3.1986 K.V.R. Chowdary (Smaller HUF) 9,371.00 31.3.1986 Smt. K. Udayasree 1,666.00 For asst. yr. 1985-86, for which the previous year ended by 31st March, 1985, Vijaya Family Trust is said to have derived total interest income of Rs. 18,718.28, the particulars of which are as follows :(1)
Shri Bhavani Castings 8,484.88 (2) K.V.R. Chowdary (Smaller HUF) 8,366.40 (3) Smt. K. Udayasree 1,487.00 (4) Kum. Kantipudi Jaya 380.00 18,718.28 The whole of the interest income was said to have been derived from money lending business in its computation of total income filed for asst. yr. 1985-86.
6. Coming to Uday Trust, in its computation of total income filed for asst. yr. 1986-87, the following were stated to be interest receipts from money lending business :
(1)Sri Bhavani Castings 1,131.28 (2) Sri Bhavani Castings 26,618.22 (3) Smt. K. Seetharatnam 16,267.00 44,016.50 Giving the particulars of the interest account in the trial balance as on 31st March, 1996, the nature of the interest receipt was stated to be as follows :
13.9.1985 Shri Bhavani Castings 1,131.28 11.3.1986 Pronote by interest from Sri Bhavani Castings 26,618.22 31.3.1986 Smt. K. Seetaratnam 16,267.00 For asst. yr. 1985-86, Uday Trust is stated to have received Rs. 38,905.48 an interest income as per the computation of total income filed before the ITO the particulars of which are as follows :(1)
Smt. K. Seetaratnam 14,524.00 (2) Sri Bhavani Castings 24,381.48 38,905.48
7. Now coming to Seetaratnam Family Trust, for asst. yr. 1985-86, for which the previous year ended by 31st March, 1985, interest income received was bifurcated under the head other sources and under the head money lending business separately in the computation of income filed before the ITO. The interest income received from business is stated to be Rs. 39,099 the particulars of which are as follows :
(1) Sri Padmalaya Finance Corpn.
11,677.50 (2) Sri Padmalaya Finance Corpn.
326.80 (3) Sri Padmalaya Finance Corpn.
11,677.50 (4) Sri Padmalaya Finance Corpn.
2,451.00 (5) K. Saradhi 12,966.20 39,099.00 Under the head income from other sources, interest derived from bank on deposits of Rs. 317.80 was separately shown under the same computation of income. For asst. yr. 1986-87, the same bifurcation of interest income under the money lending business and interest income derived from bank on deposits was maintained in the computation of total income filed by this trust. The interest income derived in the money lending business was stated to be Rs. 42,349.20 the particulars of which are as follows :
(1) Sri Bhavani Castings 50.42 (2) Sri Padmalaya Finance Corpn.
11,987.45 (3) Sri Bhavani Castings 1,387.50 (4) K. Saradhi (HUF) 14,400.00 (5) Sri Sarasa Movies 13,708.00 (6) Sri Bhavani Castings 815.83 42,349.20 The interest income derived from the bank deposits was shown at Rs. 27.05. As already stated it is shown under the head other sources in the computation of total income filed for asst. yr. 1986-87.
8. Now let us consider what is meant by business. The definition of it is given under S. 2(13) of the IT Act. The definition is as follows :
"business" includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture."
As per the law discussed at page 2140 of Chaturvedi & Pithisarias Income-tax Law, 4th Edn. the learned authors contemplated that interest income may constitute business income and in certain circumstances it may also fall under the residuary head "Income from other Sources". Discussing under what circumstances interest fall under these two heads, the learned authors stated as follows :
"Interest income may constitute "business income", if the investment yielding interest was done in the course, and as part, of the business. If not so, it will fall under the residuary head "Income from other Sources".
Business has been defined under S. 2(13) as including "any trade, commerce, manufacture or any adventure or concern in the nature of trade, commerce or manufacture. This definition is inclusive and not exhaustive, and the words used in the definition are wide. But it is only some real, substantial and systematic or organised activity or conduct with a set purpose that constitutes business income. In support of this statement of laws the learned authors cited the decision of the Supreme Courts decision in Narain Swadeshi Weaving Mills vs. CEPT (1954) 26 ITR 765 (SC).
9. In the view of this Tribunal, to judge whether interest income should be treated as part of business income or should be treated as falling under residuary head income from other sources, one has to see whether the assessee had followed any systematic or organised course of business activity or conduct with a set purpose of earning interest. Firstly, each of these assessees had bifurcated interest earned into two heads, namely, interest income from money lending business and interest income which falls under the head other sources. This Tribunal has already cited from the computation of total income filed by each of these assessees for asst. yr. 1986-87 as well as for the immediately preceding asst. yr. 1985-86. Secondly, the assessee filed its IT return, returning interest income as having been derived in the course of money lending business carried by each of the assessees. Thirdly, the assessee never contended before the ITO or the grounds raised before the first appellate authority that they did not carry on any business of money lending. Under the head interest income shown in the trial balance as on 31st March, 1986, in the case of Vijaya Family Trust, it is clearly stated that it had received pronote interest from Shri Bhavani Castings and the narration was occurring at least at two places under the head interest account. If the amount of interest received for 1985-86 and 1986-87, is compared, the figures of interest change. It would be possible only if the monies lent year after year to the clients change. For instance, from Sri Bhavnani Castings, the interest received for 1985-86 was Rs. 8,484.88 whereas for asst. yr. 1986-87 the interest amount received was Rs. 965.65 and Rs. 7,086.54. So also the amount received from K. V. R. Chowdary (smaller HUF) in asst. yr. 1985-86 was only Rs. 8,366.40 whereas the interest received from the same party in the asst. yr. 1986-87 was Rs. 9,371. Thus, a comparison of the interest amount for 1985-86 and 1986-87, in the case of Vijaya Family Trust would probabilise the contention that the assessee must have carried on money lending business in a systematic manner or it might have carried it on as an organised course of activity with a set purpose of getting interest. The deeds under which these trusts were formed authorise the trustees to invest the trust funds in business, etc. Therefore, in view of such clear authorisations available to the trustees of these trusts, it is quite unlikely to think that the trust monies would merely be deposited rather than lent in money lending business. It would be clear that these assessees were obtaining pronotes in the course of money lending business. Each year, they have been deriving interest income from not less than 4 or 5 parties. The number of transactions may be varying from year to year, inasmuch as, the interest amounts realised from each of them also varied from year to year. Thus, the evidence on record would clearly show that all these three trusts have been carrying on money lending business as business and was earning interest in the course of that business and each of these assessees had taken up money lending business as an organised course of activity and carried on the business systematically. It cannot be said that interest was earned by merely depositing the amounts just like depositing in a bank. Further, each of these trusts has an establishment and they have been incurring expenditure for running that establishment also. Each of these trusts has got its own registered office and business premises of its own. Therefore, all these elements should exist only in a case where there is an organised business activity. No doubt it is argued that it is the true nature and quality of the receipt and not the head under which it is entered which would prove decisive and if a receipt is a trade receipt the fact that it is not shown in the account books of the assessee would not prevent the assessing authority from treating it as a trade receipt and vice-versa and in support of this proposition, the decision of the Honble Supreme Court in CIT vs. Bazpur Co-operative Sugar Factory Ltd. (1988) 172 ITR 321 at 329, is cited. No doubt, the Supreme Courts decision clearly supports this contention of the assessee. This Tribunal is bound by the decision of the Supreme Court. But unfortunately, the decision does not help the assessee at all. In view of the finding of fact recorded by this Tribunal that these assessees have been carrying on money lending business in an organised and systematic manner with a set purpose of earning interest income, this Tribunal holds that not only the assessee has been earning interest income in the course of its money lending business but it has also been showing it correctly under the head business in its accounts and, therefore, it cannot be said that the interest income was entered under wrong head of business and there are no grounds to hold that the interest income falls under the head other sources. The Delhi High Court in the case of Bharat Development (P) Ltd. vs. CIT (1982) 133 ITR 470 (Del), explained the connotation of business as follows (as per the headnote) :
"The expression "business" is a word of indefinite import. In taxing statutes, it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure. Whether a person carries on business in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit motive."
Having got the definition of business as mentioned above and applying the same to the set of facts before the Tribunal, this Tribunal has no reservation to come to a finding that these assessees carried on business as its occupation or profession. The volume of money lending business of each of these assessees is considerable. There is frequency and continuity present in their business activities and, therefore, earning interest by the assessees in their money lending transactions cannot but be considered as business income earned by these assessees. Further, in all earlier years prior to 1986-87, the assessees were being assessed to income-tax on interest income which was considered part of their business income. Therefore, this Tribunal feels that there is no justification to unsettle the decision rendered by the CIT(A), Visakhapatnam in case of each of these assessees. Therefore, these appeals fail and are dismissed.