Income Tax Appellate Tribunal - Mumbai
Alchemic Financial Services Ltd. vs Joint Commissioner Of Income Tax on 17 March, 2006
Equivalent citations: (2007)109TTJ(MUM)251
ORDER
K.C. Singhal, J.M.
1. By this miscellaneous application, the assessee seeks rectification in the impugned order of the Tribunal dt. 10th May, 2005 (ITA Nos. 1520 to 1522/Mum/2002). The learned Counsel for the assessee Mr. Rajan R. Vora, has pointed out two mistakes namely-(i) no finding has been given as to whether business of hire purchase and bill discounting can be said to be business of granting loans and advances within the scope of Section 73, Expln. (ii) in para 14, a mistake has been committed in calculating the percentage of funds employed in the business of granting loans and advances. He drew our attention to para 14, where it has been mentioned that for asst. yr. 1998-99, the capital employed in the activity of granting of loans was Rs. 1.76 crores as against total funds available amounting to Rs. 3.26 crores but while calculating the percentage it has been stated that deployment of funds in the business of loans was less than 50 per cent though it was more than 50 per cent. Similar is the situation in respect of asst. yr. 1999-2000. According to him, the conclusion of the Tribunal in this regard is based on incorrect facts. Accordingly, the order requires rectification. On the other hand, the learned Departmental Representative has supported the order of the Tribunal.
2. As far as the first mistake as pointed out by the learned Counsel for the assessee, we do not find merit in the same. The Tribunal has decided that the only activity of granting loans and advances is to be taken into consideration which impliedly excludes the other financing activities. In para 13 of the order, the Tribunal has specifically held that bill discounting could not be considered as part of activity of granting loans and advances. As far as activity of hire purchase is concerned, the Hon'ble Supreme Court in the case of Chiranjit Singh Chadha and Ors. v. Sudhir Mehra (2001) 7 SCC 417, has held that under the hire purchase agreement, the goods are let on hire and hirer has an option to purchase in accordance with the terms of agreement. It has also been held that finance charges representing the difference between the cash price and hire purchase price does not amount to interest. In view of the same, it cannot be said that activity of hire purchase amounts to granting of loans and advances. Accordingly, there is no mistake in the order of the Tribunal as far as the first submission of the assessee is concerned.
3. However, we find merit in the second submission made by him. We have gone through para 14 of the impugned order of the Tribunal and find that there is a calculation mistake in arriving at the percentage of the funds employed in the activity of granting loans and advances. In fact, the percentage is more than 50 per cent and therefore, the Tribunal has committed mistake apparent from record in mentioning that capital employed in granting of loans was less than 50 per cent. Accordingly, the order of the Tribunal in para 14 is modified. Consequently, the conclusion based on such facts is also vacated. As a result thereof, paras 14 to 17 are substituted as under:
14. Coming to the aspect of employment of capital, we find that in the asst. yr. 1997-98, the loans and advances as per Schedule VI amounted to Rs. 1.14 crores approximately while the total capital including borrowed funds and reserves amounted to Rs. 3.44 crores approximately. This also shows that employment of capital in the activity of granting loans and advances was much less than the capital employed in other fields. The learned Counsel for the assessee in his written submissions has taken the figure of Rs. 2.62 crores approximately as net capital employed in the finance division, which in our opinion, is not attributed towards loans and advances only. Schedule VI shows that Rs. 1.47 crores approximately was employed in various other current assets and the same cannot be considered as part of the capital employed towards loans and advances. Similarly, the capital employed in the activity of granting of loans in asst. yr. 1998-99 was Rs. 1.76 crores approximately as per Sch. VI of the balance sheet as against the total funds available amounting to Rs. 3.26 crores approximately. In respect of asst. yr. 1999-2000, we find that the loans and advances as per Schedule VI of the balance sheet is Rs. 2.14 crores approximately as against total availability of funds of Rs. 4.26 crores approximately. The above figures clearly show that the capital employed by the assessee in the business of granting loans and advances in last two years were more than 50 per cent. In all the orders, the learned CIT(A) had adopted the figures relating to other activities, which are not in the nature of granting loans and advances. Thus the findings of the learned CIT(A) were vitiated to that extent.
15. In view of the above factual aspect, the question is whether it can be said that whether principal business of the assessee is of granting loans and advances. The counsel for the assessee relied on the judgment of Special Bench in the case of Concoed Commercial (P) Ltd. (2005) 94 TTJ (Mumbai)(SB) 913 for the proposition that if the principal business carried on by the assessee is that of banking or granting of loans and advances, then provisions of the Explanation to Section 73 of the Act cannot be applied. There cannot be any dispute to this legal position. However, the facts of the case have to be examined to ascertain whether the principal business of the assessee is that of banking or granting of loans and advances. Admittedly, in the present case, the assessee was not carrying on any banking activity. Therefore, the entire burden is on the assessee to prove that the principal business of the assessee was that of granting loans and advances.
16. At this stage, reference may also be made to another Special Bench decision in the case of Dy. CIT v. Venkateshwar Investment & Finance (P) Ltd. (2005) 92 TTJ (Kol) (SB) 1129 : (2005) 93 ITD 177 (Kol) (SB), wherein it was held that overall situation should be taken into consideration including objects mentioned in the memorandum of association, the capital employed and the income derived from the activity of granting loans and advances. In that case, it was found on facts that entire funds available with the assessee were employed in the business of granting loans and advances and the major income related to such business.
17. Considering the facts and the legal position mentioned above, we feel that sufficient material is not available before us for coming to the conclusion that principal business of the assessee was that of granting loans and advances. The past history is not placed before us. The assessee has also tried to give figures of capital employed relating to asst. yrs. 1999-2000 and 2000-01 but the statement of accounts are not on record. Accordingly, we are of the view that interest of justice would be met if this aspect of the matter is examined afresh by the AO in the light of the decision of the Special Bench in the case of Venkateshwar Investment & Finance (P) Ltd. (supra). The order of the learned CIT(A) is, therefore, set aside and the matter is remitted to the file of AO for fresh adjudication of the issue whether the principal business of the assessee was that of granting loans and advances in terms of provisions of Explanation to Section 73 of the Act. The assessee shall be given reasonable opportunity for furnishing the necessary material or evidence in this regard.
4. In the result, the miscellaneous application is partly allowed.