Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income-Tax vs Srf Holdings Ltd. on 4 October, 1991
Equivalent citations: [1991]39ITD487(DELHI)
ORDER
J. Kathuria, Accountant Member
1. This appeal by the Revenue for assessment year 1983-84 is directed against the order dated 19-2-1988 passed by the Commissioner of Income-tax (Appeals)-X, New Delhi.
2. The only ground raised in this appeal, reads as under: -
On the facts and in the circumstances of the case, the learned CIT (A) has earned in directing that interest on loan amounting to Rs. 9452 and preliminary expenses amounting to Rs. 1,000 under Section 35D should be allowed.
3. The assessee is an investment company. For assessment year 1983-84 the assessee's accounting period ended on 31-10-1982. The assessee claimed interest of Rs. 9,452 and preliminary expenses amounting to Rs. 1,000 as a deduction. The Assessing Officer held that since no business was done loss claimed was ignored. He accordingly made the assessment at NIL income. Before the learned Commissioner of Income-tax (Appeals) it was contended on behalf of the assessee that the company had taken a loan of Rs. 1,50,000 from M/s. Sri Ram Fibres Ltd. on 26-6-1982 on interest @ 20 per cent per annum. On 18-10-1982 the loan was converted into share capital and the assessee company became a subsidiary of Sri Ram Fibres. The assessee company paid an amount of Rs. 9,452 on the aforesaid loan of Rs. 1,50,000 besides claiming preliminary expenses of Rs. 1,000 under Section 35D of the Act. Reliance was placed on the Gujarat High Court decision in the case of CIT v. Saurashtra Cement & Chemical Industries Ltd. [1973] 91 ITR 170. The learned Commissioner of Income-tax (Appeals) observed that in; an investment company the activity is to have the funds for further investment. According to him the assessee's business commenced on 26-6-1982 when the loan of Rs. 1,50,000 was taken. He accordingly held that interest of Rs. 9,452 and preliminary expenses of Rs. 1,000 had to be allowed as a deduction and the loss of the assessee to be determined at Rs. 10,452 which would be carried forward.
4. Shri Sandeep Tandon, the learned Departmental Representative, submitted that the facts of the case of Saurashtra Cement & Chemical Industries Ltd. (supra) were distinguishable inasmuch as in that case the mining lease had been taken whereas in the instant case only a loan had been raised. Reliance was placed on the Supreme Court decisions in CIT v. Lahore Electric Supply Co. Ltd. [1966] 60 ITR 1 and Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765. It was vehemently argued that as per the details furnished by the assessee on 26-6-1982 a loan of Rs. 1,50,000 was taken. Another loan of Rs. 2,49,800 was taken on 16-10-1982. A sum of Rs. 3,99,800 however, was paid towards share capital only on 18-10-1982. According to Shri Tandon the conversion into share capital took place only on 18-10-1982 on which date the assessee could be said to have set up its business of an investment company. It was emphasized that prior to that the amounts raised as loans were lying on interest in the bank account of the assessee.
5. Shri V.S. Rastogi, the learned counsel for the assessee, strongly relied on the case of Saurashtra Cement & Chemical Industries Ltd. (supra) and forcefully submitted that the business would commence when the activity which is first in point of time and which must necessarily precede the other activities is started. It was submitted that the assessee company was incorporated to carry on the business of an investment company and to attain this object the company had borrowed the aforesaid loan of Rs. 1,50,000. Relying on the decision of the Bombay High Court in CTT v. Ralliwolf Ltd. [1980] 121 ITR 262, it was submitted that when buying, selling etc. was one of the essential parts of the business of the assessee company, then simply because in the relevant accounting period, no manufacturing activity had started, it cannot be said that the assessee's business was not set up during the relevant accounting period. Reliance was also placed on the Gujarat High Court decision in Hotel Alankar v. CTT [1982] 133 ITR 866 for the proposition that when a business is established and is ready to commence business then it can be said of that business that it is set up. In respect of a hotel business, the business commences from the stage of acquisition of a proper and suitable building, making it more suitable and convenient for the hotel business, purchasing linen, cutlery, furniture, etc. It was also submitted that the facts of the cases relied upon by the Revenue were distinguishable inasmuch as the case of Lahore Electric Supply Co. Ltd. (supra) related to closure of business and the case of Narain Swadeshi Wvg. Mills (supra) related to lease income being taken as business income. It was also pointed out that the learned Income-tax Officer had not appreciated the controversy at all and had merely submitted that the assessee had not carried on any business. It was vehemently argued that the business had been set up when the loan of Rs. 1,50,000 was raised on 26-6-1982. He strongly supported the order of the first appellate authority.
6. We have carefully considered the rival submissions as also the facts on record. The assessee is an investment company. Its aim is to raise funds of its own or from others and to invest the same for the purpose of earning income. The short question to be decided is whether the assessee's business was set up when it raised the loan for the first time on 25-6-1982. In our opinion, the assessee had taken the first necessary step to do business as an investment company when it raised a commercial loan of Rs. 1,50,000 on 26-6-1982. It is true that the aforesaid loan was not immediately invested in shares or debentures. The aforesaid loan was kept in the assessee's own bank account for some time before it was utilised for purchasing shares. We ha eve to approach problem from the stand point of a businessman and have to take into consideration the practical actualities of life. An investment company would not be able to do its business unless it has its own capital or it has raised money from others. The assessee company, therefore, took the first necessary step when it raised a loan of Rs. 1,50,000 on 26-6-1982. This loan was not for sport or pleasure. The loan was intended to be utilised for the purposes of business of an investment company. Later on, the loan was actually utilised for the purchase of shares. The initial intention and the subsequent conduct of the assessee clearly go to show that the loan was taken for the purpose of earning income by purchasing shares etc. The shares could not have been purchased if the assessee had no money in its coffers. Any assessee would work with greater confidence and self-assurance if it had the money in its possession. A mere expectation to have money would not invest an assessee to go about with an air of self-confidence in the market of hard-boiled businessmen. There is, therefore, nothing wrong in the assessee's keeping the money in the bank account for some time, before investing it into shares. The subsequent activity could not be entered into or embarked upon unless the first activity of raising a commercial loan had been completed. In our considered opinion, when the assessee raised a loan of Rs. 1,50,000 on 26-6-1982 the first steps for setting up the business of an investment company had been surely taken by the assessee. The facts of the cases relied upon by the learned Departmental Representative are distinguishable. The cases relied upon by the learned counsel for the assessee are nearer the point. As the business of the assessee in the instant case was set up on 26-6-1982, the interest of Rs. 9,452 was allowable as a deduction. Same was the case with regard to the preliminary expenses of Rs. 1,000. We hold accordingly. The order of the learned Commissioner of Income-tax (Appeals) on this point is upheld and the Revenue's appeal is rejected.