IN THE
ITAT MUMBAI BENCH ‘G’ (THIRD MEMBER)
Sujay Trading (P.) Ltd.
v.
Joint
Commissioner of Income-tax, SR-30, Mumbai
K.P.T. Thangal, Vice
President, As a Third Member
R.P. Tolani and Sunil
Kumar Yadav, Judicial Member
S.V. Mehrotra and
D.K. Srivastava, Accountant Member
IT Appeal
No. 4348 (Mum.) of 2001
[Assessment year
1994-95]
September 7, 2007
Section 28(i) of
the Income-tax Act, 1961 - Business income- Chargeable as - Assessment year
1994-95 - Assessee-company was formed with its main
object to trade in various goods - Besides, assessee’s
ancillary objects were to lend and advance money and to invest in shares and
securities, etc. - During previous year relevant to assessment year 1994-95, assessee passed a resolution to treat said ancillary object
as its main object - Assessee invested funds in
various stocks, bonds, etc., and earned interest thereon - In its return of
income, assessee showed interest income as its income
from business - However, Assessing Officer, taking view that assessee had not commenced business as per its main object,
disallowed claim of assessee and treated interest
income as its income from other sources - Whether Assessing Officer was
justified - Held, no
Facts
The assessee-company was formed with its main object to trade in various goods and commodities. Besides, the assessee’s ancillary objects were to lend and advance money and to invest surplus funds in shares, stocks, debentures, etc. On 3-4-1993, the board of directors of the assessee resolved to treat the ancillary objects to be its main objects. Consequently, the activities of investing surplus funds in debentures, bonds, etc., and advancing and lending money were adopted to be the main objects of the company with effect from 3-4-1993. During the assessment year 1994-95, the assessee had invested funds and earned income by way of interest. For the purpose of investment assessee invested its funds as well as borrowed funds. In its return of income, the assessee declared interest income as its business income. However, the Assessing Officer was of the view that the main object of the assessee was trading which business had not commenced during the relevant year, and, therefore, he brought to tax the interest income as income of assessee from other sources. On appeal, the Commissioner (Appeals) upheld the order of the Assessing Officer. On further appeal, the Judicial Member held that since the assessee was entitled to convert the ancillary objects into main objects by adopting a resolution and having done so, the income earned was to be treated as income from business and not otherwise. On the other hand, the Accountant Member held that by merely making the said ancillary object as assessee’s main object, it could not be said that the business had been set up and, consequently, the income in question could not be treated as business income of the assessee. In view of the said difference of opinion between the Members, the issue was referred to the Third Member.
Held (per Third
Member)
The view taken by the Judicial Member was to be accepted. The
Accountant Member had not appreciated the fact that the assessee
was empowered to convert the ancillary object into main object and by adopting
the Board’s resolution to this effect, the assessee
had complied with the Company Law Regulation. The assessee
had in fact also borrowed the funds. Further, the view taken by the Judicial
Member was to be accepted as the revenue itself had accepted in the preceding
years and subsequent years the very same kind of transaction as assessee’s business income. As such, the order of the
judicial member was to be upheld. [
Editor’s Note
(1) As regards the expenditure incurred by the assessee on renovation of furniture, since by repair of furniture, no new asset came into existence, expenditure in question was allowable as revenue expenditure.
(2) As regards the expenditure in respect of payments made to employees, since it was not disputed that payments had not been made or made to the relatives and further since, assessee’s main object was changed and the assessee was in a big way having transactions with various financial and investment organizations, its claim was allowable.
(3) As regards the legal and professional fees paid by the assessee on account of executing fund management agreement, since the assessee was in investment and finance management business and such agreements were executed always in the normal course of business, expenses in question were allowable.
(4) As regards the travelling and conveyance expenses incurred by the assessee on foreign travel, in view of fact that same were in connection with business of assessee, i.e., investment and finance and complete details thereof had been furnished, expenses were allowable.
(5) As regards the telephone expenses and miscellaneous expenses, since the assessee had filed the relevant details, expenditure in question was allowable.
Cases referred to
Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT
[1997] 227 ITR 172/93 Taxman 502 (SC), Sassoon J. David &
Percy Pardiwalla and P.J. Pardiwalla for the Appellant.
K.M. Prasad and S.N. Srivastava for the Respondent.