- (1.) This is an appeal by certificate of the High Court of Calcutta against its judgment in a reference made to it under S. 66 (1) of the Indian Income-tax Act, 1922 (hereinafter referred to as the Act). The question referred to by the Appellate Tribunal was: Whether, in the case of the assessee, an investment company, its dividend income is part of its profits and gains chargeable to tax under S. 10 of the Indian Income-tax Act, 1922 -
(2.) In the Statement of the Case, dated December 3, 1953, the Appellate Tribunal gave the following facts: The appellant, Bengal and Assam Investors Ltd., hereinafter referred to as the assessee, was incorporated on january 30, 1947, and commenced business on March 19,1947. According to its memorandum of association, the company's objects are: "3. The objects for which the Company is established are(and it is expressly declared that the several sub-clauses of this clause and all the powers thereof are to be cumulative and in no case is the generality of any one sub-clause to be narrowed or restricted by any particularity of any other sub-clause, nor is any general expression in any subclause to be narrowed or restricted by any particularity of expression in the same subclause or by the application of any rule of construction ejusdem generis or otherwise) (1) To acquire and to hold shares, stocks, debentures, debenture-stock, bonds, obligations and securities issued or guaranted by any company constituted or carrying on business in British India or elsewhere, or in any Brithsh Colony, or dependency, or possession, or in any foreign country, and debentures, debenture-stock, bonds, obligations and securities, issued or guaranteed by any Government, specially including the Government of India and a Provincial Government, sovereign ruler, commissioner, Public body, or authority, imperial, supreme, national, municipal, local or otherwise whether in India or elsewhere (2) To acquire any such shares, stocks, debentures, debenture-stock, bonds, obligations, or securities by original subscription, tender, purchase,exchange, or otherwise, and to subscribe for the same either conditionally or otherwise, and to guarantee thesubscription thereof and to exercise and enforce all rights, and powers conferred by or incident to the ownership thereof. * * * * (8) To sell, invest in and vary the investment and to reinvest in any shares, stocks, debentures stocks, bonds, and obligations and securities. * * * * (11) To advance, deposit with or lend money, securities and property to or receive loans or grants or deposits from the Government. (12) To lend money, either with or without seourity, and generally to such persons and upon such terms and conditions as the Company may think fit. (13) To undertake financial and commercial obligations, transactions and operations of all kinds. Provided that nothing herein contained shall be ........ deemed to empower the Company to carry on the business of banking." The company closed its accounts for the first time on June 30, 1947 and its accounting period was the year ending with June. In the assessment for 1948-49 a net loss of Rs. 2,194 was computed. In the assessment for 1949-50 its grossed-up dividend income was Rs. 32,727 but its expenditure (including interest on borrowings to acquire shares, etc.) was Rs. 1,06,583, the resultant loss being Rs. 73,856. The Income-tax Officer treated this figure as unabsorbed business loss. In the assessment for 1950-51, the gross dividend income was Rs. 1,12,238 and the expenditure (including interest on borrowings, etc.) was Rs. 51,843 leaving a net income for the previous year ending with June 30, 1949, of Rs. 66,395. The Income-tax Officer in its order, dated August 1, 1951, held that as the sum of Rs. 66,395 was profit from dividends, business losses of 1948-49 and 1949-50 could not be set off. The assessee filed two appeals against the assessments made for 1949-50 and 1950-51, and the AppellateAssistant Commissioner, by his order, dated December 18, 1951, disposed of them by a common order. He held that the dividend income was not business income and was assessable under S. 12 of the Act. Accordingly, for the assessment year 1949-50 he determined the loss from other sources at Rs. 73,324 and he held that it could not be carried forward as it was a loss from other sources under S. 12. The assessee filed two appeals before the Income-tax Appellate Tribunal, which by its order, dated January 12, 1953, dismissed the appeals on two alternative grounds; firstly it held that the divided income was assessable only under S. 12 of the Act, as the assesse was an investment company. In the alternative, the Appellate Tribunal held that even if the company were to be a dealer in shares, even then in tis opinion the dividend received as registered shareholders whoud be dividend as such and assessable under S. 12. The Appellate Tribunal concluded that "in our opinion, on either view of the case, the loss of the preceding years cannot be adjusted against the dividend income of the assessee earned during the years 1949-50 and 1950-51."
(3.) The assessee then applied for a reference and suggested three question fo law: "(1) Whether in the facts and circumstances of the case the assessee company is an investment holding company or an investment dealing company. (2) Whether in the facts and ctrcumstances of the case the dividends earned by the company should have not been assessed under the head "Profits and gains of business, profession or vocation" under S. 10 of the Indian Income-tax Act. (3) Whether in the facts and circumstances of thbe case the loss brought forward from preceding years under S. 24 (2) of the Indian Income-tax Act should have not been set off against the dividends earned by the assessee company during the year in question.";