V.K. Singhal, J. - (1.) THE Income-tax Appellate Tribunal has referred the following question of law arising out of its order dated July 4, 1980, and August 1, 1980, in respect of the assessment years 1976-77, 1977-78 and 1978-79, respectively : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that interest income earned by the assessee should be assessed as business income ?"
(2.) IN Reference No. 109 of 1983, the question referred is as under : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee has carried on business of advancing money on special and ordinary loans and such earnings should be assessed as business income ?" Since the questions of law arising out of the Tribunal's order are the same, both these references are disposed of by this common order. The brief facts of the case are that the assessee is a public undertaking incorporated by Act No. 17 of 1975, i.e., the Rajasthan Land Development Corporation Act, 1975, In the preamble to the Act, it is mentioned that the corporation was constituted for the execution of projects relating to land development with a view to preventing damage to land and loss in agricultural productivity and to securing optimum utilisation of land and water resources in Rajasthan and for other matters connected therewith or incidental thereto. Chapter 4 of the Act deals with the business and funds of the corporation. Under Section 17, it has been mentioned that the principal business of the corporation shall be the execution of projects in accordance with the provisions of the Act. In addition to that the corporation may carry on or transact all or any of the businesses as mentioned in Sub- Clause (2) of the said section which includes financing of projects and related infrastructure programme, assist landholders in obtaining ordinary loans, assisting banks and financial institutions in collection and processing of loans applications and other connected documents from landholders, granting special loans, generally doing such other acts as may promote the execution of the projects or as may be necessary for or incidental to the exercise of its power or discharge of its duties under this Act. Chapter 7 deals with ordinary and special loans. It has been provided under Section 26 that the landholder may with the assistance of the corporation apply to a bank or a financing institution for an ordinary loan for meeting the proportionate cost of works. The special loan may be granted to the landholder if he is unable to raise an ordinary loan. The surplus money which was lying with the assessee was deposited with various banks and institutions and corporations and interest was received from them. The contention of the assessee was that the said income had to be assessed under the head "Business" because it was in the course of its business that the company had made the deposits and given advances as loans to the various banks, corporations, etc. The Income-tax Officer rejected the contention and held that the income has to be assessed as income from "other sources".
(3.) IN appeal before the Commissioner of INcome-tax (Appeals), it was held that it is not the business of the corporation to carry on money-lending. It is, however, authorised to advance special loans to landholders under certain circumstances at prescribed rate of interest and, therefore, the interest received on such special loans only can be said to be its business income. The other interest income pertaining to the loans advanced to various other corporations or to the deposits of share capital and other funds made with various banks cannot be said to be its business income. The appeal was accordingly rejected. The matter was challenged before the Income-tax Appellate Tribunal and it was observed that in taxing statutes the word "business" 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. In order to infer from the course of a transaction that the person intended thereby to carry on business, ordinarily, the characteristics, volume, frequency, continuity and regularity indicating the intention to continue the activity of carrying on the transaction of business must exist. It was found that the principal business of the corporation was for execution of the projects in accordance with the provisions of the Act under which the assessee-corporation was set up but by taking into consideration Chapters I, IV and VII, the corporation is also allowed to carry on and transact all or any of the businesses mentioned thereunder. Two of the objects were for granting of ordinary and special loans and assisting banks and financing institutions, etc., for which it was necessary for the assessee to keep liquid funds in its hands which were invested from time to time as interest bearing advances. The Tribunal came to the conclusion that from the volume of the business carried by the assessee it is clear that the assessee carried on the business of advancing money on special and ordinary loans. Such earning should be assessed as "business income". The term "business" has been defined under Section 2(13) which provides that business includes any trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. The word "business" has been the subject-matter of judicial scrutiny and interpretation and it has been held that it is of wider import which relates to real, substantial and systematic or organised course of activity or conduct with a set purpose. The frequency or continuity of the activity may in a certain set of circumstances be a desired factor but are not the conclusive or infallible test. An isolated transaction may also be a business. ;