SEKSARIA BISWAN SUGAR FACTORY LTD Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE assessee is a limited company which was incorporated in the year 1939 and the object of the company is manufacture and sale of sugar. On 26th October 1943, the assessee company advanced a sum of Rs. 5,00,000 to Messrs. Agarwal and Co. , on a demand promissory note. THE managing agents of the assessee company are partners in this firm. It is found as a fact by the Tribunal and it is admitted by the assessee company that the assessee company had not in the past advanced any such sum in similar circumstances to any other person.

(2.) THE question that arises for our determination is whether this sum of Rs. 6,00,000 constitutes, within the meaning of Rule 1 (1) (b) of Schedule II to the Excess Profits Tax Act, a debt due to the assessee. If so, it would go to increase its capital as contemplated by schedule II of that Act, THE Tribunal took the view that the business of the company was not money-lending business and therefore the advance made by the assessee company was not in the course of its business and therefore was not a debt contemplated by Rule 1 (1) (b) of schedule II to the Excess Profits Tax Act. Sir Jamshedji for the assessee has relied on the memorandum of association of the company and in that memorandum among the objects permissible for the company to carry out is the object mentioned Under clause (3) (g) (ix), and that is, "to lend money, with or without security, and to invest money of the company in such manner (other than in the shares of this company) as the directors think fit. " Sir Jamshedji has distinguished "lending" and "investing" contemplated under this sub clause, and according to Sir Jamshedji, according to the plain meaning of this clause what the company was doing was lending money. According to Sir Jamshedji, if the company lends money, then it is doing the business of money-lending which it is empowered to do under the memorandum of association, and therefore Sir Jamshedji contends that the sum of Rs. 5,00,000 advanced by the company to Agrawal and Co. , was in the course of its business and therefore he is entitled to the benefit of Rule 1 (1) (b) of Schedule II, Excess Profits Tax Act. I am not prepared to accept the proposition for which Sir Jamshedji is contending that if a particular act is permissible to a company under its memorandum of association and the company performs the act, necessarily that act must be deemed to have been performed in the course of its business. Of course, company can never perform an act which it is not permissible to do under its memorandum of association, because if it does so, it would be ultra vires. But I am not prepared to accept that every act which is intra vires of the company is necessarily done in the course of the business of the company. Whether a particular act is done in the course of business or not is really to my mind & question of fact and that fact must be determined according to the evidence led and the circumstances of the case. It must be found as to whether the particular act has any connection with the normal business that the company is carrying on and whether it is so related to the business of the company that it can be considered to be performed in the ordinary course of the business of that company.

(3.) IT is perfectly true that in the case of the company before us, one of its objects is money-lending; it could have carried on the business of money-lending. But what we have to determine is whether the company has been pursuing that object and carrying on that business or not, and it is impossible to hold on the facts of this case that by a solitary transaction of an advance of Rs. 6,00,000 to Agrawal and Co,, it could be said that in doing so it was pursuing one of its. objects and carrying out that business. Therefore, in my opinion, even if we assume that the question referred to us is a question of law, on the facts and circumstances of this case the Tribunal was right in coming to the conclusion that the moneys lent by the company to Agarwal and Co. , were not in the ordinary course of business, that that transaction did not constitute part of the business of the company, and therefore the company was not entitled to rely on Rule 1 (1) (b) of Schedule II Excess Profits Tax Act.