2001 PLP (Trib (PTD)

If a person runs a bank or other business and utilises his funds for the purpose of that business, it is also open to the same person to use some of the funds for business and to keep a part of the funds in a form where it yields income. The question to be seen in such a case is whether the interest income is derived also from what may be described as 'business activity'. If it is so derived then the mere fact that it is taxed under a different section will make no difference. The approach to the problem has, therefore, to be disassociated from the section under which the tax is imposed on the form of income. To revert again to the United Commercial Bank's case (1957) 32 ITR 688 (SC), the bank which had funds deposited with it by its customers and its own capital, could utilise the funds either by lending the same to others or by making various investments. Indeed, in the case of banks, it is compulsory to place some of the funds in securities. The question that would then arise would be whether the interest income is not also a part of the banking activity. If it is, then notwithstanding the fact that the charge of income tax is under the head 'Interest on securities', the income would be from banking and not from mere investment. In the present case, the assessee claimed that it has funds which it derived from business and which are used only in business and for no other purpose. If they are spare funds, then they are deposited in banks and, hence, it is clear that this income is also business income. To repeat what was said earlier, the company has not come from Italy to make bank deposits in India but has come to carry on business. If at any time it has spare funds it prefers not to keep the same idle but makes deposits in banks which give some income. This also is, therefore, business income and for the purpose of set off has not to be treated as separate from business income. The judgments just referred to give full support to the petitioner. Therefore, we are of the view that set off had to be granted and could not be refused merely because interest income is taxed under a separate head. We would, thus, allow the petition and grant the prayer of the petitioners. We would hold that the income from interest on bank deposits is also business income for the purpose of set off. In the circumstances of the case particularly we note that the contractor is engaged in very large contracts. The rejoinder affidavit shows that there is a contract with Tata's Mithapur, Gujarat, for 250 million $, one with Coromandel Fertilisers for 200 millions $, one at Nangal Expansion, Haryana, for 30 million $, one for Hindustan Lever for 300 million $, one which is described as a modifications in MRL for 15 million $ and for setting up a refinery in Turkey jointly with some other Indian concern is for 200 million $. These huge contracts would show that very large funds will have to be available with the petitioner from time to time. It would, therefore, necessitate the petitioner having large liquid funds at times and a businessman placed in such a situation would normally try to get some interest on such deposits and the same would be considered as business income. We would, therefore, hold that set off as claimed has to be allowed even against interest on securities. However, in view of the nature of the case, we leave the parties to bear their own costs." The other reported case CIT v. Eastern Bank Limited PLD 1982 Kar. 680 referred to in the impugned order was also not relevant and could not be relied upon in favour of the assessee company. In the said case of a banking company, the finding of the learned Tribunal was that the securities and shares were held by the bank as its trading assets and, therefore, the Hon'ble High Court, Karachi expressed the view that the income from them would form a part of income of the bank from its banking business. This decision of the Hon' able High Court was also based on a case from Indian jurisdiction namely Western State Trading Company Limited v. CIT Central, Calcutta (1971) 80 ITR 21, wherein it was held by the Supreme Court of India that if shares are held by the assessee as part of its trading assets, the dividends of those shares would form part of the income from the business of the assessee and the assessee will, therefore, be entitled to claim set off of losses from its business carried forward from earlier years against the dividends of the current year. The judgment of the Hon'ble Sindh High Court, considered in the light of the facts and circumstances of the case discussed therein, clearly shows that the said income from other sources was part of the banking business and could not be separated for the purposes of set off of losses carried forward from earlier years. This reported case is not comparable with the facts and circumstances of the case in hand where interest income was never a part of the business of the assessee-company.

9. The learned CIT(A) also failed to appreciate the ratio of the judgment of the Supreme Court of India in the case Produce Exchange Corporation v. CIT reported as (1971) 24 Tax 1 (SC India) where the question decided was whether the business activities of the company dealing in shares and its dealings in commodities and selling agencies on commission basis, constituted the same business within the meaning of section 24(2) of the Indian Income-tax Act, 1922 (since repealed). This question was considered and answered in the affirmative on the basis discussed in the said "The High Court held, following their judgment in Shree Ramesh Cotton Mills Ltd. v. Commissioner of Income-tax (1967) 64 ITR 317 (Cal.), that the "essential matter to be considered in determining whether the two businesses carried on by the assessee constitute the same business, is about the nature of the two businesses the manner in which they are conducted being a secondary consideration'. They observed that 'unity of control or management, the employment of the same or common finance, the user of the same business premises and the record of the transactions in the same set of books of accounts are matters to be considered only when it is found that the two businesses are of the same nature. Merely because the transactions in shares consist of sales and purchase as to dealings in other commodities like sugar, molasses, etc., the two activities cannot be held to form one unit of business', and that the Tribunal erred in holding that because there was complete unity of control and the shares formed a part of a number of commodities in which the assessee dealt, the whole trading activity formed one business. Section 24(2) of the Indian Income-tax Act, 1922, as in force in the relevant years, read as follows: 'Where any assessee sustains a loss of profits or gains in any year, being a previous year not earlier than the previous year for the assessment for the year ending on the 31st day of March, 1940, under the head 'Profits and gains of business, profession or vocation', and the loss cannot be wholly set off under sub section (1), the portion not so set off shall be carried forward to the following year and set off against the profits and gains, if any, of the assessee from the same business, profession or vocation for that year; and if it cannot be wholly so set off, the amount of loss not set off shall be carried forward to the following year and soon; The section contemplated that the loss which could not be wholly set off against the other income under subsection (1) could be carried forward to the following year and set off only against the profits and gains, if any, from the same business. There was difference of opinion among the High Courts as to the meaning of the words 'same business'. It is unnecessary to refer to those authorities. This Court in Commissioner of Income-tax v. Prithvi Insurance Co. Ltd. ((1967) 63 ITR 632 (SC) set out the test for determining whether two lines of business constitute the 'same business' within the meaning of section 24(2) at the relevant time. It was observed at page 637: 'A fairly adequate test for determining whether the two constitute the same business is furnished by what Rowlatt, J. said in Scales v. George Thompson & Co. Ltd. ((1927) 13 T.C. 83, 89 (K.B.)): 'Was there any interconnection, any interlacing, any inter dependence, any unity at all embracing those two businesses?' That interconnection, interlacing, interdependence and unity are furnished in this case by the existence of common management, common business organisation, common administration, common fund and a common place of business." Applying that test it the present case there is no doubt that there is a common management of the share and stock business and other lines of businesses, unity of trading organisation, common employees, common administration, a common fund and a common place of business." In the instant case for our consideration, there has been no interconnection, interlacing, interdependence and unity embracing any two businesses of the assessee. Therefore, interest income chargeable under section 30 of the Ordinance as a separate source of income specified under section 15 could not be treated as income from the business of the assessee-company which was chargeable under section 22 of the Ordinance.

10. The learned CIT has further placed reliance on the case CIT, Dacca v. Amin Jute Bailing Company decided by Dacca High Court and reported as (1969) 19 Tax 103 (H.C. Dacca). In the facts and circumstances of this reported case, it was held by Dacca High Court that there was definitely interconnection and interdependence between the insurance agency and the jute business and the two came within the meaning of the expression "same business" occurring in subsection (2) of section 24 of the repealed Income Tax Act. It was observed by the Hon'able High Court that in the case before them it was seen that the assessee had not insured the jute or any other goods of anyone else, it had merely insured its own jute. The agency had been undertaken by the same management and it was being carried on for the purposes of its own jute business. Had the assessee undertaken insurance of goods of other persons, the character of the agency in that goods would have definitely changed and in that case it would have been separate and distinct business but on the facts found by the Tribunal; the Hon'able High Court saw no reason whatsoever to interfere with the conclusion reached by it that the insurance agency came within the meaning of the expression "same business". The facts of this reported case are also clearly distinguishable because the assessee in that case was doing business and income from the two business activities was from the same business, which is not the case before us.

11. As regards the scope of rectification of a mistake apparent from record under section 156 of the Ordinance, the learned CIT has again fallen in error in relying upon the two cases reported as 1976 PTD 109 and 1988 PTD

147. In the first mentioned case, there was a question of law which was not free from doubt and the Income Tax Officer was held to be not justified in thinking that on that question there could be no two opinions. It was not open to the officer to go into true scope of the relevant provisions of the Act in the proceedings under section 154 of the Indian Income Tax Act, 1961 because the question had to be established by a long drawn process of reasoning and a decision on a debatable point of law was held to be not a mistake apparent from record. The mistake apparent from the record in the present case before us did not involve any debatable point of law or a question which was required to be established by a long drawn process of reasoning. There were no two opinions on the point that the interest income of the assessee which was separately charged to tax in the preceding years was erroneously overlooked for the assessment years 1992-93 and 1993-94 and the assessments had to be rectified by restricting the brought forward business losses against the business income only and income from interest

12. The learned CIT(A) has also not been able to appreciate the facts and circumstances of the case D.D. Shroff v. ITO reported as 1988 PTD 147 where there was change of view by ITO who was held to be not competent to nullify .the order of the appellate authority since the proper course was to file appeal before the next appellate authority and the notice for rectification of mistake under section 156 by the ITO was held to be unwarranted exercise of powers. In that case, the ITO in his original assessment order included the amount of super tax paid by the firm for working out the individual shares of the partners. The Commissioner set aside the order of the ITO and directed him to compute the income-tax on the income of the partners after excluding the super tax paid by the firm in accordance with the formula given in the case-law. The Hon'able High Court expressed the view that the ITO could not nullify the order of the appellate authority in disguise of a notice under section 156 of the Ordinance. It was observed in the judgment "if we were to condone the above act, there would be chaos as it would be open to an ITO to undo even the order of the Income Tax Appellate Tribunal. Even if the view of the Commissioner was erroneous, the proper course for the department was to have filed an appeal before the Income Tax Tribunal and then a reference before the High Court but it cannot be undone by invoking section 156 of the Ordinance." The judgment in this case was delivered in a different set of circumstances and the facts were clearly distinguishable as compared to the position of the case before us. Reliance on this reported case was, therefore, misplaced.

13. It may be observed that the Hon'able High Court, Karachi in the case reported as 2000 PTD 363 has dealt with the comparative position of cases from Indian jurisdiction and the provisions contained in the Ordinance. In that case, it is held that in the absence of a finding that the assessee was doing the business of money lending, interest income could not be treated as business income so as to be charged to tax under section 22 of the Ordinance and that the interest income was to be charged under section 30 of the Ordinance which specifically includes interest income under the head "Income from other sources". It was pointed out 'to the Hon'able High Court that in the Indian Income Act, 1961 the provisions relating to "Income from other sources" contained in section 56 thereof do not include or provide for any inclusion of interest income as income from other sources, whereas section 30 of the Ordinance relating to "Income from other sources" specifically includes interest income within its scope.

14. It may be mentioned that the Full Bench of this Tribunal in the case reported as 1999 PTD (Trib.) 708 has also dealt with the question of interest income chargeable under section 30 of the Ordinance and its connection with unutilised business capital and business income chargeable under section 22 of the Ordinance. It was held that these two sources of income were distinctly different and could not be part of the same business.

15. In I.T.A. No. 455 (IB) of 1997-98 for the assessment year 1993-94 decided by us on 19-6-2000 we have also followed the ratio decidendi of various cases in the context of the Ordinance and expressed the opinion that the interest income of the assessee was chargeable under the head "Income from other sources" under section 30(2)(b) of the Ordinance and it could not be included in the total income of the assessee under any other head classified under section 15(a) to (e) of the Ordinance because it was definitely not the income from business or profession chargeable under section 22 against which allowances or deductions could be made under section 23 of the Ordinance.

16. For the facts and reasons stated above, we hold that the impugned order is not sustainable in law and the learned CIT(A) was not justified to cancel the order, dated 7-10-1998 made by the Assessing Officer under section 156 of the Ordinance. We, therefore, vacate the impugned order and restore that of the Assessing Officer. Resultantly, the appeals of the department succeed. C.M.A./M.A.K./61/Tax (Trib.) Appeals accepted.