P L D 1961 Dacca 108 (PLP)

CHOWDHURY, C. J.‑In this reference under section 66 (1) of the Income‑tax Act 1922 at the instance of the Commissioner of Income‑tax the point of law referred for the decision of the High Court is as follows : "Whether in the facts and circumstances of the case income from interest from moneys kept in banks earned by the company within the year ended on 31st March, 1917 would be classed as income from business?" The facts of the case stated in the reference are as follows : The company known as Khulna Bagerhat Railway Company Limited was situated in the territory of Pakistan. It was incor porated in the year 1916. According to the agreement dated the 14th April, 1916 between the Company and the Secretary of State for India in Council, the Government was entitled to acquire the railway by giving requisite notice. This the Government of Pakistan did and then acquisitioned and took over the management on the 31st of March, 1948. The Company, according to the Income‑tax Officer, was in existence during the year ending on 31st March, 1917, having been incorporated in the year 1916. Nevertheless, even according to the Income‑tax Officer, the railway line from Khulna to Bagerhat was under construction for sometime and was only completed by the middle of the year 1918 and the railway line was open to the public from the 10th June, 1918. The Memorandum of Association of the Company shows that the primary purpose of the company was to acquire right to enter into, execute, carry out and fulfil the contract to be prepared and made between the Secretary of State for India in Council and the Khulna Bagerhat Railway Company and to carry the same into effect for the purpose of causing to be constructed, completed and made ready a Railway from Khulna to Bagerhat and also to provide funds for and to construct or cause to be constructed a railway from Khulna to Bagerhat, etc., etc, There was also a clause in the Memorandum and Articles of Association of the Company to the following effect: "To lend, invest or otherwise employ moneys belonging to or entrusted to the Company upon securities or shares as may be thought proper and from time to time to vary the same as the company may think fit." Since the, whole .of the share capital of the company was not immediately requited for expenditure on the construction of the line, some amounts were in fact invested and kept deposited in Banks and the company received income by way of interest on such deposits. During the year ended on 31st March 1917 interest received from Banks and transfer fees, etc., amounted to Rs. 3,

766. Against this there were expenses in the nature of Directors' fees, Auditors' fees, stationery; printing, etc., which were set off and there was accordingly a loss and there was, therefore, not even a taxable income from business at all, the railway line itself not having been open for traffic till June, 1918. The Company filed a return on the 15th of December, 1950 for the year ending on 31st March, 1948 declaring income of Rs. 70,938 as arising during the year ending on 31st March, 1948 with the following note in the return : "The Company is entitled to exemption of tax for the previous year ended on 31st March, 1948, under section 25 of the Income‑tax Act as already applied for as per company's letters dated 9th August 1948 and 13th October 1948." The Income‑tax Officer held that the interest received by the company from the unexpended portion of the money of the company was an income from the business of the company as in the Memorandum and Articles of Association it is provided for "invest or employ money" of the Company "upon securities or without securities" etc. The Income‑tax Assistant Commissioner and the Appellate Tribunal, relying on Articles (2) and (3) of the Memorandum of Association held that the primary object of the company was the construction of railway between Khulna and Bagerhat and that earning of interest on unexpended portion of its money was not its business. So the point is whether the income by way of interest out of the money of the company kept in Bank, being unexpended portion of the fund of the company, could be treated as income from business and whether the proviso to subsection (3) and (4) of section 25 render nugatory the assessee's claim for relief. Relevant portions of subsections (3) and (4) provides : "(3) Where any business, profession or vocation on which tax was at any time charged under the provisions of the Income‑tax Act, 1918, is discontinued (then, unless there has been a succes sion by virtue of which the provisions of subsection (4) have been rendered applicable) no tax shall be payable in respect of the income, profits and gains of the period between the end of the previous year and the date of such discontinuance, and the assessee may further claim that the income, profits and gains of the previous year shall be deemed to have been the income, profits and gains of the said period . . . . . ." (4) Where the person who was at the commencement of the Income‑tax (Amendment) Act, 1939, carrying on any business, profession or vocation on which tax was at any time charged under the provisions of the Income‑tax, 1918, is succeeded in such capacity by another person, the change not being merely a change in the constitution of a partnership, no tax shall be payable by the first mentioned person in respect of the income, profits and gains of the period between the end of the previous year and the date of such succession, and such person may further claim that the income, profits and ,gains of the previous year shall be deemed to have been the income, profits and gains, of the said period . . . . . ." . There are provisos to these subsections of which proviso (b) is relevant for our purpose. It runs as follows :‑ "Provided that subsections (3) and (4) shall not apply (b) to a business, profession or vocation on which :income‑tax was at any time charged in the hands of a company under the Income‑ tax Act, 1886, or on which income‑tax would have been charged in the hands of a company for the assessment year ending on the 31st day of. March, 1918, if the company having been in existence in that year bad also been in existence in the year ending on the 31st day of March, 1917" It is not disputed that the company which was charged income‑tax on the income of the company under the Income‑tax Act, 1918, has been discontinued on and from the 31st of March, 1948, and succeeded by the Government, so it is entitled to exemption claimed, but what is disputed is whether the proviso (6) to subsections (3) and (4) is applicable to the case and whether the provisions of the proviso has deprived the company of the benefit under those subsections. It is contended by Mr. Mesbahuddin, the learned Advocate for the Income‑tax Commissioner, that the case come under the proviso (b), so the provisions of subsections (3) and (4) of section 25 of the Income‑tax Act are not applicable in as much as the income by way of interest derived by the company from its bank deposit was an income from business and as such it is a business chargeable to income‑tax within proviso (b) "to a business, profession or vocation on which income‑tax was at any time charged in the hands of a company under the Income‑tax Act, 1886, or on which income‑tax would have been charged in the hands of a company for the assessment year ending on the 31st of March, 1918 if the company having been in existence in that year had also been in existence in the year ending on the 31st day of March, 1917." If a business‑man keeps his money intended to be used as capital of his particular business or part of such money or his other money in banks and derives income by way of interest, a would it be his income from business? It would be his income, no doubt, derived from other sources but certainly it would not be his income from business. It has been repeatedly pointed out that the meaning of the expression "carrying on business" for the purpose of the Income‑tax Act is not affected by the question whether the assessee is an individual or a company. In the case of In re : Commercial Properties, Limited (1 L R 55 Cal. 1057 ), Rankin, C. J., held : "In my judgment the mere fact that the house owner is a company does not change the incidence of the tax in the way contended for." Again in the case of In re: Shadhucharan Ray Chodhuri (1 L R 62 Cal. 804), it was held that that the lessor in that case was a registered company seemed to be irrelevant. Section 6 of the Income‑tax Act enumerated different sources of taxable income, and income from business, profession and vacation is one and separate from income from other sources and each one of the separate sources of income has been dealt with separately under different section from sections 7 to

12. Income from the head "business profit and gains" is dealt with under section 10, income from "interest on securities," is dealt with under section 8 and income from "other source" is dealt with under section 12 of the Income‑tax Act, 1922. So it appears that the income from interest from the money kept in Bank deposit is not intended to be treated to be an income from business, but it may come under "Income from other sources". If an income appropriately falls under one head, it cannot be assessed by the income‑tax Officer under another. It is true that there are companies whose sole or main business consists of money lending business or in holding and dealing with securities, but the present company is not a company of that type. The funds which were invested consisted of only the unspent share capital not immediately required to be expended in the company's main venture. In this connection, I think, I can quote with approval what Rowlatt, J. observed in the case of Commissioners of Inland Revenue v. Korean Syndicate Limited (1 K B D 598 at p. 603), though it is a case under the Finance Act of 1915 of England. The observation runs as follows : "If what the company is doing‑namely, receiving interest and royalties‑was done by an individual no one would say that that individual was carrying on a business, and it does not become a business merely because it is done by an artificial body like a company and not by an individual. But I wish to make this reservation. It does not follow that whenever at some particular moment a company is doing nothing but receiving an income from its investments, it is not carrying on a business. The business of a company may be the investing of money, and there may be times when the company's money is all satisfactorily invested and the company does nothing but receives the dividends. It may be that in a case of that sort although the company was not actively doing anything, the right conclusion of fact would be that the company was never theless carrying on a business." On behalf of the Commissioner of Income‑tax it is pointed out that in clauses 18 and 26 of the Memorandum of Association one of the objects with which it was established was to lend, invest and deal with money of the company. It does not necessarily follow that all activities which a company is authorised to undertake can be treated as part of its business for income‑tax purpose. In the case of Seksaria Biswan Sugar Factory Ltd. v. Commis sioner of Income‑tax (Central) Bombay (18 I T R (1950) p. 139), Chagla, C. J. sitting with Tendolkar, J., held that every act which is intra vices of a company is not necessarily done in the course of its business, that whether a particular act done is in the course of business or not is really a question of fact and that fact must be determined according to the evidence led and the circumstances of the case and that 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 normal business of the company. There is certainly difference between the object and the power of activities in carrying that object into effect. Here the Appellate Tribunal have considered what are the de facto activities and primary purpose of the company and have held that the income by way of interest derived by the company from the unspent share capital of the company at that moment kept in deposit in the bank was not an income from its normal business and making income, profits and gains by investing money was not the normal business of the company. I think they have come to a right conclusion. In support of this view, reference may be made to the case of Commissioner of Income‑tax, Bombay v. Larkana Jacobabad (Sind) Light Railway Co. Ltd. (A I R 1946 Sind 161), referred to and relied on by the Appellate tribunal and Mr. Dingomal Ramchandani the learned Advocate for the respondent in support of their contention. Therefore, the question referred to is to be answered in the negative. The Commissioner of Income‑tax will bear the cost of this reference. M. R. KHAN, J.‑I agree with my Lord the Chief Justice. Question answered in the negative.