ORDER
D.K. Seth, J.
1. The questions :
This appeal was admitted on the following two grounds :
'(a) Whether, for computing the profits in terms of Section 32AB(3) of the Act, the income by way of dividends, interest on securities, property income, which is treated as business income under the provisions of Parts II and III of Schedule VI to the Companies Act, 1956, is to be excluded and deduction under the said section is not to be allowed with reference thereto ?
(b) Whether the petitioner can be considered as a trading company within the meaning of the Finance Act, 1989, and Finance Act, 1990 ?'
1.1. These appeals arise out of a common judgment of the learned Tribunal covering five assessment years between 1989-90 to 1993-94 comprising of five appeals. The deficit Court fees have since been paid.
1.2. For the sake of convenience, we may answer the second question first.
The second question : Assessee : Whether a non-trading company:
2. So far as the second point is concerned, which we were supposed to answer first, it covers the three asst. yrs. 1989-90, 1990-91 and 1991-92. The assessee had claimed itself to be a non-trading company in respect of these three assessment years in order to avail the benefit of reduced rate of income-tax, negatived by the AO since reversed by CIT(A). The learned Tribunal, however, had disagreed with the view taken by the CIT(A) and agreed with the view of the AO and held that the assessee was a trading company.
2.1 This difference between trading the non-trading company was available by reason of an amendment effective from 1st April, 1989, to the assessee. Mr. Bajoria, learned senior counsel, ably assisted by Mr. J.P. Khaitan, led us through the various materials and had pointed out that admittedly the authorities under the IT Act had found that the assessee was carrying on the principal business of tea broker and auctioneer. Besides which it has some other business activities of agency commission, service charges, dividends, leasing business, cash incentives and other miscellaneous income. The assessee also derived income from interest on loans and other advances. Now the question arises as to whether, because of these other income, the assessee could be treated to be a trading company or in other words, this carrying of the other activities would disentitle the assessee from claiming itself to be a non-trading company. According to Mr. Bajoria, it would not.
2.2 Mr. Mullick, learned senior counsel appearing on behalf of the Department, pointed out that the company had undertaken various other activities which showed that it was also involved in trading activities. He pointed out from the order of the learned Tribunal (p. 14 of the paper book) that there were substantial amount on account of the trade advance and trade debts, which definitely indicated that the company was carrying on trading activities. He pointed out further from para 9.1 of that order that the company itself admitted that there were various debit notes raised by the assessee-company on various customers and also unrealised bills raised by the assessee-company on various sales made by it to its purchasers. It had also made certain trade advances and there were certain non-interest bearing trade debts. Thus, there were some materials to show that the company was also carrying on trading activities and as such it could not claim itself to be a non-trading company to avail of the benefit of reduced rate of income-tax.
2.3 After having heard the learned counsel for the parties it appears, as rightly pointed out by Mr. Bajoria, that the computation of income is made according to the IT Act, 1961 (IT Act), under different heads as specified in Section 14 thereof. So far as the profits and gains of business on profession, which are being assessed in the present case, would not be the determining factor as to whether the company is a trading company or a non-trading company. Reliance was placed by Mr. Bajoria on the decision in J. Thomas & Co. Ltd. v. CIT : [2004]267ITR585(Cal) in which the present assessee was held to be a non-trading company in respect of the asst. yrs. 1986-87, 1987-88 and 1988-89. However, this was sought to be distinguished by Mr. Mullick on the ground that the facts of that case were different since it was concerned with the question which was confined to the determination as to whether as tea broker and auctioneer the assessee was a trading company or not. This was replied to by Mr. Bajoria on the basis of the question No. 1 involved in the said decision on the foundation whereof the second question was dependent when the facts are not in dispute.
2.4 This question seems to be of no relevance in the present case in view of the admitted facts as are appearing from para 9.1 of the decision by the learned Tribunal (p. 19 of the paper book). If for argument's sake, we may assume that these trade advances, trade debts shown in the break-up given at p. 19 of the paper book, were trading activities, even then it would not make the company a trading company for the relevant assessment years, since these activities were carried on at least 20 years to 5 years' before the relevant assessment years. There is no material to show that similar activities were being carried on in the relevant assessment years. If at one point of time it had carried on such activities that would not mean that it was also carrying on the similar activities in the present assessment years.
2.5 Be that as it may, the question is dependent not on the heads of the income but on the principal business carried on by the assessee. If in addition to the principal business, the assessee undertakes some other business which are ancillary or incidental or otherwise and are not of such a volume to become the principal or primary business, in that event, the character of the business of the assessee would be determined on the basis of the primary or principal business carried on by it. Admittedly, in this case, the assessee used to carry on business of tea broker and auctioneer and the sales and debts, which were referred to, were related to those sales undertaken by the assessee as auctioneer. As pointed out by Mr. Bajoria, it appears that the auctioneer undertakes sale on behalf of the seller; the auctioneer remains liable to collect or recover the amount from the purchaser and pay it to the seller on whose behalf he undertakes the auction. Therefore, unrealised bills from the purchasers may be the responsibility and liability of the auctioneer; but then it would not be a sale by the auctioneer in order to treat him as a trader while undertaking such auction.
2.6 This is clear from the order of the learned Tribunal itself. As rightly pointed, these bills, which could not be recovered, were exclusive of brokerage, which had already been included in the assessee's income. Therefore, when the brokerage is excluded from the billed amount, it clearly indicates that the bill related to an auction undertaken by the assessee on behalf of the seller out of which it had excluded the brokerage and shown the same as its own income. Therefore, from the materials disclosed, we do not find that the assessee could be treated differently from what was found in the decision in J. Thomas & Co. Ltd. (supra). The moneylending business or receiving the interest or trade advance or trade debts as contended by Mr. Mullick would not change the characteristics of the company from a non-trading to a trading company as was held in the earlier decision.
2.7 Mr. Mullick had relied on the definition of trade in Pram's Judicial Dictionary, Vol. 2, p. 1608 (Reprint Edition 1992).
He contends that any kind of business activity comes within the definition of trade as defined therein. But the question is to be decided on the basis of the definition of trading activities as it is understood in common parlance in the present case. It was already found in J. Thomas & Co. Ltd. (supra) that the assessee was not carrying on trading activities for the reasons noted therein which is also not in dispute. For the relevant assessment year, as, in his usual fairness, Mr. Mullick pointed out, we see no reason to disagree with the view taken by the other Division Bench in the case of J. Thomas & Co. Ltd. (supra).
The first question : Section 32AB(3) : Dividends, interest on securities, income from property : Whether business income :
3. So far as the first question is concerned, it relates to the asst. yrs. 1989-90 and 1990-91. In support of this question, reliance was placed by Mr. Bajoria on the decision in Britannia Industries Ltd. v. Jt. CIT and Ors. : [2004]271ITR123(Cal) wherein a distinction was made between the eligibility for and eligibility to the deduction. Once the assessee has qualified as eligible for the deduction, then the income out of the eligible business would be eligible to deductions irrespective of the heads under which the income is computed in view of the provision contained in Sections 32AB(3) and 32AB(5).
3.1 In the present case, it is contended that the income in respect of which the dispute with regard to the deduction under Section 32AB was raised, was that these incomes were derived from the income from the interest on securities and advance and house properties, dividends, etc. Mr. Mullick contended that these are not income from profits and gains of business or profession but from other heads. Section 14 stood amended w.e.f. 1st April, 1989, by conspicuously deleting the interest on securities. Now after such deletion, this has to be included within the income from business and profession. However, it is not the head under which the income is derived that would be eligible but it is the eligible business the income of which is eligible. It is the income as computed in terms of Section 32AB(5) namely, under Part II/III of the Schedule VI of the Companies Act, 1956, which is relevant for the purpose of giving the benefit. The distinction that was sought to be made by Mr. Mullick was that the income must be an income from the profits and gains from business and profession which is the basic criteria for the purpose of being eligible. Once it is so eligible, it is only that income of the eligible business, which would be eligible for deductions. Income other than income from profits and gains of business of the eligible business would not be eligible for deductions. Mr. Mullick had sought to make distinction with regard to the decision in Britannia Industries (supra) and pointed out that this decision should be reconsidered in the light of his submission.
3.2 This decision had followed the decisions in Assam Brook Ltd. v. CIT, : [2004]267ITR121(Cal) , Apollo Tyres Ltd. v. CIT : [2002]255ITR273(SC) and various other decisions on which Mr. Bajoria had relied on to contend that there is no point which requires reconsideration so far as this decision is concerned.
3.3 After having considered the contentions of Mr. Mullick, it appears that it is the income from profits and gains of business and profession which is eligible for deduction under Section 32AB provided the amount out of such income is deposited under Sub-section (1)(a) thereof. The question of deposit is not in dispute. The dispute is with regard to the income from a particular head, which is being deposited namely, those other than the head of income from business and profession, which would not be eligible within the limit of 20 per cent provided in Clause 2 of Sub-section (1). This question does not seem to be of any consequence in view of the fact that this income of eligible business is to be computed in view of Sub-section (3) according to Sub-section (5) of Section 32AB. When a particular mode of computation has been provided for which substantially covers widely an area under the Companies Act rather than that of being covered by IT Act, as was pointed out by Mr. Bajoria, with reference to Section 115JA and Section 115J of the IT Act relying on the decision of the Bombay High Court in CIT v. Veekaylal Co. (P) Ltd., : [2001]249ITR597(Bom) . Therefore, when a special mode of computation has been provided for in Sub-section (5), which is to be undertaken and/or adopted for the purpose of Sub-section (3) in order to arrive at the eligibility of the income of eligible business, the eligibility to the deduction has to be construed with reference to the said provision and can no more be reverted to the heads of income from business or profession alone. It is rightly pointed out by Mr. Bajoria that the entire amount is being earned as an income out of the eligible business activities carried on by the assessee though may be under different heads but are, in effect, income from business and profession. Once it qualifies for the deduction namely, that the income is not derived from a business not included in the Eleventh Schedule, then the deduction would be available from the income of the eligible business as was held in Britannia Industries Ltd. (supra).
3.4 We are, therefore, unable to persuade ourselves to agree with the contention of Mr. Mullick and we do not think that there is any ambiguity in the decision of Britannia Industries Ltd. (supra) to persuade us to reconsider the same in the light of the contention raised by Mr. Mullick.
Conclusion :
4. From the discussion above, it appears that there is nothing to connect these written off bills more that 5 years old, with the business activities carried on by the assessee during the concerned previous years apart from the fact that trade advances or trade debts in respect of bills exclusive of brokerage related to auction undertaken by the assessee on behalf of the sellers would not amount to trading activities. The principal business of the assessee being non-trading, the assessee is a non-trading company.
4.1 The eligibility for deduction is dependent on the question of the eligibility of the business for deduction. Once the eligibility of the business is established and it is found to be an eligible business, the eligibility to deduction is not confined only to a particular income derived from particular head but on the income under all heads derived from the eligible business. As such, the assessee is eligible to the allowance under Section 32AB(3).
Order :
5. In the result, the appeal succeeds and is allowed. The order of the learned Tribunal is set aside as indicated in this judgment.
5.1 We answer the question No. 1 in the negative in favour of the assessee in respect of asst. yrs. 1989-90 and 1990-91; the question No. 2 is concerned, we answer the same in the negative in favour of the assessee for the asst. yrs. 1989-90, 1990-91 and 1991-92.
5.2 There will, however, be no order as to costs.
Soumitra Pal, J.
I agree.