Sankar Prasad Mitra, J.
1. This is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessee is a private limited company. Its shares were held by the members of the Nawn family. Its main source of income was from property assessed under Section 9 of the Act in the relevant years. There is no dispute that the provisions of Section 23A of the Act are applicable to the assessee.
2. The facts relevant for our purposes to invoke the provisions of Section 23A in the assessment years under consideration are as follows :
Assessment yearAccounting year endedTotal income assessedTax payableUndistributed balance of total incomeDividend declared
1955-5631-3-1955236,242100,562135,680100,0001956-5731-3-1956250,464108,795141,669100,0001957-5831-3-1957257,986151,087106,89987,5001959-6031-3-1959361,338209,505151,333100,000
3. Now, Section 23A gives power to the Income-tax Officer to assess companies to super-tax on undistributed income in certain cases. Explanation 2 to the section prescribes the different statutory percentages in the cases of different classes of companies. A company in order to avoid the liability to pay the super-tax envisaged by Section 23A has to declare dividends at the appropriate statutory percentage of the total income as reduced by taxes referred to in Section 23A(1). According to Explanation 1, in the case of a company ' whose business consists wholly or mainly in the dealing in or holding of investments ', the prescribed percentage is 100. If, however, this provision does not apply, the percentage prescribed would be not 100 but 60.
4. We have already observed that the assessee-company's main source of income was from property assessed under Section 9. With regard to the assessment years noted above, the Income-tax Officer's view was that the lands and properties which the company had held were investments and it was a company whose business consisted wholly or mainly in the dealing in or holding of investments. In the relevant years, therefore, according to the Income-tax Officer, the assessee should have declared 100% of the distributable balance of its total income as dividends. But the assessee had declared more than 60% but less than 100% and the Income-tax Officer, applying the provisions of Section 23A, levied super-tax on the balance of the distributable profits at the appropriate rates that were in force.
5. Before the Appellate Assistant Commissioner the assessee contended that it was not a company whose business consisted wholly or mainly in the dealing in or holding of investments. The Appellate Assistant Commissioner accepted this contention by following an order of the Income-tax Appellate Tribunal in Income-tax Appeal No. 5490 of 1961-62 for the assessment year 1958-59 given on the 6th April, 1963.
6. Thereafter, this matter went to the Tribunal but, in view of the previous judgment, the Tribunal also held in this case that the assessee was not a company whose business consisted wholly or mainly in the dealing in or holding of investments.
7. The following question has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the assessee is a company whose business consists wholly or mainly in the dealing in or holding of investments ?'
8. In a number of decisions English courts have construed the word 'investment'. We shall refer to these decisions a little later. Broadly speaking, it has been held that the word 'investment' is not a term of art with a defined or technical meaning but should be understood in the ordinary popular sense as used by businessmen. In the popular sense, 'investments' means conversion of money into some species of property from which income or profit is expected to be derived. From this point of view, where an assessee's main function is to lay out moneys in the purchase of immovable properties and go on receiving rents from them regularly, those properties should normally be treated as income-yielding investments of the assessee.
9. Let us now look into the authorities in support of these propositions. In Inland Revenue Commissioners v. Desoutter Bros. Ltd., [1945] 29 T.C. 155, 160, 161 ; [1948] 1 All E.R. 58, 59, 60 (C.A.) the Court of Appeal was considering the expression ' income received from investments' in the Finance (No. 2) Act, 1939, for imposition of excess profits tax. Section 12 of the 1939 Act dealt with 'profits arising in any chargeable accounting period from any trade or business to which this section applies'. Sub-section (4) of Section 12 said :
'Where the functions of a company or society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property, the holding of the investments or property shall be deemed for the purpose of this section to be a business carried on by the company or society.'
10. Then again, Schedule 7, Part I, Paragraphs 6(1) and (2) of the 1939 Act were as follows :
'(1) Income received from investments shall be included in the profits in the cases and to the extent provided in sub-paragraph (2) of this paragraph and not otherwise.'
'(2) In the case of the business of a building society, or of a banking business, assurance business or business consisting wholly or mainly in the dealing in or holding of investments, the profits shall include all income received from investments, being income to which the persons carrying on the business are beneficially entitled.'
11. Incidentally, the provisions of Section 12(4) of the English Finance (No. 2) Act, 1939, were the same as those in the first proviso to Section 2(5) of our Excess Profits Tax Act of 1940, and Lord Greene M. R. in construing the word 'investment' in the English provisions has clearly laid down at page 61 that it is not a word of art and has to be interpreted in a popular sense.
12. The next case is a decision of the House of Lords in Commissioners of Inland Revenue v. Gas Lighting Improvement Co. Ltd. The respondent-company In this case, which carried on the business of refining and distributing of petroleum and petroleum products, held certain shares in a Belgian company formed for the purpose of selling petrol, and certain shares and debentures in two Rumanian oil producing companies. The shares in the Belgian company were acquired as a part of an arrangement under which the respondent-company transferred its existing business in the Belgian company to the Asiatic petroleum company for which the Belgian company was to act as distributor. The shares and debentures in the Rumanian companies were acquired for the purpose of securing a supply of crude oil. It Was held that the shares and debentures in the Belgian and Rumanian companies were 'investments' of the respondent-company, within the meaning of the word in Rule 8 of Part 1 of the Fourth Schedule to the Finance (No. 2) Act, 1915, and that in accordance with the provisions of Rule 2 of Part III of that Schedule they must be deducted in computing the capital of the respondent-company for the purpose of excess profits tax. Rule 8 provides :
'In estimating the profits no account shall be taken of income received from investments except in the case of life assurance businesses andbusinesses where the principal business consists of the making of investments.'
13. Lord Sterndale M.R. said in the Court of Appeal (at page 524) :
'Now, are these participations, if I may so call them, in the shares of the Belgian company and the Rumanian companies, investments or are they not It is admitted that in the ordinary sense of the word they are investments. Learned counsel have kindly handed to me a number of definitions from various dictionaries which, so far as they deal with the business meaning of the word 'investment'--of course, it has a primary meaning nothing to do with business, and it also has a military meaning which has nothing to do with business but so far as they deal with the business meaning, the word 'investment' exactly describes what these holdings (to use a neutral word) of the respondents are. I see in the Oxford English Dictionary that 'investment' is denned as 'the conversion of money or circulating capital into some species of property from which income or profit is expected to be derived in the ordinary course of trade or business', and then it goes on to distinguish it from speculation.'
14. In the House of Lords, Viscount Cave L.C. has observed at page 534 :
'That they are investments in the ordinary sense of the term, probably no one would deny. They are money put out in the shares and securities of undertakings other than the undertaking of the appellant-company itself, with the expectation of receiving dividends or interest upon them ; and they satisfy any one of the definitions quoted by the Master of the Rolls from well-known dictionaries and any other definition of an investment which I am able to conceive.'
15. The Court of Appeal again construed the words 'income received from investments 'in the Finance (No. 2) Act, 1939 in the case of Inland Revenue Commissioners v. Broadway Car Co. (Wimbledon] Ltd., [1946]2 All E.R. 609, 610, 611 ; 29 T.C. A company carried on the business of motor car agents and repairers on land held on a lease from 1935 to 1956 at an annual rent of 750. By 1940, the company's business had dwindled under war conditions to such an extent that no more than one-third of the land was required. In those circumstances, the remainder was sub-let for 14 years at an annual rent of 1,150. The general commissioners of income-tax decided that the difference of 400 between the outgoing of 750 for the land retained and the incoming of 1,150 for the land disposed of was 'income received from an investment', and, the business not being one within the special categories mentioned in the Finance (No. 2) Act, 1939, that that 400 was not taxable. The Court of Appeal applied the test laid down in the case of Desoutter Bros. Ltd. and held that the word 'investment' must be construed in the ordinary, popular sense of the word as used by business men and not as a term of art having a defined or technical meaning and that it was impossible to say that the commissioners had erred in law in coming to the conclusion that the transaction resulted in an investment. At page 611, Cohen L.J. says :
'The expression is, therefore, not limited to investments which you would buy on the advice of a stock-broker--stock exchange investments. If you once go beyond that field, it seems to me reasonably clear that rents from leases or under-leases can properly, in suitable circumstances, be comprised within the phrase ' income from investments' in the Finance (No. 2) Act, 1939.'
16. Scott L.J. at page 610 has described the sub-lease which the Broadway Car Co. has granted, in these words :
' . , . . they tempered the wind to their shorn undertaking by making a prudent use of a good income-yielding investment, namely, their spare land.'
17. The last case we wish to refer to is that of Commissioners of Inland Revenue v. Tootal Broadkurst Lee Co. Ltd., [1949] 29 T.C. 352, 373 Here also the expression 'income received from investments' in Finance (No. 2) Act, 1939, has been construed. Lord Normand, at page 373, has said :
'The meaning of investment is not its meaning in the vernacular of the man in the street but in the vernacular of the business man. It is a form of income-yielding property which the business man looking at the total assets of the company would single out as an investment.... The business man would not limit income from investments to income from the kinds of securities which are quoted on the stock exchange, and he would, I think, regard as income from investment a profitable rent from a sublease of office premises, or the like....'
18. All the authorities cited above point to the conclusion that the word 'investment', in the context in which it appears in Explanation 2 to Section 23A of the Indian Income-tax Act, 1922, ought to be understood in the ordinary popular sense in which it is used by business men. And laying out of money in houses and immovable properties with a view to earn income regularly may be regarded as investments in appropriate cases.
19. The Supreme Court in Lakshminarayan Ramgopal and Son Ltd. y. Government of Hyderabad, : [1954]25ITR449(SC) observed :
'When a company is incorporated for carrying out certain activities it would be relevant to enquire what are the objects for which it has been incorporated.'
20. In the instant reference the objects of the assessee-company include, inter alia, (1) purchase of lands and buildings, and (2) leasing or letting out of lands and buildings for such consideration as the company may think fit. These are some of the purposes for which the company was incorporated, and in carrying out these objects it was investing moneys in house properties and receiving regularly incomes therefrom. These activities, therefore, constituted the business of the assessee. The tax authorities have found that the assessee's major income every year was derived from these house properties. The assessee, therefore, was a company whose business consisted mainly in the holding of investments in house properties and Explanation 2(1) to Section 23A would obviously be attracted to the case of such an assessee.
21. It is true that the respondent's income from house properties was assessed under Section 9 of the Indian Income-tax Act, 1922, but that does not make any difference. The main business of the assessee, it seems to us, on the facts found by the tax authorities below, was the business of investing in house properties and earning incomes from them from year to year. For the purpose of computation only, this income was assessed under Section 9. The Supreme Court in Commissioner of Income~tax v. Chugandas and Co., : [1965]55ITR17(SC) has held that the heads of income described in Section 6 of the Indian Income-tax Act, 1922, and further elaborated, for the purposes of computation in sections 7 to 10 and 12, 12A and 12B are intended merely to indicate the classes of income. Business income is broken up under different heads, says the Supreme Court, only for the purpose of computation of the total income. And by that breaking up the income does not cease to be the income from business, the different heads of income being only the classification prescribed by the Income-tax Act for computation.
22. Mr. Nirmal Mukherjee, learned counsel for the assessee, has contended before us that in order to attract the levy of super-tax under Section 23A, it has to be established that (1) dealing in and holding of investments is the sole or the main business of the company, and (2) dealing in or holding of investments includes dealing in or holding of house properties. Mr. Mukherjee's first point is that it is not enough that the major income of the assessee is from house properties. There must be evidence to show that the assessee carries on the business of dealing in or holding of investments in the shape of house properties. In support of this argument he has relied on the cases of Bengal Jute Mills Co. Ltd. v. Commissioner of Income-tax, [1949] 17 I.T.R, 308 (Cal.) Bengal and Assam Investors Ltd. v. Commissioner of Incomes-tax, : [1966]59ITR547(SC) and Dalhousie Investment Trust Co. Ltd. v. Commissioner of Income-tax, : [1967]66ITR473(SC) . In these cases it was pointed out that there had to be evidence to showwhat an assessee's business was. If for instance an asaessee was engaged in the manufacture and sale of jute products and had let out a portion of its business premises, it could not be said that the letting out of property was the sole or the main business of the assessee.
23. These cases, in our opinion, have no application to the facts in the present reference. Here, it appears, the tax authorities found that the assessee's main source of income was from properties purchased by the assessee, in other words, its main activity was to invest in house properties and to enjoy regularly the incomes derived from those properties. Moreover, these activities were well within the objects clause of the assessee's memorandum of association. In the context of these facts, we do not see any difference between the assessee's main activity and its main business and we are unable to accept this contention of Mr. Mukherjee.
24. As regards his second point, namely, that it must be shown that dealing in or holding of investments includes dealing in or holding of house property, the decision in Inland Revenue Commissioners v, Broadway Car Co. (Wimbledon) Ltd., cited above, provides the complete answer. It was clearly held in that case that the expression 'income received from investments' was not limited to investments purchasable through a stock broker in the stock exchange and in appropriate cases rents from leases or under-leases can also be held to be incomes from investments.
25. Mr. Mukherjee has made two other points ; he says, firstly, that the expression 'investment company' has acquired a technical meaning and is understood by a commercial man to be a company whose business consists of dealing in or holding of shares, securities, debentures, loans or bonds and not a company whose business consists of dealing in or holding of land or house property. According to Mr. Mukherjee, the word 'investment' in a fiscal statute has to be interpreted in this technical sense. Learned counsel's other contention is that since the Indian Income-tax Act 1922, has not defined 'investment' in the context of an investment company, reference should be made to other statutes where such a term or word or expression has been used or defined. The legislature, says Mr. Mukherjee, is presumed to know the meaning of such terms and expressions.
26. Counsel for the assessee has invited us to consider various provisions in various other statutes. For instance, in Section 87F of the Indian Companies Act, 1913, 'an investment company' has been stated to be a company 'whose principal business is the acquisition and holding of shares, stocks, debentures or other securities'. There are similar provisions in the new Companies Act as well. Mr. Mukherjee also referred us to some of the provisions of the Excess Profits Tax Act, 1940, wherein, as we have indicated, the expression 'holding of investments or other property' has been used. In the Finance Acts of 1937 and 1952 also these expressions can be found. Counsel for the assessee submits that these are indications to show that a distinction must always be borne in mind between immovable property and other types of investments. Lastly, Mr. Mukherjee showed to us the official quotations of the stock* exchange in which 'real property and zamindari' are always quoted separately from other kinds of investments.
27. These arguments of Mr. Mukherjee would be sustainable only if it were imperative for us to consider the meaning of 'investment' in Explanation 2(i) to Section 23 A in the context of an 'investment company'. But the English decisions cited above lead us to the conclusion that for construction of the word 'investment' in Section 23A we should not import meanings or considerations attributable to an 'investment company'. We have also stated earlier in this judgment that the relevant provisions of the English Profits Tax Act and those of our Excess Profits Tax Act were the Same and, in spite of that, uniformly English courts have decided that the word 'investment' must be understood in its popular sense and not in any technical sense.
28. Mr. Mukherjee also placed strong reliance on the decision of the House of Lords in Special Commissioners of Income-tax v. Pemsel, [1891] 3 T.C. 53 (H.L.). Here, it was held that the words 'charitable purposes' within the meaning of the Income-tax Act are to be interpreted not according to their popular meaning, but according to their technical legal meaning. We do not think that there can be any dispute as to this proposition. In fact, in Commissioners of Inland Revenue v. National Anti-Vivisection Society, [1945] 28 T.C. 311, 352; [1945] 2 All E.R. 529 ; [1948] A.C. 31 (H.L.) Lord Wright has observed :
' 'Charitable' in this context has reference to charitable in the legal sense. 'Charity', indeed, is here a word of art of precise and technical meaning.'
29. But, as we have pointed out earlier in this judgment, the word 'investment' has not been considered by English authorities to be a term of art at all and they are of the view that it should be given its 'popular' or 'vernacular' meaning.
30. For the reasons aforesaid, our answer to the question in this reference is in the affirmative and in favour of the department.
31. Each party will bear and pay its own costs.
A.N. sen, J.
32. I agree.