MOMAYA INVESTMENTS P. LTD, MUMBAI V. ITO 1(2)(3), MUMBAI

ITA 5303/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1424 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 12-07-2010
• Assessment Year: 1996-1997
• Appeal Filed On: 21-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L K AGARWAL
• Assessee Lawyers: S E DASTUR
• Keywords: Opportunity of being heard; Speculation loss

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI R.V.EASWAR, PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.5303/MUM/2008 A.Y 1996-97 MOMAYA INVESTMENTS P. LTD., ARMY & NAVY BLDG., 3 RD FLOOR, 148, M.G.ROAD, MUMBAI 400 001, PAN: AAACN 8922 E VS. INCOME TAX OFFICER 1(2)(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.E.DASTUR. RESPONDENT BY : SHRI L.K.AGARWAL. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUND: THE LD. CIT(A)-I (HEREINAFTER REFERRED TO AS ASSES SING OFFICER) ERRED IN TREATING THE APPELLANT COMPANY AS INVESTMENT COM PANY FOR THE PROVISIONS OF EXPLANATION TO SECTION 73 AND NOT A C OMPANY ENGAGED IN THE BUSINESS OF GRANTING OF LOANS AND ADVANCES WHER E 68% OF TOTAL INCOME OF THE APPELLANT IS OF INTEREST INCOME AND B ILLS REDISCOUNTING CHARGES INCOME, THEREBY CONSIDERED THE LOSS INCURRE D IN TRADING OF SHARES OF RS.14,43,240/- AS SPECULATION LOSS. 2. BRIEF FACTS OF THE CASE ARE THAT ORIGINAL ASSESS MENT WAS COMPLETED U/S.143[3] VIDE ASSESSMENT ORDER DATED 30 -12-1998 WHERE THE TOTAL INCOME ASSESSED WAS RS.8,58,522/-. LATER ON, A REVISION ORDER U/S.263 WAS PASSED ON 14-3-2001 WHEREIN IT WAS OBSE RVED THAT ASSESSEE HAS DEALT IN SHARES AND, THEREFORE, EXPLAN ATION TO SEC.73 WAS ATTRACTED SINCE ASSESSEE COMPANY WAS NOT COVERED BY THE EXEMPSTION BECAUSE THE MAIN INCOME DID NOT CONSIST OF INTERES T ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS OR INCOME FROM OTHER SOURCES. SINCE THIS ISSUE WAS NOT EXAMINED BY THE AO THE ASSESSMENT 2 ORDER WAS SET ASIDE AND THE AO WAS DIRECTED TO VERI FY THE APPLICABILITY OF EXPLANATION TO SEC.73. 3. THE ASSESSEE WENT IN APPEAL BEFORE THE TRIBUNAL AGAINST THIS ORDER. THE TRIBUNAL THOUGH OBSERVED THAT AO HAS NOT CONSIDERED THE ISSUE OF APPLICATION OF EXPLANATION TO SEC.73, THER EFORE, THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE, BUT AT THE SAME TIME LD. COMMISSIONER HAS NOT PROPERLY CONSIDE RED THE FACTS IN THE LIGHT OF THE INSTRUCTIONS OF THE BOARD IN CIRCU LAR NO.2024, THEREFORE, THE MATTER WAS REMANDED TO THE FILE OF THE COMMISSI ONER. THE LD. COMMISSIONER PASSED A FRESH ORDER U/S.263 ON 23-3-2 006 AND OBSERVED VIDE PARA-4 AS UNDER: 4. AS FAR AS THE OBJECT OF INTRODUCING EXPLANATION TO SEC.73 IS CONCERNED, THOUGH THE PROVISION WAS INTRODUCED IN O RDER TO CURB THE DEVICE RESORTED TO BY BUSINESS HOUSES CONTROLLING G ROUPS OF COMPANIES, THE FACT REMAINS THAT THE PROVISION OF THE EXPLANAT ION ARE APPLICABLE TO ALL ASSESSEES WHETHER OR NOT THEY ARE PART OF A GRO UP COMPANIES. THE MAIN ISSUE INVOLVED IS WHETHER THE PRINCIPLE BUSINE SS OF THE ASSESSEE COMPANY IS THAT OF GRANTING OF LOANS AND ADVANCES. IF IT IS SO, THE ASSESSEE WILL NOT BE HIT BY THE EXPLANATION TO SEC. 73. AS POINTED OUT BY THE ITAT IN ITS ORDER OF 21-10-2005, THERE WAS NON APPLICATION OF MIND ON THE PART OF THE AO REGARDING EXPLANATION TO SEC. 73. THIS BEING SO, THE ASSESSMENT ORDER U/S.143[3] PASSED BY THE AO WA S ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. THE ASSESSM ENT ORDER IS, THEREFORE, SET ASIDE AND THE AO IS DIRECTED TO REFR AME THE ORDER AFTER INDEPENDENTLY CONSIDERING WHETHER EXPLANATION TO SE C.73 IS APPLICABLE OR NOT IN THE LIGHT OF THE FACTUAL POSITION DISCUSS ED ABOVE AS WELL AS THE LEGAL POSITION AS TO WHAT CONSTITUTES THE PRINCIPAL BUSINESS OF THE ASSESSEE COMPANY. THE AO SHALL GIVE THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD BEFORE DECIDING THE ISSU ES INVOLVED. 4. IN PURSUANCE OF THE ABOVE ORDER, A FRESH NOTICEU /S.142[1] WAS ISSUED. IT WAS NOTICED BY THE AO IN FRESH ASSESSMEN T PROCEEDINGS THAT ASSESSEE WAS ALSO DOING BUSINESS OF BILL DISCOUNTIN G/RE-DISCOUNTING AND IN RESPONSE TO A QUERY IT WAS SUBMITTED THAT UNDER CONTRACTUAL 3 OBLIGATION BETWEEN THE ASSESSEE COMPANY AND PARTIES TO THE BILLS, AS THE BILLS WERE REDISCOUNTED AND PLACED ONLY AS A CO LLATERAL SECURITY. ON THE QUERY AS TO WHY EXPLANATION TO SEC.73 SHOULD NO T BE APPLIED, IT WAS CONTENDED BEFORE HIM THAT ASSESSEE WAS MAINLY E NGAGED IN THE BUSINESS OF PROVIDING OF LOANS AND ADVANCES AND, TH EREFORE, EXPLANATION TO SEC.73 WAS NOT APPLICABLE. THE ASSES SEE HAD RECEIVED INTEREST OF RS.15.70 LACS AND BILL DISCOUNTING CHAR GES OF RS.22.21 LACS AND THIS TOTAL AMOUNT OF RS.37.91 LACS CONSTITUTED APPROXIMATELY 68% OF THE TOTAL INCOME OF THE ASSESSEE AND, THUS, THE MAIN BUSINESS OF THE ASSESSEE WAS OF INVESTMENTS AND GRANTING LOANS AND, THEREFORE, EXPLANATION TO SEC.73 WAS NOT APPLICABLE. 5. AFTER CONSIDER THE SUBMISSIONS THE AO OBSERVED T HAT THIS WAS A COMPLETE TURN AROUND FROM THE NATURE OF BUSINESS WH ICH WAS SUBMITTED EARLIER VIDE LETTER DATED 2-7-1998 IN WHI CH THE BUSINESS OF THE ASSESSEE WAS STATED TO BE AS UNDER: THE ASSESSEE COMPANY IS BASICALLY AN INVESTMENT CO MPANY TRADING IN SHARES. BESIDES IT ALSO RECEIVED INTEREST ON LOANS GIVEN OUT OF SURPLUS TO VARIOUS PARTIES. IT HAS INVESTMENTS IN SHARES ON WH ICH IT RECEIVES DIVIDEND. THE COMPANY IS ALSO IN THE BUSINESS OF FI NANCIAL SERVICES IN THE AREA OF CORPORATE FINANCE SYNDICATIONS AND PRIM ARY AND SECONDARY MARKET SUB-BROKING FOR WHICH COMPANY RECEIVES COMMI SSION AND SUB- BROKERAGE. THE ABOVE NATURE OF BUSINESS ALONG WITH THE MAIN OB JECT CLAUSE THROUGH WHICH ASSESSEES MAIN OBJECT WAS ONLY TO AC QUIRE OR HOLD OR DEAL IN STOCKS AND SHARES, ONLY SHOWS THAT MAIN BUS INESS OF THE ASSESSEE WAS TO DEAL IN STOCKS AND OBJECT REGARDING LENDING AND ADVANCING OF MONEY WAS ONLY AN ANCILLARY OBJECT VID E CLAUSE 15 OF MEMORANDUM OF ASSOCIATION. THE AO FURTHER OBSERVED THAT ASSESSEE 4 HAD COMPLETELY CHANGED ITS STAND ON ITS BUSINESS AC TIVITY. HE ALSO OBSERVED THAT THE ACTIVITY REGARDING GIVING MONEY O N BILLS WAS DESCRIBED AS RE-DISCOUNTING AND SUCH BILL RE-DISCOU NTING CANNOT BE INTERPRETED AS ADVANCING OF LOANS. ACCORDINGLY, HE INVOKED EXPLANATION TO SEC.73 AND THE LOSS INCURRED ON ACCOUNT OF SALE AND PURCHASE OF SHARES AMOUNTING TO RS.14,43,240/- WAS HELD AS SPEC ULATION LOSS. 6. BEFORE THE LD. CIT(A) IT WAS MAINLY CONTENDED TH AT IF THE MAIN BUSINESS OF THE ASSESSEE WAS GRANTING OF LOANS AND ADVANCES, THEN SUCH ASSESSEE WAS NOT HIT BY THE PROVISIONS OF EXPL ANATION TO SEC.73. SINCE ASSESSEES MAIN BUSINESS WAS OF ADVANCES AND LENDING LOANS AND ASSESSEE HAD RECEIVED 68% OF ITS INCOME FROM INTERE ST AND BILL DISCOUNTING CHARGES AND ASSESSEE HAD ALSO PAID INTE REST TAX ON INCOME FROM DISCOUNTING AND INTEREST, THEREFORE, ASSESSEE WAS NOT COVERED BY EXPLANATION TO SEC.73. RELIANCE WAS ALSO PLACED ON THE DECISIONS OF KARNATAKA HIGH COURT IN THE CASE OF STATE BANK OF M YSORE VS. CIT [175 ITR 607], AND PUNJAB & HARYANA HIGH COURT IN THE CA SE OF CIT VS. STATE BANK OF PATIALA [300 ITR 395]. AFTER CONSIDER ING THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT AS POINTED OUT BY THE AO THE MAIN BUSINESS AS MENTIONED IN MEMORANDUM OF ASSOCIATION WAS THAT OF ACQUISITION AND DEALING OF IN SHARES AND ADVANCEMEN T OF LOAN WAS ONLY AN ANCILLARY OBJECT. HE WAS ALSO OF THE VIEW THAT T HE ACTIVITY OF BILL DISCOUNTING IS DIFFERENT FROM MONEY LENDING. HE WAS ALSO OF THE VIEW THAT THE DECISIONS RELIED ON BY THE ASSESSEE WERE R ENDERED UNDER THE INTEREST TAX ACT AND, THEREFORE NOT APPLICABLE. ACC ORDING TO HIM, IN 5 SIMILAR SET OF FACTS, THE HON'BLE MADHYA PRADESH HI GH COURT IN THE CASE OF CIT VS. STATE BANK OF INDORE [172 ITR 24] HAD HE LD THAT BILL DISCOUNTING CHARGE IS NOT ASSESSABLE TO TAX UNDER I NTEREST TAX ACT. THEREFORE, THE ACTIVITY OF BILL REDISCOUNTING WAS N OT ASSESSABLE UNDER THE INTEREST TAX ACT HENCE SUCH ACTIVITY COULD NOT BE CONSIDERED OF ADVANCING LOANS FOR THE PURPOSE OF EXPLANATION TO S EC.73 AND, ACCORDINGLY, HE CONFIRMED THE ORDER OF THE LD. CIT( A). 7. BEFORE US, LD. SENIOR ADVOCATE OF THE ASSESSEE S UBMITTED THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS OF GIVIN G LOANS AND ADVANCES. HE ARGUED THAT EVEN BILL DISCOUNTING CHAR GES HAVE TO BE TREATED AS ONLY GRANTING OF LOANS. IN THIS REGARD, HE REFERRED TO PAGE 6 OF THE PAPER BOOK, WHICH IS A COPY OF THE DETAILS O F BILL REDISCOUNTING FOR WIPRO FINANCE. HE POINTED OUT THAT THE BILLS WE RE DRAWN BY SOME OUTSIDE PARTIES AND WIPRO FINANCE HAD PROVIDED THE FUNDS. IN TURN, WIPRO FINANCE GOT THESE BILLS RE-DISCOUNTED FROM TH E ASSESSEE. HE EXPLAINED FROM THE DETAILS THAT HOW A SUM OF RS.10 LACS AFTER 90 DAYS WOULD BECOME A SUM OF RS.10,55,982/- AND THIS AMOUN T OF RS.55,982/- WAS ONLY INTEREST FOR THE PERIOD OF 90 DAYS. THE BI LLS WERE NEVER ENDORSED IN FAVOUR OF THE ASSESSEE AND ASSESSEE WAS BASICALLY PROVIDING FUNDS TO WIPRO FINANCE BY WAY OF RE-DISCO UNTING WHICH IS ONLY ONE OF THE METHODS OF GRANTING OF LOANS. 8. HE THEN REFERRED TO THE COMMENTARY ON THE INCOME TAX ACT BY A.C. SAMPATH IYENGAR, VOLUME THREE PAGE 5001 WHEREI N THE AUTHORS HAVE REFERRED TO CIRCULAR NO.204 OF THE BOARD WHERE IN THE AMENDMENT 6 BY WAY OF AN INSERTION TO EXPLANATION TO SEC.73 HAS BEEN EXPLAINED. IT IS VERY CLEARLY MENTIONED IN THE SAID CIRCULAR THAT THE EXPLANATION WOULD NOT BE APPLICABLE TO INVESTMENT OR BANKING COMPANY OR COMPANY CARRYING ON THE BUSINESS OF GRANTING OF LOANS AND A DVANCES. 9. HE FURTHER ARGUED THAT AO HAS OBJECTED TO THE PR OPOSITION THAT ASSESSEE WAS IN THE BUSINESS OF GRANTING LOANS AND ADVANCES ON THE BASIS THAT MAIN OBJECT OF THE MEMORANDUM AND ARTICL ES OF ASSOCIATION WAS ONLY TO ACQUIRE, HOLD OR DEAL IN STOCKS AND SHA RES. HE ARGUED THAT THE OBJECTS AS MENTIONED IN THE MEMORANDUM OF ASSOC IATION ARE NOT CONCLUSIVE AND IN THIS REGARD RELIED ON THE DECISIO N OF COMMISSIONER OF INLAND REVENUE VS. HYNDLAND INVESTMENT COMPANY LTD. [15 ITR 698]. HE PARTICULARLY REFERRED TO THE OBSERVATIONS MADE B Y LORD PRESIDENT CLYDE AT PAGE 699. IN THIS REGARD HE ALSO RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HI MALAYAN TILES AND MARBLES PVT. LTD. [100 ITR 177] AND CIT VS. PARLE PLASTICS LTD. [332 ITR 63]. 10. HE ALSO INVITED OUR ATTENTION TO THE DECISION O F THE KARNATAKA HIGH COURT IN THE CASE OF STATE BANK OF MYSORE VS. CIT [SUPRA] WHICH WAS RELIED ON BEFORE THE CIT[A]. HE POINTED OUT THA T IN THIS CASE THE ISSUE WAS WHETHER REDISCOUNTING CHARGES WERE SUBJEC T TO INTEREST TAX OR NOT AND THE HON'BLE HIGH COURT HAS CLEARLY HELD THAT SUCH AMOUNT WOULD CONSTITUTE INTEREST. THUS, THE BUSINESS OF BI LLS REDISCOUNTING WOULD IN TURN BE THE INCOME IN THE FORM OF INTEREST AND, THEREFORE, IT CANNOT BE SAID THAT THE BUSINESS OF BILLS REDISCOUN TING IS CLEARLY IN THE 7 NATURE OF GRANTING OF LOANS AND ADVANCES. SIMILAR V IEW WAS TAKEN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. BANK OF PATIALA [SUPRA] BY FOLLOWING THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF STATE BANK OF MYSORE VS. CIT [SUPRA] . HE ARGUED THAT THE DECISION RELIED ON BY THE CIT[A] IN THE CASE OF CIT VS. STATE BANK OF INDORE [172 ITR 24] IS CLEARLY DISTINGUISHABLE BECA USE IN THAT CASE THE AMOUNT INVOLVED WAS ON ACCOUNT OF CHARGES FOR DELAY ED PAYMENTS. IN ANY CASE, THE WORD DISCOUNT ITSELF WOULD INDICATE THAT IT RELATES TO INTEREST AND IN THIS REGARD HE REFERRED TO THE BLAC KS LAW DICTIONARY WHERE THE WORD DISCOUNT HAS BEEN DEFINED. THUS, I T IS CLEAR THAT BILL DISCOUNTING IS ONLY AN ACTIVITY IN THE NATURE OF GR ANTING OF LOANS AND, ACCORDINGLY, PROVISIONS OF EXPLANATION TO SEC.73 WE RE NOT ATTRACTED. 11. ON THE OTHER HAND, LD. DR STRONGLY RELIED ON TH E ORDERS OF THE AO AND LD. CIT(A). 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND FORCE IN THE SUBMISSIONS OF THE LD. ADVOCATE OF THE ASSESSEE. EXPLANATION TO SEC.73 READS AS UNDER: EXPLANATION. WHERE ANY PART OF THE BUSINESS OF A COMPANY ( [OTH ER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MA INLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SE CURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME F ROM OTHER SOURCES], OR A COMPANY THE PRINCIPAL BUSINESS OF W HICH IS THE BUSINESS OF BANKING OR THE GRANTING OF LOANS AND ADVANCES) C ONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUC H COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE C ARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUS INESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. A PLAIN READING OF THE ABOVE CLEARLY SHOWS THAT SOM E EXCEPTION HAS BEEN CARVED OUT IN THE PROVISION ITSELF AND THE SAM E IS NOT APPLICABLE TO 8 A COMPANY WHOSE INCOME IS CHARGEABLE UNDER THE HEAD S INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. FURTHER, EXPLANATION TO SEC.73 IS NOT APPLICABLE IF THE PRINCIPAL BUSINESS OF THE COMPANY IS BANKING OR GRANTING OF LOANS AND ADVANCES. WE FURTHER FIND THAT THE CLAIM OF THE ASSESSEE THAT IT IS DOING BUSINESS OF GRANTING LOANS AND ADVANCES HAS B EEN REJECTED BY THE AO BY OBSERVING THAT THE MAIN OBJECT OF THE ASS ESSEE AS PER MEMORANDUM OF ASSOCIATION WAS AS UNDER: TO ACQUIRE, HOLD OR DEAL IN STOCKS, SHARES, DEBENT URES, SECURITIES, LANDS, BUILDINGS, HOUSES, FLATS, BUNGALOWS, SHOPS A ND SUCH OTHER MOVABLE AND IMMOVABLE PROPERTIES. HE HAS ALSO OBSERVED THAT ASSESSEE HAS ITSELF THROU GH ITS LETTER DATED 2-7-1998 DESCRIBED ITS BUSINESS AS UNDER: THE ASSESSEE COMPANY IS BASICALLY AN INVESTMENT CO MPANY TRADING IN SHARES. BESIDES IT ALSO RECEIVED INTEREST ON LOANS GIVEN OUT OF SURPLUS TO VARIOUS PARTIES. IT HAS INVESTMENTS IN SHARES ON WH ICH IT RECEIVES DIVIDEND. THE COMPANY IS ALSO IN THE BUSINESS OF FI NANCIAL SERVICES IN THE AREA OF CORPORATE FINANCE SYNDICATIONS AND PRIM ARY AND SECONDARY MARKET SUB-BROKING FOR WHICH COMPANY RECEIVES COMMI SSION AND SUB- BROKERAGE. 13. IN THIS REGARD, THE FIRST ISSUE IS WHETHER THE REAL NATURE OF BUSINESS HAS TO BE ASCERTAINED OR THE BUSINESS MENT IONED IN THE OBJECT CLAUSES OF MEMORANDUM OF ASSOCIATION HAS TO BE TAKE N AS PRINCIPAL BUSINESS OF THE ASSESSEE. THE COURT OF SESSION, SCO TLAND IN THE CASE OF COMMISSIONER OF INLAND REVENUE VS. HYNDLAND INVESTM ENT COMPANY LTD. [SUPRA] HAD OBSERVED AT PAGE 699 AS UNDER: THE FIRST POINT THAT STROKES ONE IS THAT THE COMPA NY IN ITS MEMORANDUM OF ASSOCIATION DESCRIBES ITS OBJECTS AS BEING THE ACQUISITION OF LAND AND OTHER HERITABLE PROPERTY, A ND THE HOLDING OF THE SAME AS AN INVESTMENT, AND THE DIVISION OF THE INCO ME THEREOF. THAT IS NOT, HOWEVER, CONCLUSIVE, BECAUSE THE QUESTION IS N OT WHAT BUSINESS 9 DOES THE TAXPAYER PROFESS TO CARRY ON, BUT WHAT BUS INESS DOES HE ACTUALLY CARRY ON. AT THE SAME TIME IT IS NOT RELEV ANT TO OBSERVE THAT, SO FAR AS THE CONSTITUENT DOCUMENTS OF THIS PARTICULAR COMPANY GO, ITS OBJECTS WERE NOT CONCERNED WITH SPECULATION IN REAL PROPERTY, BUT WITH THE ACQUISITION AND MANAGEMENT OF PERMANENT INVESTM ENTS IN HOUSE PROPERTY AND SIMILAR SUBJECTS. THEREFORE, IT IS CLEAR THAT WHAT IS IMPORTANT IS NO T THE OBJECT STATED IN THE MEMORANDUM OF ASSOCIATION BUT IT IS ALSO IMPORT ANT TO LOOK AT THE ACTUAL ACTIVITY OF THE ASSESSEE. THIS ISSUE HAS ALS O BEEN CONSIDERED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . HIMALAYAN TILES AND MARBLE PVT. LTD. [SUPRA] WHEREIN IT WAS OBSERVE D BY THE COURT AT PAGE 186 AS UNDER: IT WAS SUBMITTED THAT THIS WAS AN ISOLATED TRANSAC TION. BUT IN G. VENKATASWAMI NAIDU'S CASE (SUPRA), GAJENDRAGADKAR, J. (AS HE THEN WAS), SPEAKING FOR THE SUPREME COURT, HAS EXPO SED THE FALLACY OF THIS APPROACH. IT WAS FURTHER SUBMITTED THAT THE ACQUISITION OR PURCHASE OF AN ACTIONABLE CLAIM AS S UBJECT-MATTER OF THE LITIGATION CANNOT BE TRADE OR BUSINESS. IT W AS POINTED OUT IN CONNECTION WITH THIS BRANCH OF THE ARGUMENTAND THIS SEEMS TO HAVE IMPRESSED THE TRIBUNAL ALSO THAT THE MEMOR ANDUM OF OBJECTS OF THE COMPANY DID NOT PERMIT IT TO TRADE I N ACTIONABLE CLAIMS. THE FACT THAT THERE WAS NO SUCH PROVISION I N THE MEMORANDUM OF OBJECTS APPEARS TO ME TO BE IRRELEVAN T FOR THE PURPOSE OF THIS DECISION, THOUGH IF THERE HAD BEEN SUCH A PROVISION IT WOULD HAVE CLEARLY DECIDED THE MATTER AGAINST THE ASSESSEE. THAT THE ASSESSEE EMBARKED UPON A VENTURE DIFFERENT FROM HIS USUAL LINE OF BUSINESS OR EVEN EMBARKED ON A VENTURE WHICH IN LAW IT WAS NOT PERMITTED TO EMBARK UPON, C ANNOT REALLY AFFECT THE CONSIDERATION OF THE QUESTION WHETHER TH E VENTURE EMBARKED UPON WAS BY WAY OF TRADE OR NOT. IN THIS C ONNECTION I HAVE ALREADY NOTED HOW IN THE FACTS AND CIRCUMSTANC ES OF THE CASE IT WOULD BE PROPER TO COME TO THE CONCLUSION T HAT SUCH ACQUISITION WAS WITH A VIEW TO OR IN THE EXPECTATIO N OF MAKING A PROFIT. I HAVE ALREADY EMPHASIZED IN THIS CONNECTIO N THE LACK OF COMPULSION IN JULY, 1957, ON THE PART OF THE ASSESS EE TO ACQUIRE THESE TWO CLAIMS. I HAVE FURTHER EMPHASIZED THE FAI RLY CLOSE PROXIMITY BETWEEN THE ACQUISITION OF THE CLAIMS AND THE REALISATION OF SURPLUS IN RESPECT OF THE SECOND CLA IM. FROM THE ABOVE IT IS CLEAR THAT ABSENCE OF MENTION OF PARTICULAR BUSINESS ON THE OBJECT CLAUSE IS NOT A RELEVANT CRI TERIA TO ASCERTAIN THE 10 NATURE OF BUSINESS. THEREFORE, IT IS CLEAR THAT MER ELY NOT MENTIONING THE BUSINESS OF BILL DISCOUNTING OR GRANTING OF LOA NS AND ADVANCES IN THE MEMORANDUM OF ASSOCIATION, WOULD NOT MEAN THAT ACTUAL NATURE OF BUSINESS CANNOT BE LOOKED AT. THIS IS PARTICULARLY IN A CASE WHEN THE NATURE OF BUSINESS HAS TO BE EXAMINED IN THE CONTEX T OF DEEMING PROVISION. THEREFORE, IT IS IMMATERIAL WHETHER THE BUSINESS OF GRANTING OF LOANS AND ADVANCES OR DISCOUNTING BUSINESS, IS M ENTIONED IN THE OBJECTS OF MEMORANDUM OF ASSOCIATION. 14. THE SECOND ISSUE WHICH REQUIRES TO BE CONSIDERE D IS WHETHER THE ACTIVITY OF BILL REDISCOUNTING WOULD AMOUNT TO BUSI NESS OF GRANTING OF LOANS OR NOT. AS POINTED OUT BY THE LD. SR. ADVOCAT E WHEN ASSESSEE REDISCOUNTS BILLS IT IS ENTITLED TO A PARTICULAR AM OUNT. THE WORD DISCOUNT HAS BEEN DEFINED IN BLACKS LAW DICTIONA RY AS UNDER: DISCOUNT IN A GENERAL SENSE, AN ALLOWANCE OR DEDUCTION MADE FROM A GROSS SUM ON ANY ACCOUNT WHATEVER. IN A MORE LIMITED AND TECHNICAL SENSE, THE TAKING OF INTEREST IN ADVANCE. THE ABOVE MAKES IT CLEAR THAT IN REGARD TO FINANCIA L TRANSACTION IN TECHNICAL SENSE THE WORD DISCOUNT REPRESENTS INTE REST. 15. FURTHER IN THE CASE OF CIT VS. VIJAYA BANK [175 ITR 607] THE HONBLE KARNATAKA HIGH COURT WHERE THE ISSUE WAS WH ETHER REDISCOUNTING CHARGES PAID WERE TO BE INCLUDED UNDE R THE DEFINITION OF INTEREST FOR THE PURPOSE OF INTEREST TAX THE HONLBL E HIGH COURT QUOTED FROM THE BYLES ON BILLS OF EXCHANGE (24 TH EDITION) AS FOLLOWS: A BANKER CLEARLY GIVES VALUE FOR A BILL WHEN HE DI SCOUNTS IT, THE TRANSACTION CONSISTING OF THE PURCHASE OF THE BILL AT A DISCOUNT, I.E., ALLOWING THE INTEREST FOR THE TIME THE BILL HAS TO RUN, SUBJECT, IN THE EVENT OF DIS-HONOUR, TO A RIGHT OF RECOVERY FROM TH E PERSON FOR WHAT IT IS DISCOUNTED. 11 AFTER THE ABOVE OBSERVATIONS AND DETAILED DISCUSSIO N IT WAS ULTIMATELY HELD THAT THE REDISCOUNTING CHARGES RECEIVED BY THE ASSESSEE WELL AS THE AMOUNTS COLLECTED FOR DELAYED PAYMENTS WERE HEL D TO BE IN THE NATURE OF INTEREST UNDER THE INTEREST TAX ACT. THIS DECISION HAS BEEN FOLLOWED BY THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. STATE BANK OF PATIALA [SUPRA]. THE LD. CIT( A) HAS DISTINGUISHED THESE DECISIONS BY OBSERVING THAT FACTS ARE DIFFERE NT AND THESE DECISIONS HAD BEEN RENDERED UNDER THE INTEREST TAX ACT. HOWEVER, THIS IS NOT PROPER THOUGH THESE DECISIONS ARE NOT DIRECT LY ON THE POINT AND WERE RENDERED UNDER THE INTEREST TAX ACT, BUT THE S AME IS THE CASE WITH THE DECISION OF THE HON'BLE MADHYA PRADESH HIG H COURT IN THE CASE OF CIT VS. STATE BANK OF INDORE [SUPRA] WHICH WAS ALSO RENDERED UNDER THE INTEREST TAX ACT. AS POINTED OUT BY THE L D. SR. ADVOCATE OF THE ASSESSEE, THE DECISION IN THE CASE OF CIT VS. S TATE BANK OF INDORE [SUPRA] IS DISTINGUISHABLE BECAUSE IN THAT CASE THE ISSUE RELATED TO ONLY AMOUNTS RECEIVED ON ACCOUNT OF DELAY IN PAYMENT BEY OND THE DATES OF GRACE. THUS, THE HON'BLE MADHYA PRADESH HIGH COURT WAS CONCERNED ONLY WITH THE ISSUE WHETHER SUCH OVER DUE CHARGES W OULD ALSO AMOUNT TO INTEREST OR NOT. AS POINTED OUT BY THE HON'BLE K ARNATAKA HIGH COURT THE DISCOUNTING WOULD AMOUNT TO INTEREST FOR THE TI ME THE BILL IS TO RUN WHICH WOULD IN TURN MEAN THAT REDISCOUNTING CHARGES HAVE TO BE CONSTRUED AS INTEREST ONLY. THEREFORE, WE ARE OF TH E VIEW THAT THE ACTIVITY OF BILLS REDISCOUNTING WOULD AMOUNT TO GRA NTING OF LOANS AND ADVANCES AND, ACCORDINGLY, EXPLANATION TO SEC.73 WO ULD NOT BE 12 APPLICABLE. IN THESE CIRCUMSTANCES, WE SET ASIDE TH E ORDER OF THE LD. CIT(A) AND DELETE THE ADDITION MADE ON ACCOUNT OF S PECULATION LOSS BY INVOKING EXPLANATION TO SEC.73. 16. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 22/6/2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 22/6/2011. P/-*