C.K. Banerji, J.
1. This reference under Section 66(1) of the Indian I.T. Act, 1922, at the instance of the Commissioner of Income-tax, (Central), Calcutta, arises out of proceedings under Section 23A of the Indian I.T. Act, 1922, initiated against Coochbehar Trading Co. (Private) Ltd., the assessee, in respect of the assessment years 1959-60, 1960-61 and 1961-62, for which the relevant previous years are the calendar years 1958, 1959 and 1960, respectively.
2. The facts found and/or admitted are shortly as follows :
3. The assessee being a company in which public are not substantially interested came within the mischief of the provisions of Section 23A of the Indian I.T. Act, 1922.
4. In the previous years relevant to the said assessment years the assessee had earned income from shares in other companies held by it and from interest on deposits made out of its surplus funds with Messrs. Soorajmull Nagarmull and Howrah Trading Co. (P.) Ltd. its allied concerns. Out of its distributable surplus the assessee declared dividends of more than 70% in the year 1958 and more than 65% in the years 1959 and 1960. The ITO issued notices under Section 23A of the India I.T. Act, 1922, to the assessee directing it to show cause as to why additional super-tax under the said section should not be levied on it as it was a company whose business consisted wholly or mainly in the dealing in or holding of investments and the dividends declared by it in the said years were less than the statutory percentage as provided by Expln. (2)(i) to the said section. The assessee contended that deposits made by it with the said concerns were not investments and its investment in shares being less than its investments in other business, it could not be said to be a company whose business consisted wholly or mainly in dealing in or holding of investments. Accordingly, no additional super-tax could be levied on it. The ITO rejected the contentions of the assessee and levied additional super-tax in each of the said years.
5. The assessee appealed to the AAC. It was, inter alia, contended on behalf of the assessee in the appeal that the assessee was not a company whose business consisted wholly or mainly in the dealing in or holding of investments and having declared dividends at the required statutory percentage out of its distributable surplus, Expln. 2(i) to Section 23A of the Act was not attracted. It was also contended that the assessee having distributed not less than the statutory percentage according to its returns, the ITO should have proceeded under Section 23A(2)(iii) of the Act giving three months' time to it to make good the deficiency. On behalf of the revenue, it was contended on the other hand that Clause 31 of the objects clause in its memorandum of association authorised the assessee to make investmentof its surplus money. Balance-sheets of the assessee for the relevant years were also relied on to show that the deposits of the assessee with its said allied concerns were out of its surplus funds and in the nature of investments. It was contended that the assessee was a company whose business consisted of, wholly or mainly, in the dealing in or holding of investments and the dividends declared by the assessee being short of the statutory percentage, additional super-tax was leviable on the assessee.
6. The AAC, inter alia, held that the cash deposits in the said two concerns were not investments and the income from the assessee's actual investments being far less than other income, the assessee was not a company whose business consisted wholly or mainly in the dealing in or holding of investments. He further held that the assessee having declared dividends of more than the statutory percentage was entitled to a notice under Section 23A(2)(iii) of the Act from the ITO for making further distribution and failure to give such notice vitiated the proceedings. The orders under Section 23A were cancelled by the AAC.
7. Being aggrieved, the revenue preferred further appeals to the Income-tax Appellate Tribunal. In the appeals the contentions of both the revenue and the assessee as made before the AAC were reiterated. The Tribunal upheld the order of the AAC and held that the cash deposits with the said two concerns could not be said to be the investments of the assessee and comparing the dividend income of the assessee from the shares held by it with the interest income on the deposits with the said two concerns held that the assessee was not a company whose business consisted wholly or mainly in dealing in or holding of investments.
8. On an application of the CIT (Central), Calcutta, the Tribunal has drawn up a statement of the case and has sent up the following question as a question of law for the opinion of this court :
' Whether, on the facts and in the circumstances of the case, the assessee was a company whose business consisted wholly or mainly in the dealing in or holding of investments so as to attract the higher statutory percentage fixed under Explanation 2 of Section 23A of the Indian Income-tax Act, 1922 '
9. At the hearing none appeared on behalf of the assessee.
10. Mr. Ajit Sengupta, learned counsel for the revenue, contended before us that the expression ' investment ' had a wide connotation and included loans and deposits. In its ordinary meaning and popular sense, money lent or deposited with a view to earn income therefrom is described as money invested in loans or deposits. One of the objects of the assessee in its memorandum of association was to invest and deal with its surplus moneys not immediately required, in pursuance of which the assessee had deposited its surplus funds with its allied concerns on a regular basis toearn interest. From the balance-sheets of the assessee for the relevant years it was seen that the income of the assessee was earned only from its investments in shares and from such deposits and in the relevant period the same were the only business of the assessee. Mr. Sengupta contended that in the said years the assessee was dealing in and holding investments in a systematic or organised manner with the purpose of earning profits. In support of his contentions, Mr. Sengupta cited the following decisions :
(a) CIT v. Distributors (Baroda) P. Ltd. : 83ITR377(SC) . In this case the Supreme Court construed Clause (i) of Expln. 2 to Section 23A of the Indian I.T. Act, 1922, and held that, to come within the mischief of the said section, a company must be one whose primary business should be ' dealing in or holding of investments ' and, following its earlier decisions in Narain Swadeshi Weaving Mills v. CEPT : 26ITR765(SC) and Bengal and Assam Investors Ltd. v. CIT : 59ITR547(SC) , held that the expression ' business of holding of investments ' consisted of some real, substantial and systematic or organised course of activity in relation to investments carried on for a set purpose such as earning profits.
(b) Nawn Estates (P.) Ltd. v. CIT : 106ITR76(SC) . Here also the Supreme Court considered Section 23A of the Indian I.T. Act, 1922, and Expln 2(i) thereto and held that the term ' investment ', in the context of the said section, was not a term of art and should not be given a restricted or technical meaning but should be understood in its popular sense.
(c) Charmugaria Trading Co. Ltd. v. CIT : 110ITR715(Cal) . This decision was cited for the following observation of this court (p. 721) :
' Before a company can be stated to be an investment company falling within the mischief of Section 109(ii) of the Income-tax Act, 1961, the following have to be found as a fact : (a) That the assessee is carrying on a business, i.e., it is carrying on a systematic or an organised activity with the set purpose, inter alia, of making profits.
(b) That the business consists of either dealing in investments, that is, dealings in shares, securities, etc., or holding of investments.
(c) That such business is its primary business.'
11. From the facts found and the material on record it appears that the assessee in the instant case is carrying on a systematic and organised activity of earning profits from investments made in, (a) shares of other companies, and (b) deposit of its surplus funds with its allied concerns earning interest. The latter activity, in our view, is definitely an investment in the ordinary or popular sense of the term. It is also evident that the said business of the assessee was not only its primary business butthe only business in the said years. The assessee, in our view, therefore, came within the mischief of Section 23A of the Indian I.T. Act, 1922, read with Expln. 2(i) thereto. The dividends declared by the assessee in the relevant years being short of the statutory percentage as required under the said section, the question referred is answered in the affirmative and in favour of the revenue. There will be no order as to costs.
D.K. Sen, J.
12. I agree.