# BENGAL & ASSAM INVESTORS LTD v. COMMISSIONER OF INCOME TAX, WEST BENGAL

- **Citation:** [1966] 2 S.C.R. 471
- **Court:** Supreme Court of India
- **Decided:** 1965-11-02
- **Case number:** Civil Appeal No. 508 of 1964
- **Bench:** K. Subba Rao, J. C. Shah Ands. M. Sikri
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bengal-assam-investors-ltd-v-commissioner-of-income-tax-west-bengal-3597
- **Pages:** 9

## Headnote

Indian Income-tax Act, 1922
(Act 11 of 1922), s. !0-Jnvestment
Co1npany-Dividend inconze-lf taxable.
The ass·~ssee, an investment company,
was
assessed
to
income~
tax on its
dividend income under s. 12 of the Income Tax Act.
On reference the High Court held : "it cannot be suggested in this case
that the a'Ssessee investment company had no
business of any kind. It
certainly had one but when it held shares on which dividends were received tax has to be computed under s. 12 and the assessee cannot say
that this being its main activity the income
received was its 'business
income' under s. 10". In appeal to this Court the assessee
contended
that when a company is formed for the purpose of acquiring shares and
making investments and generally undertaking :financial and commercial
obligations and transactions and operations of all kinds, the dividend income must be computed under
s. 10 of Income-tax
Act, because the
company was formed expressly for the purpose of carrying on business
and holding shares in the course of it.
HELD : The High Court rightly answered the question against
the
asses'See.
On principle, before dividends on shares can be assessed under s. 1 O~
the assessee, be it an individual or a company or any other entity, must
carry on business in respect of shares; that is to say, the assessee must
deal in those shares.
If an individual person
invests in shares for the
purpose of earning dividend he is not carrying on a business. The only way
he CHn come under s. 10 is by converting the shares into stock-in-trade,
i.e. by carrying on business of dealing in Stock and shares. [478 E-F]
The very fact that a company is incorporated to carry on inve'stn1ent
does not show that the company is carrying on business. [478 G]
Laksh1ninarayan Ran1 Gopal & Son Ltd. v. Gover111nent of Hyderabad, 25 J.T.R. 449, relied upon.
Apart from showing mere investment, no facts have been brought out
in this case to show that the company was in any way carrying on business in respect of shares.
Its position was in no way different from an
individual merely buying shares with a view to holding them for the purpose of earning dividend9. [ 479 B-C]

## Text

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BENGAL & ASSAM INVESTORS LTD
v.
COMMISSIONER OF INCOME TAX, WEST BENGAL
November 2, 1965
[K. SUBBA RAO, J. C. SHAH ANDS. M. SIKRI, JJ.]
Indian Income-tax Act, 1922
(Act 11 of 1922), s. !0-Jnvestment
Co1npany-Dividend inconze-lf taxable.
The ass·~ssee, an investment company,
was
assessed
to
income~
tax on its
dividend income under s. 12 of the Income Tax Act.
On reference the High Court held : "it cannot be suggested in this case
that the a'Ssessee investment company had no
business of any kind. It
certainly had one but when it held shares on which dividends were received tax has to be computed under s. 12 and the assessee cannot say
that this being its main activity the income
received was its 'business
income' under s. 10". In appeal to this Court the assessee
contended
that when a company is formed for the purpose of acquiring shares and
making investments and generally undertaking :financial and commercial
obligations and transactions and operations of all kinds, the dividend income must be computed under
s. 10 of Income-tax
Act, because the
company was formed expressly for the purpose of carrying on business
and holding shares in the course of it.
HELD : The High Court rightly answered the question against
the
asses'See.
On principle, before dividends on shares can be assessed under s. 1 O~
the assessee, be it an individual or a company or any other entity, must
carry on business in respect of shares; that is to say, the assessee must
deal in those shares.
If an individual person
invests in shares for the
purpose of earning dividend he is not carrying on a business. The only way
he CHn come under s. 10 is by converting the shares into stock-in-trade,
i.e. by carrying on business of dealing in Stock and shares. [478 E-F]
The very fact that a company is incorporated to carry on inve'stn1ent
does not show that the company is carrying on business. [478 G]
Laksh1ninarayan Ran1 Gopal & Son Ltd. v. Gover111nent of Hyderabad, 25 J.T.R. 449, relied upon.
Apart from showing mere investment, no facts have been brought out
in this case to show that the company was in any way carrying on business in respect of shares.
Its position was in no way different from an
individual merely buying shares with a view to holding them for the purpose of earning dividend9. [ 479 B-C]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 508 of
1964.
Appeal from the judgment and order dated January 16, 1962
of the Calcutta High Court in Income-tax Reference No. 1 of
H
1954.
S. T. Desai, S. Murthy and B. P. Maheshwari, for the appellant.
472
SUPREME COURT REPORTS
[1966] 2 S.C.R.
A. V. Viswanatha Sastri, N. D. Karkhanis, R. H. Dhebar and
A
R. N. Sachthey, for the respondent.
The Judgment of the Court was delivered by
Sikri, J.
This is an appeal by certificate of the High Court of
Calcutta against its judgment in a reference made to it under
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s. 66 ( 1) of the Indian Income Tax Act, 1922 (hereinafter referred
to as the Act.)
The question referred by the Appellate Tribunal
was:
"Whether, in the cas~ of the assessee, an investment
company, its dividend income is part of its profits and
gains chargeable to tax under section 10 of the Indian
Income-tax Act, 192~ ?"
In the Statement of the Case, dated December 3, 1953, the
Appellate Tribunal gave the following facts : The appellant, Bengal
and Assam Investors Ltd., hereinafter referred to as the assessee,
was incorporated on January 30, 1947, and commenced business
on March 19, 1947. According to its memorandum of association, the company's objects are :
"3. The objects for which the Company is established are (and it is expressly declared that the several
sub-clauses of this clause
and all the powers thereof
are to be cumulative and in no case is the generality of
any one sub-clause to be narrowed or restricted by any
particularity of any other sub-clause, nor is any general
expression in any sub-clause to be narrowed or restricted
by any particularity of expression in the same sub-clause
or by the application of any rule of construction ejusdem
generis or otherwise) :-
(!) To acquire and hold shares, stocks, debentures,
debenture-stock, bonds, obligations, and securities issued
or guaranteed by any company constituted or carrying
on business in British India or elsewhere, or in any
British Colony, or dependency, or possession, or in any
foreign country, and debentures, debenture-stock, bonds,
obligations and securities, issued or guaranteed by any
government, specially including the Government of
India and a Provincial Government, sovereign ruler,
commissioner, public body, or authority, imperial,
supreme, national, municipal,
local or otherwise,
whether in India or elsewhere.
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B. & A. INVESTORS LTD. V. C,I.T. (Sikri, J.)
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(2) To acquire any such sharei;, stocks, debenB
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. tures, debenture-stock, bonds, obligations, or securities
by original supscription, tender, purchase, exchange, or
otherwise, and to subscribe for the same either conditionally or otherwise, and to guarantee the subscription
thereof and to exercise and enforce all rights, and powers
conferred by or incident to the ownership thereof .
( 8) To sell, invest in and vary the investment and
to reinvest in any shares, stocks, debentures stocks,
bonds, and obligations and securities.
( 11) To advance, deposit with or lend money,
securities and property to or receive loans or grants or
deposits from the Government.
( 12) To lend money, either with or without security,
and generally to such persons and upon such terms and
conditions as the Company may think fit.
( 13) To undertake financial and commercial obligations, transactions and operations of all kinds.
Provided that nothing herein contained shall be . . . .
deemed to empower the Company to carry on the business of banking."
The company closed its accounts for the first time en June 30;
194 7 and its accounting period was the year ending with June ..
In the assessment for 1948-49 a nett loss of Rs. 2,194 was computed. In the assessment for 1949-50 its grossed-up dividend'
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income was Rs. 32,727 but its expenditure (including interest on
borrowings to acquire shares, etc.) was Rs. 106,583, the resultant
Joss being Rs. 73,856.
The Income Tax Officer treated this
figure as unabsorbed business loss.
In the assessment for 1950-51,
the gross dividend income was Rs. 1,18,238 and the expenditure·
(including interest on borrowings, etc.) was Rs. 51,843 leaving
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a nett income for the previous year ending with June 30, 1949, of
Rs. 66,395. The Income Tax Officer in his order dated August l,
1951, held that as the sum of Rs. 66,395 was urofit from dividends,
business losses of 1948-49 and 1949-50 could not be set off. The'
assessee filed two appeals against the assessments made for 1949-50'
and 1950-51, and the Appellate Assistant Commissioner, by his
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order dated December 18, 1951, disposed of them by a common
order.
He held that the dividend income was not business income·
and was assessable under s. 12 of the Act. Accordingly, for the
474
SUPREME COURT REPORTS
[l 966] 2 S.C.R.
.assessment year 1949-5.0 he determined the loss from other sources
at Rs. 73,324 and he held that it could not be carried forward
as· it was a loss from other sources under s. 12. The assessee
filed two appeals before the Income Tax Appellate Tribunal, which
.by its order dated January 12, 1953, dismissed the appeals on
two alternative grounds; firstly it held that the dividend income
·was assessable only under s. 12 of the Act, as the assessee was an
investment company.
In the alternative, the Appellate Tribunal
held that even if the company were to be a dealer in shares, even
then in its opinion the dividend received as registered shareholders
would be dividend as such and assessable under s. 12. The
Appellate Tribunal concluded that "in our opinion, on either view
of the case, the loss of the preceding years cannot be adjusted
.against the dividend income of the assessee earned during the years
1949-50 and 1950-51."
The assessee then applied for a reference and suggested three
questions of law :
" ( 1) Whether in the facts and circumstances of the
case the assessee company is an investment holding company or an investment dealing company.
( 2) Whether in the facts and circumstances of the
case the dividends earned by the company should have
not been assessed under the head "Profits and gains of
business, profession or vocation" under section 10 of
the Indian Income Tax Act.
( 3) Whether in the facts and circumstances of the
case the loss brought forward from preceding years under
section 24 ( 2) of the Indian Income Tax Act should have
not been set off against the dividends earned by the
assessee company during the year in question."
The Commissioner of Income Tax in his reply suggested the
Jollowing question :
"Whether, on the facts and in the circumstances of
the case, the Tribunal was justified in holding that the
loss sustained by the assessee in the preceding years
cannot be set off against the dividend income earned
by the assessee in the previous year for the assessment
year 1950-51 under section 24(2) of the Income-tax
Act?"
The Tribunal, however, as mentioned earlier, referred the ques1tion already set out above.
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B. & A. INVESTORS LTD. V. C.l.T. (Sikri, J.)
47s;
The High Court, by its judgment dated August 31, 1955,.
found it impossible to deal with the reference and answer the
question asked without obtaining from the Tribunal further and
fuller statement of the case.
The High Court, therefore, referred·
the case back to the Appellate Tribunal under s. 66 ( 4) of the
Act "in order that the Tribunal may draw up and submit to that
Court a supplementary statement of the case, indicating clearly
what view it took as to the effect of the Appellate Assistant Commissioner's order in passing its appellate judgment and on what
basis regarding the year 1949-50 it has made the present reference.
To put the matter in a more definite form, the Tribunal
should indicate whether it regarded the Appellate Assistant Commissioner's order as having effectively revised the assessment order
and if it took that view of the Appellate Assistant Commissioner's
order, what the revision was, particularly whether any amount
was left in the assessment as unabsorbed business loss after the·
transfer of an amount to loss under other sources, directed by the·
Appellate Assistant Commissioner, had been carried out."
The Appellate Tribunal submitted a supplementary statement
of the case, dated February 18, 1957.
It was observed in the
statement of the case that "the Appellate Tribunal read the orders
of the Appellate Assistant Commissioner to mean that the assessee·
company was an investment company and was not a company
which dealt in shares.
The quantum of the loss in the assessment
year 1949-50 as suggested in the Appellate Assistant Commissioner's order was not adverted to by the Appellate Tribunal at
the time of the hearing of appeal as no arguments were addressed
to them on that point."
The supplementary statement mostly
oontained an interpretation of the orders of the Appellate Assistant
Commissioner and the Appellate Tribunal; the only fresh fact
included was the information that the Income Tax Officer in conformity with the order of the Appellate Assistant Commissioner
revised the assessment order for 1949-50 so as to change the
figures and held that the loss arising from the set-off of interest
against the dividend income was a loss under the head 'other
sources' while the balance was a business loss and was directed to
be carried forward.
In this order the Income Tax Officer had
stated that "loss under other sources cannot be carried forward as
it is under section 12.
Business loss of Rs. 532 will be carried
forward."
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The reference was then heard by a Bench consisting of Mitter
and Ray, JJ.
It was argued before the H_igh Co.urt that."inasmuch
as dividend is not expressly mentioned m sechon 12 m the case
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476
SUPREME COURT REPORTS
[1966] 2 S.C.R.
-of an investment company assessee whose business is to invest in
·shares dividend income therefrom should be computed under sec•
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ti on 1 O as its business income with the result that the asses see can'
daim the benefit of section 24(2) of the Act."
This contention,
however, did not appeal to the High Court.
The High Court held
that "it cannot be suggested in this case that the assessee investment
·company had no business of any kind. It certainly had one but B
when it held shares on which dividends were received tax has te'
be computed under s. 12 and the assessee cannot say that this
being its main activity the income received was its 'business income'·
under section 10." In the result, the High Court answered the
question in the negative.
Mr. S. T. Desai, learned counsel for the assessee, at the outset
asked us to modify the question referred to the High Court. He
'.Said that he had asked for three questions to be framed and that
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the Commissioner in his reply had also suggested the real question.
which arose out of the order of the Appellate Tribunal.
He
further says that the real point in this case is not whether the diviD
<lend income is assessable under s. 10 ors. 12, but whether under
s. 24(2) the assessee is entitled to set off the deficiency or loss
uccurring in the earlier years.
But the High Court was neither
requested to issue a mandamus nor requested to modify or formu-·
late another qi1estion and we are not prepared to frame a new question by way of modification of the question referred to the High
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Court.
Confining ourselves then to the question actually referred to the
High Court, the problem is quite simple, the problem being whether
an investment company like the assessee company can claim to.
have its dividends computed under s. 10 or s. 12. of the Act.,
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Mr. Desai contends that if you look at the objects of the company
it is apparent that the company is carrying on business. He further
relies on Commissioner of Income Tax v. Cocanada Radhmwanii
Bank Ltd. (1) and says that at any rate if the dividend income is
computed under s. 12, it slill is business income for the purpose of
s. 24(2).
He then draws our attention to Commissioner of
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lncome-Tax v. Chugandas and Co.(2) where this Court held that
"there is no reason to restrict the condition of the applicability of
the exemption under section 25 (3) only to income on which th~
tax was payable under the head "Profits and gains of business,
profession or vocation."
The exemption under section 25(3)
is general." But these two cases have no bearing on the question
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whether the dividend income has to be computed under s. 10 or
{I) 57 I.T.R. 306
(2) [1957] 8 S.C.R. 322
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B. &A. INVESTORS LTD. V. CJ.T. (Sikri,J.)
477
A s. 12 of the Act. They may have reference to the question sought
to be raised before us by way of modification and which we have
declined to modify. The main argument of Mr. Desai is that
when a company is formed for the purpose of acquiring shares and
niaking investments and generally undertaking financial and commercial obligations and transactions and operations of all kinds,
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the dividend income must be computed under s. 10 because the
company is formed expressly for the purpose of carrying on business and holding shares in the course of it.
In this connection
he refers to the following passage from the judgment of Lord
Stemdale in The Commissioner of Inland Revenue v. The Korean
C Syndicate Ltd.(') :
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"But the fact that the limited company comes into
existence' in a different way is a matter to be considered.
An individual comes into existence for many purposes,
or perhaps sometimes for none, whereas a limited company comes into existence for some particular purpose,
and if it comes into existence for the particular purpose
of carrying out a transaction by getting possession of
concessions and turning them to account, then that is a
matter to be considered when you come to decide whether
. doing that is carrying on a business or not."
. The learned counsel .for the Revenue, Mr. Viswanatha Sastri,
contends that the company was not holding shares as part of its
stock-in,trade, but was holding them merely as an investment
company, and he says that in this respect an investment company
even though it is formed under the Companies Act is in no way
different from an individual who invests his own moneys or borrows
and invests monies in shares for the purpose of getting dividends.
He drew our attention to East ·India Prospecting Syndicate,
Calcutta v.
Commissioner of Excess Profits Tax,
Calcutta( 2 ),
where the Calcutta High Court in dealing with the Excess Profits
Tax Act (XV of 1940) held that "the mere holdiug of property or
G investments cannot amount to a business within the meaning of
that term as used in the Indian Income-tax Act, 1922, and can
only amount to a business as that term is used in the Excess Profits
Tax Act, 1940, by reason of the proviso to Section 2 ( 5) of that
Act.
The proviso to Section 2 ( 5) of the Excess Profits Tax Act,
1940, only makes the holding of investments or property by limited
H companies and incorporated societies tantamount to carrying on of
business." But the assessee in that case was not carrying on any
(!) 12 T.C. 181 at p. 202
(2) 19 I.T.R. 571
478
SUPREME COURT REPORTS
[1966] 2 S.C.R.
investment business at all, and therefore, the decision is of not
much assistance to us.
The only assistance we can derive from
that decision is that the Central Legislature in enacting the Ex.c;ess
Profits Tax Act understood the word "business" to mean that the
term would not include a mere holding of investments, and made
a special provision to rope in limited companies or incorporated
societies which were holding investments or property within the
definition of the word "business".
Before the amendment of s. 12 by s. 9 of the Finance Act,
1955, it had been held by the Bombay High Court in Commissioner of Income Tax v. Ahmuty & Co. Ltd.(') that where a
company was a dealer in shares which constituted its stock-intrade the dividend income n:ceived by the assessee in respect of
its shares was income from business chargeable under s. 10 and
the Income-tax authorities could not compel the assessee to show
the income under s. 12.
But there is no case where it had been
held that even if the shares are not stock-in-trade of the assessee
company, the dividend can be assessed under s. 10.
It seems
that in practice an investment company was being assessed under s.
12 in respect of dividend income received by it. (see for example
Eastern Investment Ltd. v. Commissioner of Income Tax, West
Bengal(2 ), which is a case which came up to the Supreme Court.)
It seems to us that on principle before dividends on shares
can be assessed under s. I 0, the assessee, be it an individual or a
company or any other entity must carry on business in respect of
shares; that is to say, the assessee must deal in those shares.
It
is evident that if an individual person invests in shares for the
purpose of earning dividend he is not carrying on a business. The
only way he can come under s. I 0 is by converting the shares into
stock-in-trade, i.e. by carrying on business of dealing in stock
and shares as did the assessee in Commissioner of Income Tax v.
Bai Shirinbai K. Kooka(').
Mr. Desai laid a great deal of stress on the argument that the
very fact that a company is incorporated to carry on investment
shows that the company is carrying on business.
We are unable
to agree with this contention.
Bhagwati, J. observed in Lakshminarayan Ram Gopal and Son Limited v. Government of Hyderabad(') that "when a company is incorporated it may not necessarily come into existence for the purpose of carrying on a business."
He further observed that "the objects of an incorporated
(I) 27 l.T.R. 63
(3) 46 I.T.R. 86
(2) 20 I.T.R. 1
(4) 25 !. T.R. 449
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B. & A. INVESTORS LTD. V. C,I.T. (Sikri, J.)
479
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company as laid down in the memorandum of association are
certainly not conclusive of the question whether the activities of
the company amount to carrying on of business."
Apart from showing mere investment, no facts have been
brought out in this case to show that the company was in any way
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carrying on business in respect of shares.
Its position, on the
facts placed before us, is in no way different from an individual
merely buying shares with a view to holding them for the purpose
of earning dividends.
No authority has been cited before us
that in the case of an individual to acquire and hold shares with
the object of receiving dividends is to carry on business.
We are
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unable to hold that if a company does the same, it carried on
business within s. IO of the Act.
In the result we agree with the conclusion of the High Court
that the answer to the question must be in the negative.
The
appeal, therefore, fails and is dismissed with costs.
Appeal dismissed.
L2Sup.C.T/66-17