LexCOMMISSIONER OF INCOME TAX, GUJARAT versus DISTRIBUTORS (BARODA) (P) LTD.
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726 COMMISSIONER OF INCOME TAX, GUJAR4T A v. DISTRIBUTORS (BARODA) (P) LTD. September l 6, 1971 [K. S. HEGDE AND A. N. GROVER, JJ.J Jndian Income.Jax Act, 1922, s. 23A-"ln the case of a co111pany lVhose business consists wholly or mainly in the dealing in or holding of jnvesunent", nzeaning of-Whether holding share of only flVo atnnpanies of ·which it is the Managing Agent is an 'investment company' lrithin the scope of the section. B The assessee is a private limited company and was the Nfanaging Agent of two other companies. All the shares held by the assessee com- C pany as its investments were the shares of those two companies. The Income·tax authorities held that the assessee company was an 'investment company' within the scope of s. 23A of the Act and ordered the company to pay super tax as provided under s. 23A( I). The High Court in refer- ence held in favour of the assessee. Dismis~ing the appeals, HELD: (I) In the facts and circumstances of the present ease, the a~cssee company cannot be said to be an 'investment company· corning D within the scope of s. 23A of the Aet. The meaning of the expression ''in the case of" a comp.any \.\·hose busi- ness consists wholly or mainly in the dealing in or holding of investments'' both in the main s. 23A and in the Explanation concerns itself with a con1pany whose business consists "wholly or mainly in the dealing in or holding of investments''. The \.\'Ord '·malnly" must necessarily take its colour from the word "wholly" preceding that word. Jn other words the E ~ompany \.\'hich comes \Vithin the scope of those provisions· must be a company \\'hose primary business is in the dealing in or holding: of invest 4 ments and only in such cases, s. 23A applies. And the expression 'busi- -ness of holding of investments' in the said section refers to a real, substan- tial and systematic or organised course of activity of investment carried on by an assess« for a set purpo'e such as earning profits. [730 H, 731 DJ AH the shares held by the assessee company as its investments \Vere F the shares of the two companies of which it was the Managing Agent. These investments were made for a collateral purpose viz., to have a firm grip over its Managing Agency business. The investments made by the ~st!8see ~ompany in the shares of the ruaLJaged companies are essentially linked \\'Jth illi ?vianaging Agencies and not with the dealing of that com- pany in shares of other co1npanies. ·111e company's total income from dividend income of the shares of the managed companies and the Manag- ing Agency commission together is much more than the income earned G by the company from its sha're dealings. Further the assets of the com- pany used in its share dealings are not more that its other assets. There- fore, it cannot be said that the assessee company's business consisted wholly or main!; . in the dealing in investments. f7.B FJ Bengal Assam Investors Ltd. v. C.l.T., West Bengal, 54 l.T.R. 547 and Narain Swadesh Weaving Mills v. Commissioner of Excess Profits Tax, 26 l.T.R. 765, referred to. H CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2350 to 2353 qf 1968 and 1313 to 1316 of 1971. A B c D E c.1.T. v. DISTRIBUTORS (P) LTD. ·(Hegde, !.) 727 Appeals by certificate from the judgment and order dated July 7, 1967 of the Gujarat High Court in Income-tax Reference No. 22 of 1965. S. C. Manchanda, R. N. Sachthey 311.d B. D. Sharma, for the appellant (in all the appeals). S. T. Desai and /. N. Shroff, for the respondent (in all the appeals). The Judgment of the Court was delivered by Hegde, J. These are some of the appeals where the appel- lant unfortunately had to file two different appeals in respect of the same matter. Civil Appeals Nos. 2350-2353 of 1968 were brought on the strength of the certificates granted by the High Court of Gujarat. No reasons were given in support of those certificates. Hence those certificates must be considered as\ hav- ing not been properly granted. The resulting position was that the appeals brought on the strength of those certificates beca.me unsustainable. To get over that difficulty, the Commissioner _of Income-tax, Gujarat invoked our jurisdiction under Art. 136 of the Constitution to appeal against the judgment of the High Court. Civil Appeals Nos. 1313-1316 of 1971. The assessee is a Private Limited Company and the concerned assessment years are 1957-58, 1959-60,
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