×Latest Case Laws on Income Tax by various High Courts of India
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24-04-2019, Shankar Sales Promotion, Section 73, 72, HIGH COURT AT CALCUTTA
The judgment to be del vered by brother Md. Nizamuddin, J. at my invitation, is to be treated as the first judgment of the Court. However, I would like to add a few words of my own.
What has assumed importance in this case is the interpretation that has to be given to the words ‘principal business’.
Mr. Murarka submits that apart from the business of purchase and sale of shares the assessee company carries on the business of granting loans, advances etc. and has a significant income from other sources as shown in their profit and loss account for the relevant financial year. Therefore, the business of purchase and sale of shares is not their principal business. Hence it is entitled to adjust the loss incurred by them by trading in shares against their business income.
Now, what is to be taken as the principal business of the assessee, is a purely technical matter. It involves principles in the field of general law, corporate law, accountancy, revenue law and so on.
In this case, the assessee is a limited company. It has a memorandum of association. It has to undergo audit. It is required to file its balance-sheet and profit and loss account with the Registrar of companies It a so files its income tax return.
No authority has been shown to us which would give a guidance to determine the principal business of the assessee for the purpose of taking benefit under Section 73 of the Income Tax Act, 1961.
Is the principal business of the assessee to be determined on the basis of the businesses mentioned in its memorandum of association? Whether turnover of the assessee is an indication of its principal business? Suppose an assessee makes substantial capital expenditure in a year for promotion of a particular business which it claims to be its principal business but its turnover in that year is much less than the turnover from other business, could the assessee claim the former business to be its principal business? Suppose the assessee carries on more than one business and the turnover of one business is less than the others but the profit of that business is more because the expenses are less. Would that business become the principal business? In my opinion, all the above factors have to be judiciously analysed and assessed to determine the principal business of a Corporate assessee. There may be other factors also.
Therefore, what is the principal business of the assessee is a very tricky question of fact which needs to be determined by the tribunal threadbare. With these observations, I entirely agree with the conclusions and the reasons by which those conclusions have been reached by my learned brother. I also agree with the final order that his lordship has passed.