Distributors (Baroda) Private Ltd. v. Commissioner Of Income-Tax

1. This reference arises out of an order made upon the assessee under section 23A of the Income-tax Act, 1922, for the assessment years 1957-58, 1959-60, 1960-61 and 1961-62 and raises a short and interesting point. The assessee is a private limited company admittedly governed by the provisions of section 23a and the question at issue is whether the assessee is a company "whose "business" consists wholly or mainly in the dealing in or holding of investments" within the meaning of clause (i) of the second Explanation to that section. If it is, the statutory percentage applicable will be 100, whereas,if it is not, the statutory percentage applicable will be 60 and that has a material effect on the tax liability of the assessee.

2. The assessee was incorporated on 11th October, 1941, and its original subscribed and paid up capital was Rs. 2,00,000. It appears that at some point of time prior to 20th May, 1957, - the exact date does not appear on the record - the subscribed and paid up capital was increased and during the relevant account years, it was Rs. 18,00,000. Soon after its incorporation in July, 1942, the assessee promoted a new company called New India Industries Limited and the assessee was appointed managing agent of that company under an agreement dated 24th July, 1942. The assessee was also appointed managing agent of another company called Cotton Fabrics Private Limited which was floated earlier by the same group of persons who floated the assessee and that was done under an agreement dated 22nd April 1943. The managing agencies of both the companies continued to subsist in the relevant account years. The assessee held a considerable number of shares of the managed companies during the relevant years of account and according to the finding of fact recorded by the Tribunal, these shares were held by the assessee for the purpose of safely retaining the managing agencies of the managed companies. Besides the shares of the managed companies, the assessee admittedly did not hold any other shares as investments, but a "business" of dealing in shares was carried on by the assessee and in the course of that "business" the assessee held diverse shares from time to time and earned dividend on those shares. Two statements were filed by the assessee before the Tribunal, one containing the particulars of the shares held by the assessee and the other showing the income derived by the assessee from various sources during the relevant account years. The statement showing the income was not accurate since the dividend income which it disclosed consisted of net dividends received from the companies and not the grossed up amount of the dividends. The figures of dividends in the statement were, therefore, corrected before us and a revised statement showing the correct gross income was put in by consent of parties. According to the revised statement, the income derived by the assessee from different sources during the relevant account years was as follows :

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Assessment year.

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3. On these facts the question arose before the Income-tax Officer whether the assessee was a company whose "business" consisted mainly in dealing in or holding of investments so as to attract the applicability of clause (i) of the second Explanation which provided the highest statutory percentage, namely, 100 per cent. The Income-tax Officer took the view that the income from shares held as stock-in-trade of the "business" of dealing in shares coupled with the income by way of dividends on shares of managed companies held by the assessee was very much more than the income from managing agency "business" in each accounting year and that the investments in shares also accounted for a large part of the total assets of the assessee and the assessee was, therefore, a company whose "business" consisted mainly in dealing in or holding of shares. The Income-tax Officer accordingly applied the statutory percentage provided under clause (i) of the second Explanation. The assessee carried the matter in appeal to the Appellate Assistant Commissioner but also took the same view and confirmed the application of clause (i) of the second Explanation. The assessee thereupon preferred an appeal to the Tribunal but this appeal also met with the same fate. The assessee then required the Tribunal to make a reference to this court and at the instance of the assessee, the Tribunal referred the following two questions for the opinion of this court :

"(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the assessee-company is an investment company for the purposes of section 23A of the Income-tax Act, 1922 ?

(2) Whether the Tribunal was justified in law in holding that while determining the undistributed balance of the total income for charging super-tax under the provisions of section 23a of the Act, no deduction can be allowed in respect of the expenses actually incurred by the assessee-company but disallowed for the purposes of computing its assessable income ?"

4. The second question was not pressed by Mr. Kaji, learned advocate appearing on behalf of the assessee and, therefore, we have not considered it necessary to state any facts bearing upon that question. The first question was the only question which formed the subject-matter of controversy between the parties and we shall presently examine the rival arguments bearing upon it, but before we do so, it is necessary to point out that the question as framed does not bring out properly the real controversy between the parties. There is no expression like an "investment company" used in section 23A or for the matter of that in any other part of the Act and the use of that expression is, therefore, not appropriate in the question. The real controversy between the parties is whether the assessee falls within clause (i) of the second Explanation to section 23A and it is, therefore, necessary to reframe the question as follows :

"Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the assessee-company is a company whose "business" consists mainly in dealing in or holding of investments within the meaning of clause (i) of the second Explanation to section 23A of the Income-tax Act, 1922 ?"

This is the question which we shall now proceed to consider and answer.

5. The determination of the question turns primarily on the true interpretation of clause (i) of the second Explanation to section 23A, but in order to understand the proper meaning and import of that clause, it is necessary to look at the section as a whole. section 23a, omitting portions immaterial, provides inter alia as follows :

"23A. (1) Where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the total income of the company of that previous year as reduced by.... the Income-tax Officer shall, unless he is satisfied that, having regard to the losses incurred by the company in earlier years or to the smallness of the profits made in the previous year, the payment of a dividend or a larger dividend than that declared would be unreasonable.... make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessment under section 23, be liable to pay super-tax at the rate of fifty per cent. in the case of a company whose "business" consists wholly or mainly in the dealing in or holding of investments, and at the rate of thirty-seven per cent. in the case of any other company on the undistributed balance of the total income of the previous year, that is to say, on the total income as reduced by the amounts, if any, referred to in clause (a), clause (b) or clause (c) and the dividends actually distributed, if any."

6. Section 23A contemplates that the profits and gains distributed as dividends by any company should not be less than the statutory percentage of the total income of the company as reduce by the amounts specified in the section and different statutory percentages are prescribed depending on the nature of the "business" carried on by the company. It may be that in the case of a company carrying on a particular type of "business", it may be necessary that some profits and gains must be ploughed back in the "business" and the company should not be compelled to distribute the entire profits and gains whereas, in the case of another company carrying on a different kind of "business", it may not be necessary to retain any profits and gains and the entire profits and gains can be distributed without any detriment to the "business". The legislature, therefore, provided different statutory percentages in Explanation 2 to the section and that Explanation runs as follows :

"Explanation 2. - For the purposes of this section, statutory percentage means -

(i) in the case of a company whose "business" consists wholly or mainly in the dealing in or holding of investments ..... 100%

(ii) in the case of an Indian company whose "business" consists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power ....45%

(iv) in the case of any other company not referred to in the preceding clauses -

(a).............. ..... 90%

(b).............. .... 60%"

If the assessee falls within clause (i) of the second Explanation, the statutory percentage applicable to it would be 100, but if it does not fall within clause (i), it would be governed by clause (iv), sub-clause (b), in which event the statutory percentage would be 60.

7. The argument of the revenue which found favour with the Tribunal was that the assessee carried on three "business"es, one of managing agency, the other of dealing in investments and the third of holding of investments and the second and the third "business"es combined together constituted the main part of the "business" of the assessee, inasmuch as, the income of the assessee from these two "business"es was far in excess over the income from the first "business", namely, the managing agency "business", and, therefore, the case of the assessee was covered by clause (i) of the second Explanation. This argument was sought to be met on behalf of the assessee by a three-fold contention. The first two contentions were based on the construction of clause (i) of the second Explanation while the third contention related to the application of that clause. All the three contentions were aimed at excluding the income by way of the dividends on shares of managed companies from being considered along with the income from shares held as stock-in-trade for the purpose of determining the applicability of clause (i) of the second Explanation. We shall deal with these three contentions in the order in which they were pressed before us.

8. The first contention urged on behalf of the assessee was that on a true construction of its language, clause (i) of the second Explanation required that either the "business" of dealing in investments or the "business" of holding of investments should constitute the whole or main part of the "business" of the company and the two "business"es could not be combined together for the purpose of determining whether the requirement of that clause was fulfilled. The contention sought to effect a dichotomy between the two parts of the expression "dealing in or holding of investments" and it was urged that the requirement of the preceding clause, namely, "Whose "business" consists wholly or mainly in" must be satisfied by one or the other of the two activities described in the expression "dealing in or holding of investments" and both could not be taken together for the purpose of answering the requirement of that clause. We cannot accept this contention. It is plainly contrary to the language of the clause. The clause starts by saying "a company whose "business" consists wholly or mainly in" and then sets out the subject-matter which is governed by the proposition "in". What must be the whole or main part of the "business" of the company is denoted by the words "dealing in or holding of investments" and obviously it may be one or the other or both. This construction receives support if we compare the language of clause (i) with that of clause (ii). Clause (ii) talks of an Indian company whose "business" consists wholly in the manufacture or processing of goods or in mining or in the generation or distribution of electricity or any other form of power. There are three genuses of "business" activities specified in clause (ii). One is the manufacture or processing of goods; the other is mining; and the third is generation or distribution of electricity or any other form of power. Each of the first and the third genuses comprises two or more "business" activities of an allied nature. On a plain grammatical construction of its language, what has to be considered for determining the applicability of clause (ii) is whether the "business" consists wholly of the activities comprised in any one genus. The "business" of the company may be partly of manufacture and partly of processing of goods but the "business" being constituted wholly of only these two activities which constitute the first genus, the requirement of clause (ii) would be statisfied. In the same way, dealing in and holding of investments are activities of an allied nature in the sense that both deal with investments and that is why they are clubbed together and it would be sufficient compliance with clause (i) if the "business" consists wholly or mainly in the dealing in investments or holding of investments or both. It is, therefore, not possible to accept the contention of the assessee that we must test the applicability of clause (i) by reference only to one or the other of the two activities mentioned in that clause and that both activities cannot be combined for the purpose of showing that they constitute the whole or main part of the "business" of the company attracting the applicability of clause (i).

9. It was then contended on behalf of the assessee that holding of investments can never be a "business" and, therefore, when the Legislature used the words "whose "business" consists..... in..... holding of investments", the Legislature had misfired and clause (i) could have no application to the activity of holding of investments. Clause (i), aruged the assessee, postulated that holding of investments was a "business" of the company but if that postulate was found to be incorrect, no effect could be given to clause (i) in so far as it referred to the activity of holding of investments. It was, therefore, contended that clause (i) must be read as if it required that the "business" of the company must consist wholly or mainly in the dealing in investments and, if that was the way in which clause (i) was read, it was obvious, said the assessee, that the requirement of clause (i) was not satisfied, for the "business" of the assessee did not consist wholly or mainly in the dealing in shares. This argument was sought to be supported by reference to two decisions, one a decision of the Calcutta High Court in East India Prospecting Syndicate v. Commissioner of Excess Profits Tax, and the other a decision of the Supreme Court in Bengal and Assam Investors Ltd. v. Commissioner of Income-tax. The decision of the Calcutta High Court in East India Prospecting Syndicate v. Commissioner of Excess Profit Tax clearly lays down that mere holding of investments or property would not be "business" within the meaning of the term as used in the Income-tax Act. But it is not necessary to make any detailed reference to this decision since we find that the same proposition has been affirmed by the Supreme Court in Bengal and Assam Investors Ltd. v. Commissioner of Income-tax. The company which came before the Supreme Court in this case was admittedly not a dealer in shares and it merely held Investments for the purpose of earning dividends. The question arose whether the dividends on the investments were assessable under section 10 or section 12. Section 12(1A) was not in the Act at the relevant time and, therefore, if the holding of investments by the company could be said to be carrying on "business", dividends would be taxable under section 10 : otherwise they would be taxable under section 12. The company which was interested in bringing the dividends under section 10 contended that it was carrying on "business" of holding investments and the dividends were, therefore, assessable under section 10. But this contention was rejected and the Supreme Court held that the term ""business"" does not include a mere holding of investments and a company which invests in shares for the purpose of earning dividends cannot be said to be carrying on a "business". The Supreme Court observed and here we are quoting the precise words of the judgment :

"It seems to us that on principle before dividends on shares can be assessed under section 10, 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 section 10 is by converting the shares into stock-in-trade, i.e., by carrying on the "business" of dealing in stocks and shares as did the assessee in Commissioner of Income-tax v. Bai Shirinbai K. Kooka."

10. Reliance was placed on behalf of the company on the fact that the activity of investment was being carried on by a company as distinguished from an individual and that the company was incorporated to carry on the activity of investment, but the argument based on this circumstance was rejected by the Supreme Court in the following words :

"Mr. Desai laid a great deal of stress on the argument that the very fact that the 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 Lakshminarayan Ram Gopal and Son Limited v. Government of Hyderabad,that when company is incorporated it may not necessarily come into existence for the purpose of carryiny on a "business".'He further observed that 'the objects on an incorporated 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 the "business".'"

11. The Supreme Court pointed out that there was nothing to show that the company was in any way carrying on "business" in respect of shares and its position was

"in no way different from an individual merely bying shares with a view of holding them for the purpose of earning dividends"

and concluded by saying :

"No authority as been cited before us that in case of an individual to acquire and hold shares with the object of receiving dividends is to carry on "business". We are unable to hold that if the company does the same, it carried on "business" within the section 10 of the Act."

12. No doubt, the specific question in this case was whether the dividends were assessable under the section 10 or section 12, but for the purpose of deciding that question it was necessary to find whether the company was carrying on "business" and the Supreme Court said in no uncertain terms that a company which is merely holding investments for the purpose of earning dividends cannot be said to the carrying on "business". It may be noted that the word ""business"" is not giving any special meaning under section 10. That word had been used under section 10 in its ordinary natural connotation and the decision of the Supreme Court cannot, therefore, be explained away by saying that in that case the Supreme Court was merely considering the question in the context of section 10. The decision of the Supreme Court must, therefore, be taken as lying down that the company which is merely holding investments for the purpose of earning dividends cannot be said to be carrying on "business". There can be no "business" of holding investments in the ordinary acceptation of the word.

13. The learned Advocate-General relied upon a decision of Rowlatt J. in the Commissioner of Inland Revenue v. Tyre Investment Trust Ltd. in support of his contention that even holding of investment can be regarded as carring of the "business". Now it is undoubtedly true that Rowlatt J. does say in this decision that the activity of making and holding investments for the purpose of earing dividends would amount to carry on the "business", but in view of the decision of the Supreme Court to which we have just referred, we do not think we can accept what is said by the Rowlatt J. as applicable under the Indian Income-tax Act. The learned Advocate General also relied upon the decision of the Supreme Court in Karnapura Development Co. v. Commissioner of Income-tax but we do not think that decision says anything contrary to what is laid down in Bangal and Assam Investment Ltd. v. Commissioner of Income-tax. That was the case were the assessee acquired mining leases for the purpose of turning them to account by sub-leasing them as an internal part of its "business" and not merely for the purpose of holding them as property. The mining leases acquired by the assessee were, to use the language of accountancy, circulating capital as distinguished from fixed capital. On these facts, the Supreme Court held that the activity of the assesse amounted to "business". The decision, therefore, does not lay down that mere holding of investments or property as distinguished from turning them to account can amount to carrying on of "business".

14. It would, therefore, appear that strictly speaking with company which is merely holding investments cannot be said to be carring on "business" : there can be no "business" of holding investments within the meaning of the Income-tax Act. But the question is : does not necessarily follow from this proposition that we must regard clause (i) of the second Explanation as meaningless in so far as it refer to the "business" of holding investments or we should reject the word "holding of investments" as dead-wood. Lord Hobhouse, speaking on behalf of the Judicial Committee of the Privy Council, observed in Salmon v. Duncombe.

"It is, however, a very serious matter to hold that when the main object of the statute is clear, it shall be reduced to a nullity by the draftsman's unskilfulness or ignorance of law."

15. The same principal was reiterated by Lord Justice Mackinnon in Sutherland Publishing Co. v. Caxton Publishing Co. (No. 2), when he said :

"When the purpose of the enactment is clear, it is often legitimate because it is necessary, to put a strained interpretation upon some words which been inadvertently used, and of which the plain meaning would defeat the obvious intention of the Legislature. It may even be necessary, and therefore legitimate, to substitute for an inapt word or words that which such intention requires."

16. If the legislative intent is expressed with sufficient clarity and there is no doubt as to what the Legislature intented to accomplish it would not be right on our part to defeat the intention of the Legislature merely because of the technical inappropriateness of language used by the Legislature. The duty of the court, as pointed by the Viscount Simon L.C. in Rex v. General Commissioner of Income Tax for the City of London : ex parte Gibbs

"in construing a statute such as this is to find what the Legislature must be taken to have really meant by the expression which it has used, without necessarily attributing of the Legislature a precise appreciation of the technical appropriateness of its language"

. This rule of construction was applied by this court in Guatam Sarabhai v. Commissioner of Income-tax.

17. Now if we look at the clause (1) of the second Explanation it is clear that the Legislature intented to bring within the scope and ambit of the clause not only companies whose ""business"" consisted wholly or mainly in holding of investments. The legislative intent is made clear beyond doubt by the use of the words "holding of investments". It is no doubt true that the word ""business"" may not be strictly appropriate in the sense that, as now held by the Supreme Court Bengal and Assam Investors Ltd. v. Commissioner of Income-tax, there can be no "business" in holding of investments within the meaning of the Income-tax Act but that could be no ground for rejecting words "holding of investments" as meaningless. The Legislature obviously regarded continuous, systematic or organized activity of making and holding the investments with a view of gaining income from the investment as a "business" and used the word ""business"" not only in reference to dealing in shares but also to relation to holding of investments. It may be noted that Rowlatt J., whose outstanding knowledge on the subject of income-tax was praised by as high a judicial authority as the House of Lords, also considered that holding the investments of investments can be a "business" and rule 8 of the Fourth Schedule to the English Finance (No. 2) Act of 1915 in fact uses the words "principal "business" of making investments" and so also does section 372(10) of the Companies Act, 1956. We cannot, therefore, disregard the words "holding the investments" and read clause (i) in a truncated manner as suggested on behalf of the assessee.

18. But at the same time it must be remembered that the Legislature has the used word ""business"" in relation to holding the investments and, therefore, what the Legislature has in mind was not the mere fact of holding the investments but the ""business"" of holding the investments. The word ""business"" must receive its due meaning and emphasis and it must be held to connote what S.R. Das J., as he than was, described in Narin Swadeshi Weaving Mill v. Commissioner of Excess profits Tax, as "some real, substantial and systematic or organised course of activity to conduct with a set purpose", namely, gaining income from the investments. It is only if the holding of the investments is a part of such course of activity or conduct pursued with the set purpose of earning income from the investments that it would be a "business" of holding the investments as understood by the Legislature in clause (i). Suppose a company which is carrying on "business" of running a textile mill has surplus fund and it invests a shares, the company would undoubtly be holding investments, but can it be said that its "business" consists in holding of investments ? Take another case, the case of an insurance company, which was given by my learned brother in the course of the arguments. Such a company in the course of its "business" would necessarily make large investments of its money with a view to earning interest. But on that account, would it be correct to say that its "business" consists in holding the investments ? The holding of investments would not be a "business" of the company in either case; the "business" of the company would be manufacturing textile goods in the first case and insurance in the other. Mere holding the investments is not sufficient to attract the applicability of the clause. What the clause requires is, and that is for the revenue to establish, that it must be a ""business"" of the company to hold investments. The company must indulge in holding the investments as ""business"" activity or, in other words, its ""business"" must be that of what is popularly known as an investment company. It is only if the company is engaged in the ""business"" of holding the investments, or, to put it differently, it is "real, substantial and systematic or organised course of activity or conduct" is directed toward making and holding the investments with a view to gaining income from the investments that the question would arise whether this activity standing by itself or coupled with the activity of dealing in shares constitutes the whole or main "business" of the company.

19. It is in the light of these principles that we have to determine whether the assessee in the present case had any ""business"" of holding of investments during the relevant account year. Strong reliance was placed on behalf of the revenue on the holding of the assessee of shares in the managed companies and it was urged that they were investments held by the assessee and the "business" of the assessee, therefore, consisted in the holding of investments. Now, it is no doubt true that the shares of managed companies were held by the assessee and they were investments of the assessee in the sense that they represent moneys of the assessee employed in the shares. But, as pointed out above, that is not enough to attract the applicability of clause (i). What is necessary to be established by the revenue is that the assessee indulged in "real, substantial and systematic or organised course of activity" of holding investments with a view of gaining income from the investments or, in other words, its activity was that of an investment company.

20. Now, one important and the salient fact which becames immediately noticeable when we look at the statement of shares held by the assessee is that besides the shares in the managed companies, the assessee did not hold any other shares as investments. There is undoubtedly a large bulk of shares held by the assessee as part of the stock-in-trade of the "business" of dealing in ivestments but so far as the holding the investments is concerned, apart from the shares of the managed companies, there were no other shares held by the assessee as investments. Now, as the finding of fact recorded by the Tribunal shows, the shares of the managed companies were held by the assessee for the purpose of safety retaining the managing agencies of the managed companies which were assets productive of income. These shares were investments made for the purpose of holding the managing agencies and they presented as it were the monies required to be invested for purpose of holding and retaining the managing agencies. These shares were not held at part of a "business" activity of holding investments and it would be stretching the words of there breaking point to say in these circumstances that the assessee had the

"business"

of holding investments.

21. The revenue relied strongly on certain clauses in the memorandum of association of the assessee for the purpose of showing that holding of investments was within the object clause contained in the memorandum of the association and, therefore, the investment held by the assessee constituted the "business" of the assessee. Now, it is undoubtly true that it is within the power of the assessee under the memoramdum of association to acquire and hold investments and that is precisely why the assessee could legitimately invest in the shares of the managed companies but from the mere existence of the power in the memorandum of association, it does not follow that the holding of investments by the assessee was by way of "business" activity. This very argument which is now advanced on behalf of the revenue was put forward on behalf of the assessee in Bengal and Assam Investors Ltd. v. Commissioner of Income-tax and it was negatived by the Supreme Court in the passage which we have quoted above. There is also a passage in the judgment of Lord President Clyde in the Court of Sessions in Balgownie Land Trust Limited v. Commissioners of Inland Revenue, where it is observed :

"One is not, however, entitled to infer from the circumference that a company is professedly formed with trading purpose in view and for trading objects that the transactions in which it engages necessarily constitute a trade or "business"; because it does not follow from the fact that it has object and power such as I have indicated that it actually uses them for the purposes of conducting the usual "business" of a company trading in real estate."

This passage was quoted with approval by Hidayatullah J. in Karanpura Development Co. v. Commissioner of Income-tax.

22. It was also urged on behalf of the revenue that the shares of the managed companies were investments and they were held by the assessee as investments and they did not lose their character of investments merely because the motive which actuated the assessee in making them was to retain the managing agencies of the managed companies. Now, it is undoubtly true that the shares of the managed companies held by the assessee were investments and they did not shed their character of investments but the question is not whether they have investments, or not. The question is whether they were part of any "business" activity of the assessee of holding investments. Merely holding of investments, as we have pointed out above, is not enough. There must be a "business" of holding investments and when we use the words ""business"" here, we mean it in the sense indicated above and, so far as that is concerned, there can be no doubt in our minds that the assessee had no "business" of holding investments and the shares of the managed companies were not held by the assessee as part of any such "business".

23. If this is the correct position as we conceive it to be, the shares of the managed companies held by the assessee cannot be taken into account for the purpose of determining whether the "business" of the assessee consisted mainly in dealing in or holding of investments. The only activity of the assessee which can be taken into account for this purpose is the activity of dealing in shares and it is by reference to that activity alone that we must determine whether the requirement of the clause (i) is satisfied. Can it be said that the "business" of the assessee consisted mainly in carring on activity of dealing in shares ? That immediately brings us to the question as to what is the test to be applied for the purpose of determining as to when an activity can be said to constitute mainly the "business" of the company and what is the precise connotation of the word "mainly". The word "mainly", it must be noted, does not stand alone : it is used in close connection with and as an alternative to "wholy" and it must receive colour from the context. Moreover, in interpreting this word, we must not lose sight of the reason and purpose of the enactment of clause (i). Where the activity of a company consists in dealing in or holding of investments, the law does not favour retention of any profit by the company, for, having regard to the nature of the "business", it is not necessary that the profits must be ploughed back in the "business". The law, therefore, say that the entire profits of the company must be distributed amongst the shareholders. This consequence could obviously have been intented by the Legislature only in those cases where the whole or a substantially large part of the "business" of the assessee consists in dealing in or holding of investments. The comparison which is required to be made by the use of the word "mainly" is not that of nicety nor is enough that the "business" of dealing or in holding of investments is a little more than the other "business". There must be a such disparity between the two kinds of "business" that one can say that the "business" of dealing in or holding of investments is the principal "business" and the other "business" is subsidiary. The question must be approached from the commercial point of view and not from any narrow technical or legalistic point of view. We should not be guided by the wire-drawn technicalities or refined distinctions but we must ask ourselves the question, what according to the commercial point of view would be the main "business" of the assessee and answer to the question must been given on commonsense lines. We agree with the learned Advocate-General that no single test can be an exclusive test in matters of this kind. So many diverse factors would have to be taken into account : comparison of income would be one such factor; comparison of capital would be another; the time, labour and attention occupied would be the third; the relative expenditure incurred in "business" would be a fourth and so on and so forth. Having regard to the totality of these factors, the question would have to be decided as to whether a particular "business" constitutes the main "business" of the assessee.

24. Now, it must be made clear at the outset that the burden of showing that the case of the assessee falls within clause (i) of the second Explanation must rest on the revenue and this was indeed not disputed by the learned Advocate-General. On the material on record and in the view which we have taken above, can it be said that the revenue has discharged the burden of showing that the "business" of the assessee consisted mainly of the dealing in shares or, in other words, the dealing in shares constituted the main "business" of the assessee ? The argument on behalf of the revenue was that even on the view taken by us, this burden is discharged, for, the income from shares held as stock-in-trade was far in excess of the income by way of managing agency commission and, therefore, if a comparison were to be made between the two "business"es, the one of dealing in shares was substantially larger than that of managing agency. This argument invited us to leave out of account the income by way of dividend on shares of managed companies for the purpose of deciding whether the "business" of dealing in shares constituted the main "business" of the assessee and the premise on which the argument was based was that the shares of the managed companies were not held as part of any "business" and, therefore, the income by way of dividend on those investments did not form part of income from "business" so as to constitute an item to be taken into account. This argument in our view is without force for its fails to take into account the fact that on the view we have taken, there are really two "business"es of the assessee; one is the "business" of managing agency for retaining which the shares of the managed companies were acquired and held and the other is the "business" of dealing in shares. Once there is a co-relation between the holding of the shares of the managed companies and the managing agency "business", which we have held, exits, it necessarily follows that the income by way of dividend on shares of managed companies cannot be dissociated from the income by way of managing agency commission for the purpose of deciding whether the "business" of dealing in shares is the main "business" as compared with the managing agency "business". We have already point out that the approch to be adopted in matters of this kind must not be a narrow legalistive approach but it must be a commonsense approach from the commercial point of view and the queston which we must, therefore, ask ourselves is :

"Is the income by way of dividend on shares of managed companies, so unrelated or unconnected with the managing agency "business" that we would disregard it altogether for the purpose of making a comparison between the managing agency "business" and the "business" of dealing in shares ?"

We are of the view that when we are considering the question as to whether the "business" of dealing in shares constituted the main "business" of the assessee as contrasted with the managing agency "business" we cannot leave out of account the income from shares of managed companies which were held for the purpose of holding and retaining the managing agencies and which from a commercial point of view were necessary assets of the managing agency "business". The income by which the dividends on shares of the managed companies must, therefore, be clubbed with the income from managing agency commission and if that is done, it is clear that at least in so far as comparison of income is concerned, the "business" of dealing in shares cannot be said to be so large as to be regarded as the main "business" of the assessee. In the first two assessment years the income from dealing in shares was a little less than a 50 per cent. while in the other two assessment years it was a little over 50 per cent. but even in those two assessment years it did not go very much above 60 per cent. So far as the relative capital employed in the two "business"es is concerned, it is true that on the basis of the figures given in the statement the capital employed in the "business" of dealing of shares was certainly very much larger than that employed for the purpose of managing agency "business" but when we make this comparison, we must not overlook the fact that the managing agencies were themselves valuable assets though intangible and their valuation has not taken into account in the statement. No conclusion can, therefore be legitimately drawn from a mere comparison of the capital employed for the purpose of the two "business"es. We may also point out that the comparison of capital is only one of many factors and by itself it can never be conclusive. We are, therefore, of the view that the revenue has not discharged the burden of showing that the "business" of the assessee consisted mainly in dealing in shares and the case of assessee cannot be said to be covered by clause (i) of the second Explanation.

25. Our answer to the question reframed by us is, therefore, in the negative. There will be no order as to costs of the reference.