(a) Income-tax---

----Business---Loss---Investment---Organised course of activity in holding investments amounted to business---Interest income and guarantee commission assessable as business income ---Assessee entitled to set off and carry forward loss---Indian Income Tax Act, 1961.

(b) Income-tax---

---Business expenditure---Estate. duty ---Interest on fixed deposit for paying estate duty----Deductible---Indian Income Tax Act, 1961.

(c) Income-tax---

----Total income---Inclusions---Income front property ---Includible in total income of assessee.

(d) Income-tax---

----Dividend--Grossing up---Foreign dividend---Foreign dividend to be grossed up for income-tax purposes---Indian Income Tax Act, 1961.

Held (i) that the assessee-company had a systematic or organised course of activity in the matter of holding of investments; and hence there was a business activity in the matter of holding of investments.

CIT v. Amalgamations (P.) Ltd. (1977) 108 ITR 895 (Mad.) fol.

(ii) that the income from property No. 24, Edward Elliots Road, Madras, should be computed for inclusion in the assessee's total income.

CIT v. Amalgamations (P.) Ltd. (1977) 108 ITR 895 (Mad.) and CIT v. Amalgamations Ltd. (1995) 214 ITR 399 (Mad.) fol.

(iii) that the assessee-company was making an investment and looking for the dividend and hence there Was a business activity in the matter of holding of investments. Therefore, the interest receivable on such investments should also be assessable under the head "Business income".

CIT v. Amalgamations (P.) Ltd. (1977) 108 ITR 895 (Mad.) fol.

(iv) that the interest amount being the interest on the money taken from the fixed deposits for paying estate duty, it should be allowed as deduction.

CIT v. Amalgamations (P.) Ltd. (1995) 214 ITR 399 (Mad.) fol.

(v) that the assessee was entitled to set off of carry forward losses of the earlier years against the income of the assessment year 1978-79.

CIT v. Amalgamations Ltd. (1995) 214 ITR 399 (Mad.) fol.

(vi) that in respect of foreign dividend having regard to the provision under section 91 of the Income Tax Act, 1961, providing for double income tax relief, the gross dividend alone should be regarded as having accrued or arisen or even having been received by the assessee. Therefore, the Tribunal was not right in holding that Income-tax Officer was not justified in grossing up the foreign dividend for income-tax purposes.

A. F. W. Low v. CIT (1995) 211 ITR 213 (Mad.) fol.

C.V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee.

JUDGMENT

K. A. THANIKKACHALAM, J.---At the instance of the Department the Tribunal referred the following eight questions for the opinion of this Court under section 256(1) of the Income Tax Act, 1961, for the assessment years 1977-78 and 1978-79 respectively:

"(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was carrying on business and hence the income of the assessee should be computed under the head 'Business' and not under the heads 'Income from house property' and Income from other sources'?

(2) Whether the Appellate Tribunal was right in holding that no income from property No. 24, Edward Elliots Road, Madras, should be computed for inclusion in the assessee's total income?

(3) Whether, on .the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the interest income, guarantee commission, profits on sale of assets and miscellaneous income should be considered as falling under the head 'Business'?

(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the interest on money taken on fixed deposits for paying the estate duty on the estate of the late Sri Anantharamakrishnan should be allowed as a deduction?

(5) Whether the Appellate Tribunal was right in holding that the assessee was entitled to have set off of carry forward losses of the earlier years against the income of the assessment year 1978-79?

(6) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the interest on investments should be assessed under the head 'Business'?

(7) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the credit guarantee paid for the estate duty payment should be allowed as a deduction? and .

(8) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the Income-tax Officer was not justified in grossing up the foreign dividend for income-tax purposes?"

The first question relates to the computation of income under the head "Business" or under the head "Income from house property" or under the head "Income from other sources'.". The second question relates to the income from the property at No. 24, Edward Elliots Road, Madras, and whether it should be computed for inclusion in the assessee's total income. The third question relates to whether the interest income, guarantee commission, profits on sale of assets and miscellaneous income should be considered as falling under the head "Business" The fourth question relates to the interest on money taken on fixed deposits for paying the estate duty. The fifth question relates to set off of carried forward losses of the earlier years against the income of the assessment year 1977-78 (1978-79 ?). The sixth question relates to whether the interest on investments should be assessed under the head "Business". The seventh question relates to credit guarantee paid for the estate duty payment and whether it should be allowed as a deduction. The eighth question relates to the grossing up of the foreign dividend for income-tax purposes.

In CIT v. Amalgamations (P) Ltd. (1977) 108 ITR 895 (Mad), in the case of the very same assessee -for the assessment years 1958-59 to 1962-63, this Court held that (1) the assessee-company had a systematic or organised course of activity in the matter. of holding of investments; and hence there was a business activity in the matter of holding of investments; and (2) the payments to the various persons by the assessee-company cannot be said to be in the carrying on of its business of holding its investments and hence it was not incurred wholly and exclusively for its business and accordingly the same is' not allowable. It was further held that in view of the assessee's business having been held to include furnishing guarantees to debts borrowed by its subsidiary companies, the assessee incurred this loss in the course of carrying on its business.

So also, in the decision in the case of the very same assessee in CIT v. Amalgamations Ltd. (1995) 214 ITR 399 (Mad) for the assessment years 1969-70 to 1971-72, following the earlier decision of this Court in CIT v. Amalgamations (P.) Ltd. (1977) 108 ITR 895, this Court held that the Tribunal was right in holding that the assessee was carrying on business and that the income of the assessee should be computed under the head "Business" and that income from the property No 24, Edward Elliots Road, Madras, should be computed for inclusion in the assessee's total income. It was further held by this Court that the assessee was entitled to have set off of carried forward losses of the earlier years against the income of the assessment year 1975-76.

The fourth question, viz., whether the interest on the money taken on fixed deposits for the payment of estate duty should be allowed as a deduction is covered as per the decision of this Court in Tax Cases Nos. 1109 to 1113 of 1979 (CIT v. Amalgamations Ltd. (1995) 214 ITR 399). The fifth question relating to set off of carried forward losses of the earlier years against the income of the assessment year 1978-79 wits also covered in favour of the assessee as per the said decision in CIT v. Amalgamations Ltd. (1995) 214 ITR 399. With reference to the sixth question relating to the interest on investments assessable under the head "Business", in the decision in CIT v. Amalgamations (P,) Ltd. (1977) 108 ITR 895, this Court held that the very same assessee-company was making an investment and looking for the dividend and Renee there was a business activity in the matter of holding of investments. Therefore, the interest receivable on such investments should also be assessable under the head "Business income". The seventh question relates to the credit guarantee paid for the estate duty payment. In the decision CIT v. Amalgamations Ltd. (1995) 214 ITR 399, this Court held that the interest amount being the interest on the money taken from the fixed deposits for paying estate duty, it should be allowed its deduction. So far as the eighth question is concerned, it relates to the grossing up the foreign dividend for income-tax purpose. In the decision reported in A. F. W Low v. CIT (1995) 211 ITR 213, this Court held that having regard to the provision under section 91 of the Act, providing for double income-tax relief, the gross dividend alone should be regarded as having accrued or arisen or even received by the assessee. Therefore, the Tribunal was not correct in holding that the Income-tax Officer was not justified in grossing up the foreign dividend for income-tax purposes.

Accordingly, in so far as questions Nos. 1 to 7 are concerned, we answer the same in the affirmative and against the Department and in so far as question No. 8 is concerned, we answer the same in the negative and in favour of the Department. There will be no order as to costs.

M.B.A./3257/FC Reference answered.