1. This is a reference on the application of the Assessee under Sub-section (3) of Section 48, Excess Profits Tax Act for directing the Commissioner, E. P. T., to state a case in respect of the assessment for the IV C. A. P. The Petitioners are a firm of six partners carrying on business in groundnut oil, cotton ginning and also in stocks and shares. In compliance with the notice u/s 13 (1), E. P. T. Act, they filed a return for the IV C. A. P. declaring profits of Rs. 1,59,052/- after adjusting the profits pertaining to the standard period. During the course of the assessment it appeared that there was a dividend account in the Secunderabad Branch books which had a credit balance of Rs. 57,041/- out of which Rs. 52,500/- represented dividends received on the shares of the. Vazir Sultan & Co., Ltd. The Petitioners transferred the said amount to the Head Office account at Gulbarga and did not include it in the profits returned by the Petitioners, who explained that as the branch office at Secunderabad which was dealing in stocks and shares had some surplus money with them, the, Head Office at Gulbarga advised the branch office to invest it in the shares of the Vazir Sultan & Co. which was effected by transferring the shares already held by the branch to the Head Office account. The Assessee contended that since the dividend of Rs. 52,500/- received on account of the shares constituted income from investments, it did not attract liability to Excess profits tax. The Excess Profits Tax Officer, however, disallowed this contention and held that inasmuch as the branch at Secunderabad was in stocks and shares and as there was nothing to show that the purchase of shares in question was an investment at the instance of the Head Office the dividend of Rs. 52,500/- was not income from investments, but profit arising in the course of business carried on by the Petitioners and that therefore it was liable to be taxed. He accordingly added this amount to the profits returned and after estimating the income from oil business he computed the total assessable income at Rs. 4,54,321/-.
2. The Deputy Commissioner on appeal gave some relief in respect of some of the profits received in the oil business and also in the computation of the capital, but disallowed the claim of the Petitioners regarding the sum of Rs. 52,500/- representing the dividends on shares of the Vazir Sultan & Co. Ltd. Aggrieved by the order of the Deputy Commissioner, the Assessee filed a petition u/s s 20 and 48(2). E. P. T. Act before the Commissioner seeking revision of the assessment made on it and in the alternative to state a case to the High Court on two questions of law arising out of the Deputy Commissioner''s order, one relating to the estimate of the yield of oil and the other relating to the treatment of the dividend from investments as profits from business.
3. The Commissioner, however, dismissed the petition u/s 20 and refused to state a case to the High Court u/s 48(2), as in his opinion the points raised by the Assessee did not involve any questions of law. Against these orders the Assessee has applied under Sub-section (3) of Section 48. E. P. T. Act to the High Court-for directing the Commissioner to state a case. It appeared to us when the case came up for admission that the question relating to the yield of oil and cotton seeds did not involve any question of law. but with respect to the second question viz., "whether the addition of Rs. 52.500/- '' being dividend of Vazir Sultan & Co., in the income of the Secunderabad Branch is valid in law", we were of the view that a legal question was involved. Consequently we directed the Commissioner by our order dated 9-8-1952 to state a case on the said question.
4. It appears to us from the statement of the case filed by the Commissioner that during the accounting year the Secunderabad Branch of the Petitioners'' firm collected the accrued dividends on shares of the Vazir Sultan & Co., Ltd., amounting to Rs. 52,500/- and duly credit- ed the same to the dividends account along with the other dividends. Later, however, the amount of Rs. 52,500/- was transferred to the head office account and debited to the dividends account, while the balance in the dividends account was taken to the Profit and Loss Account. The Petitioners'' case before the E. P. T. authorities was that in the middle of the III C. A. P. the head office desired the branch to invest in shares a portion of the surplus funds'' lying to the credit of the said account, that instead of purchasing shares in the local market, the Secunderabad Branch transferred their holdings of Vazir Sultan & Co.. Ltd., shares to the extent required to the Head Office debiting the value thereof to the Head Office account. It was therefore, urged that the dividends collected on these shares represent income from investments as distinct from income from business in shares. The Commissioner, however, observes as follows:
Admittedly the Secunderabad Branch has been and still carries on business in stocks and shares and in the face of this admission, the contention that the transfer of these shares to the Head. Office account was purely by way of investment has to be established beyond reasonable doubt.
It appears that these shares were held by the Secunderabad Branch even prior to the III C. A. P. and the Commissioner, on the ground that the cost of these shares was not debited to the Head Office account, nor the shares transferred till the end of III C. A. P., came to the conclusion that this action was tainted with suspicion and attracted the provisions of Section II of the E. P. T. Act. He further observed that
in the absence of any convincing evidence that these shares in question were the property of the Head Office and that the Head Office directed the Branch to collect the dividends thereon it is to be concluded that the shares belonged to the Secunderabad Branch alone and as the Branch admittedly purchased them in course of its business in stocks and shares, the dividends thereon represent profits from business and not income from investments".
He further held that there was no justification in treating the business at Secunderabad as a separate business and held that the business In stocks and shares is deemed to have been carried on by the firm through a branch.
5. The whole question in this is not whether'' the amount of Rs. 52,500/- received on the shares of Vazir Sultan. & Co., Ltd., belong- ed to the Secunderabad Branch or should be treated as belonging to the firm,, but whether the said amount can be treated as profits of business for the purposes of the E. P. T. Act. Admittedly these shares were held by the Secunderabad Branch even prior to the III C. A. P. and had not been sold at the time of the assessment. Even if the Secunderabad Branch was doing business in shares, that is of buying and selling shares of forward business in shares, the profits of such a business can only arise from the difference in the purchase and sale price of the shares. It is not the case of the Commissioner that the Vazir Sultan shares which yielded the dividend of 52,500/- were sold but his case is that as the firm was dealing in shares, any dividends accruing on any shares so purchased and held would be deemed to be income from a business taxable under the Hyderabad E. P. T. Act.
6. The charging section of the Excess Profit Tax is Section 4 which is in these terms:
Subject to the provisions of this Act, there shall, in respect of any business to which this Act applies, be charged, levied and paid on the amount by which the profits during any chargeable accounting period exceed the standard profits a tax (in this Act referred to as ''excess profits tax'').
and envisages the charge of an excess profits tax accruing to the rates specified therein for the several chargeable accounting periods mentioned therein.
7. The section imposes the charge to Excess Profits Tax on the amount by which the profits of any business to which the Act applies during any chargeable accounting period exceed the standard profits, the standard profits being computed in accordance with the provisions of Sch. 1 to the Act in respect of the standard period elected u/s 6 thereof The term ''business'' has been defined under Sub-section (4) of Section 2 in the following words'':
''business'' includes any trade, commerce or manufacture or any adventure in the nature of trade, commerce or manufacture or any profession or vocation, but does not include a profession carried on by an individual or by individuals in partnership if the profits of the profession depend wholly or mainly on his or their personal qualifications unless such profession consists wholly or mainly in the making of contracts on behalf of other persons or the giving to other persons of advice of a commercial nature in connection with the making of contracts:
Provided that (i) where the functions of a company or of a society incorporated by or under any enactment consist wholly or mainly in the holding of investments or other property, the holding of the investments or property shall be deemed for the purposes of this definition to a business carried on by such company or society.
It is contended by Mr. Rangachari for the assesses that the firm of Dayaram Surajmal was not carrying on any business in shares to which the Act applied and if the operations of the Secunderabad Branch are deemed to be the operations of the whole firm, even then the dividend of Rs. 52,500/- cannot be deemed to be the income from a business within the meaning of Sub-section (4) of Section 2 and at any rate the proviso to the said Sub-section does not apply because (a) the functions of the firm have not been shown to consist wholly or mainly in the holding of investments or other property and (b) nor has it been shown that such holding was by a company or society incorporated by or under any enactment.
8. It appear to us clear that the proviso to sub. s. (4) of S, 2 is inapplicable to this case, on the admitted facts of the case, nor does the learned Advocate for the Income Tax Authorities press his arguments on this point. For the purposes of the Excess Profits Tax Act, it must be shown that the income proposed to be taxed is income from business within the meaning of Section 4 read with Sub-section (4) of Section 2, Excess Profits Tax Act. The word business'' as observed by their Lordships of the Privy Council in the case of �
carrying on business can only exist where i there is a succession of acts and the performance of a single act apart from special circumstance is not enough, even though it may result in gains or profits.
It is needless for us to further examine in detail the case-law cited at the Bar relating to what constitutes a business, as in our view it is a clear proposition of law that the holding of property or securities cannot amount to a business within the meaning of Sub-section (4) of Section 2, Excess Profits Tax Act. The mere fact that a proviso has been added to the said Sub-section for taxing an income derived from investments or from the holding of any property by a company or society, the functions of which consist wholly or mainly in the holding of such investment or property, would demonstrate without doubt, on an application of the well accepted rule of interpretation ''Expressio unius exclusio alterius that the income derived from the holding of investments or property generally would not be deemed to be an income from business.
9. The learned Advocate for the Income Tax Commissioner relies upon the case of: � In Re: Messrs Behari Lal Jhandu Mal AIR 1944 Lah 287 PB (C) where the profits from the sale of gold purchased five years before were held taxable as income from an adventure in the nature of trade. The Full Bench consisting of Din Mohammad, Sale and Munir JJ. held that in order to determine whether an adventure is in the nature of trade, the essential test is whether the purchase of metal was made not with the intention to use it nor with the intention to invest one''s capital in it but with the sole object of selling it in future in order to make a profit. If the purchase is with that intention the purchase and the subsequent sale are an adventure in the nature of trade. It appears to us clear that whatever the intention of the assesses may be at the time when the Vazir Sultan shares were purchased no income from this transaction can be deemed to have arisen from a business unless the shares were sold. The dividends accruing to the firm from the holding of these shares cannot be deemed to be an income of a business as these accrued without any activity on the part of the Assessee.
10. In this view of the matter our answer to the question is in the negative. The Assessee will have the costs of this reference and it will be entitled to the refund of Rs. 100/- deposited.
