Barkha Investments And Trading … vs Income-Tax Officer on 7 October, 1987

ORDER

P.J. Goradia, Accountant Member

1. The ground raised in this appeal is as under :

“The learned Commissioner of Income-tax erred in setting aside the assessment for the assessment year 1982-83 on the ground that the Income-tax Officer failed to make the disallowance of interest in accordance with Section 40A(8) of the Income-tax Act, 1961.”

2. The assessment for the assessment year 1982-83 was completed under Section 143(3) read with Section 144B of the Act. The Income-tax Officer observed in the assessment order as follows :

” The assessee-company derives income from the business of purchase and sale of shares.

2. Provisions of Section 40A(8) are not applied as the assessee-company is a financial company (investment company) as defined in Clause (c) of Section 40A(8).”

3. The Commissioner of Income-tax invoked his jurisdiction under Section 263 of the Act. So as to enable us to appreciate the controversy in the correct perspective, the whole of the order is reproduced below :

” On going through the income-tax records of the assessee, it was noticed that the assessment for the assessment year 1982-83 was made on March 31, 1983, determining the total income at Rs. 7,14,790. The income was revised to Rs. 3,02,064, vide order dated April 12, 1983, giving effect to Commissioner of Income-tax (Appeal’s) order. The assessee-company had income from the business of purchase and sale of shares and also income from dividend. The income from business was determined

after giving deduction for interest payments made on borrowals. The asses see-company being a trading company, provisions of Section 40A(8) were applicable and hence 15 per cent. of the interest payments made to various individuals was liable to be disallowed and added to the total income. Since the Income-tax Officer failed to do so, the assessment order made by him was considered erroneous in so far as it was prejudicial to the interests of Revenue, A notice under Section 263 was, therefore, issued to the assessee asking it to show cause as to why the assessment order of the Income-tax Officer be not set aside/suitably modified under Section 263 of the Income-tax Act, 1961.

(2) In response to the show-cause notice, Shri J.T. Shah, C.A., and Nitin Karia, C.A., attended and they were heard. They have also submitted a written reply dated March 20, 1985. It is contended that, during the year under review, the assessee had paid interest of about Rs. 57,72,000 to various individuals and, on the other hand, had received interest of Rs. 39,81,000 from various parties and that this goes to show that, on the one hand, the company had paid money and, on the other hand, it borrowed money. It is urged that, in view of this, the company is a financial company within the meaning of Section 40A(8), Explanation (c)(iv) of the Income-tax Act, 1961, and, therefore, Section 40A(8) would not be applicable. This contention, it is claimed, is in addition and without prejudice to their prima facie contention that the company is an investment company as defined under Section 40A(8), Explanation (c)(ii) of the Income-tax Act, 1961. It is claimed that the company had taken up investment as its main object and accordingly changed its name from Prabhat Fabrics Private Limited to Barkha Investments and Trading Company Private Limited. In this connection, the assessee had drawn my attention to the balance-sheet as on December 31, 1981. This balance-sheet shows that the company had invested in shares and securities worth Rs. 3.34 crores and also advanced an amount of Rs. 3.60 crores to various parties. It is claimed that this conclusively shows that the company is not only an investment company but also a financial company. It is urged that the company, therefore, does not come within the mischief of Section 40A(8). It is further contended that the company’s investment in shares and stock had increased from 1.48 crores to 3,34 crores and that the company had also traded in shares and securities and, therefore, the company can be described simultaneously as an investment-cum-trading company. When the company is treated as a trading company, it does not conclude that the company cannot be an investment company. It is

strenuously urged that the company is an investment-cum-trading company and, therefore, Section 40A(8) is not applicable.

(3) The assessee has also drawn my attention to Section 45 of the Reserve Bank of India’s Non-Banking Financial Companies (Directions), 1977, and stated that, under the said Section also, the assessee-company is an investment company. It is also stated that the assessee-company has been classified by the Reserve Bank as a non-banking financial company and has been registered as such with them.

(4) The assessee has also drawn my attention to the provisions of Section 109(ii) of the Income-tax Act which defines ” investment company ” as follows : “Investment company means a company whose gross total income consists mainly of income which is chargeable under the heads ‘ Interest on securities ‘, ‘ Income from house property’, ‘ Capital gains ‘ and ‘ Income from other sources’. Out of the gross total income of Rs. 23.60 lakhs returned by the assessee, income from other sources was Rs. 23.48 lakhs. In view of this, it is claimed that, in terms of the definition of investment company provided under Section 109(ii), the assessee-company would fall under the head ‘Investment company'”.

(5) The definition of investment-company given under Section 40A(8), Explanation (c)(ii) is as under :

” an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature.”

In terms of this definition, a company which carries on, as its principal business, acquisition of shares would be an investment company. For the purpose of the benefit of this Section, the shares acquired should be kept by the assessee as its investment and not as stock-in-trade with an intention to sell the same for profit. The shares should be acquired by the company with an intention to keep it as an investment and, only in such a case, the company can be said to be an investment company and not otherwise.

(6) In this case, the assessee had made large borrowals from various individuals and companies which stood at Rs. 5,97,25,583 on December 31, 1981. These borrowings were partly utilised for purchase of shares and partly for giving advances to various companies. The advances so given amounted to Rs. 3,60,64,610. The shares purchased by the assessee with the-borrowed funds were shown as business assets and the income

derived from purchase and sale of shares has been returned as business income and assessed as such.

(7) It is evident from this that the assessee had purchased the shares with an intention to sell the same at profit, i.e., the shares were acquired as a business asset and not as an investment. In view of the above, the assessee cannot be said to be an investment company within the meaning of Section 40A(8), Explanation (c)(ii). As regards the definition of “investment company” given in Section 109(ii), it is necessary to note that the said definition is limited to certain sections only, namely, Sections 104, 105, 107A and Section 109. The definition cannot be extended to the entire Act when it is provided for a specific limited purpose.

(8) As regards the claim that the assessee-company is a financial company within the meaning of Section 40A(8), Explanation (c)(iv) of the Income-tax Act, it is noted from the records that the principal business of the assessee is purchase and sale of shares and not providing of finance. Therefore, the assessee-company cannot be held to be a financial company within the meaning of Section 40A(8), Explanation (c)(iv).

(9) For the reasons stated above, I hold that the interest paid by the assessee comes within the mischief of the provisions of Section 40A(8). Since the Income tax Officer failed to make a disallowance of interest in accordance with Section 40A(8), it must be held that the assessment order is erroneous and prejudicial to the interests of Revenue. The assessment is, therefore, set aside for being made afresh in accordance with law.”

4. At the time of hearing, during the course of submission, learned representative of the assessee also moved for the admission of an additional ground on the following basis as stated in the covering letter dated July 29, 1987 :

” 263 notice dated March 16, 1985, and order of the Commissioner of Income-tax dated March 27, 1985 are without jurisdiction and, therefore, ab initio invalid in law in view of the fact that the assessment order had already merged in the Appellate order of the Commissioner of Income-tax (Appeals), dated August 19, 1983.”

5. The petitioner submits that the above ground raises a neat point of law which goes to the root of the matter and does not require any further evidence for adjudication thereof. Apart from going to the root of the matter, it raises a more fundamental question of jurisdiction of the Commissioner under Section 263 and, as is well established, the

jurisdiction cannot be vested by acquiescence of the party. The point in the additional ground was pointed out to us by Advocate Shri J.P. Shah” when the undersigned went to entrust the brief to him for arguing before the Tribunal. That such a ground could be taken was not within our knowledge at the time of filing of the appeal. In the circumstances aforesaid, we humbly request you to admit and adjudicate the above additional ground and to condone the delay, if any.”

6. He then submitted that, since the assessee had also preferred an appeal against the assessment order and since the Commissioner (Appeals) has passed the order on August 19, 1983, the Commissioner of Income-tax could not assume jurisdiction under Section 263 and, for this proposition, reliance was placed on a Special Bench decision in the case of Arbuda Mills Ltd. (3 SOT 311). It was further submitted that, in case the present Bench was not concurring with the submission of the assessee, then the matter should be referred to a larger Bench of the Tribunal.

7. On merits, the contentions raised earlier before the authorities below were reiterated and further reliance was placed on [1951] 20 ITR 1 (SC) in the case of Eastern Investments Ltd. and [1951] 19 ITR 571 (Cal) in the case of East India Prospecting Syndicate. He further drew our attention to the letter dated April 22, 1981, issued by the Reserve Bank of India where the company was re-classified as a non-banking financial company by the Department of Company Affairs on the basis of a notification issued by the Reserve Bank of India as amended on April 1, 1982. He also drew our attention to the relevant direction of the Reserve Bank of India wherein the definition of investment company was stated to be akin to the one under consideration. He also drew our attention to certain observations from the Guide to the Companies Act by the learned author, Shri R.A. Ramaiya.

8. On behalf of the Department, learned representative strongly objected to the admission of the additional ground by stating that it was too late. Besides, the same was not raised before the Commissioner of Income-tax. Reliance was placed on [1987] 166 ITR 325 (Raj) in the case of Smt. Ganga Devi. Besides, the cases reported in the relevant ” Income-tax Reports ” where the decisions are rendered by the Supreme Court, if the facts are properly considered, the decisions were favouring the Revenue in the context of facts.

9. We have considered the submissions and materials to which our attention was drawn. We have also considered the relevant judicial pronouncements relied upon at the Bar.

10. In respect of the additional ground, we find no obstacle in admitting the same since the matter is regarding assumption of jurisdiction itself. However, on going through the order passed by the Commissioner (Appeals), we find that the issue under consideration was not at all the subject matter of appeal before him. Besides, the decision of the Special Bench in the case of Arbuda Mills Ltd. (supra) is not being followed by various Benches of the Tribunal in Ahmedabad because it appeared to them that the said decision was contrary to the ratio laid down by the Hon’ble High Court of Gujarat in the case of Karsandas B. Patel [1975] 98 ITR 255. That is why an elaborate order was passed by the C-Bench of the Ahmedabad Tribunal in the case of Shri Ramanbhai B. Patel in W.T.A. No. 232/Ahd./1985, dated July 25, 1986, wherein the basis for not following the decision of the Special Bench was explained. For the same reasons, therefore, we reject the ground regarding the challenge to jurisdiction under Section 263 of the Act on the aspect of merger.

11. Coming to the merits of the case, we have to state as follows : Section 40A opens with the following language :

“(1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provision of this Act relating to the computation of income under the head ‘ Profits and gains of business or profession’. ”

12. Therefore, the section is applicable to persons, i.e. companies which are having income under the head “Business”. Therefore, a company shall only be that company which is having income from business and obviously, therefore, a company engaged in the business of holding investments like those of shares, stocks, etc. shall be holding the investments as stock-in-trade and then only the income therefrom can be computed under the head “Business”. If they are held as investments only there is no business. Therefore, the view of the Commissioner of Income-tax that because the company-assessee holding the shares etc., as stock-in-trade, is not to be considered for the purpose of Section 40A(8) is not correct. Otherwise, there was no need of Clause (c) to Section 40A(8). The ambit covers the assessee-company. And since such company is required to be treated as a financial company which includes an investment company as defined in the exclusion provided in Clause (c) to the Explanation, the disallowance is not called for. That is why the language in Sub-clause (ii) to Clause (c) to the Explanation necessarily uses the words “its principal business”. The solution to the problem is found in the language of Section 40A itself. The controversy raised here is unnecessary

and wholly irrelevant. The meaning is clear. There should not be two opinions. Hence the order passed by the Income-tax Officer cannot be said to be erroneous. We, therefore, set aside the order passed by the Commissioner of Income-tax and restore that of the Income-tax Officer.

13. Historically, Section 40A(8) was introduced by the Finance Act, 1975, as a sequel to the package of measures taken during pre-emergency period to ensure financial discipline which gave rise to various modifications and amendments in the relevant statutes and rules, including the Companies Act, 1956, R.B.I. Act, 1934, Interest-tax Act, 1974, FERA Act, 1973, and the like. The section was introduced to make the deposits costlier since it was made so in the banking sector. The whole range of measures had a common goal and, therefore, the intention of the Legislature can be truly ascertained after taking into account the totality of measures and the aim sought to be achieved. The Reserve Bank of India being the supreme authority, supervising the credit system in India taking a particular view needs to be given due weightage since the view is taken in consultation with Government of India. Hence the view taken by us gains added strength. Further, the Income-tax Officer had followed the view taken in earlier assessments which have become final.

14. In the result, the appeal succeeds.

M.A.A. Khan, Judicial Member

15. I have had the benefit of going through the order proposed by my learned brother but I regret my inability to subscribe to the findings recorded and conclusions’ arrived at by my learned brother in respect of the merits of the main issue relating to the applicability of Section 40A(8) of the Income-tax Act, 1961 (the Act) to the appellant-company (henceforth the ” company”). The relevant facts have been set out in the proposed order but I would like to point out a few facts more in order to appreciate the real controversy in the right perspective.

16. The company was incorporated on December 10, 1973, under the Companies Act, 1956, under the name of “Prabhat Fabrics Pvt. Ltd.” The main objects of the company, as disclosed by Clause III of its memorandum of association, were to buy, sell, distribute, export and/or otherwise deal in textile fabrics, art silk and other synthetic fabrics as also to carry on business of spinning, weaving, manufacturing and/or dealing in staple fibre, artificial silk, cotton and other fibrous substances. The company could also pursue other various objects incidental or ancillary to the attainment of the main objects. Such incidental or ancilliary objects, inter alia, were included to raise or borrow money for any of the purposes of the company (Clause 24), to advance and/or to lend money to such persons or other entities which the company may think fit (Clause 27), to invest the funds of the company in any manner including, amongst others, in debentures, stock, shares, etc. (Clause 66), and to undertake financial and commercial obligations, transactions and operations of all kinds (Clause 67).

17. It appears that by a resolution dated January 2, 1978, it was resolved that the company should start investments and financial activities as provided in Clauses 24 and 27 and 66 and 67, as mentioned above briefly. In pursuance of such resolution investment and financial activities were started. It is the admitted position, and is amply evident from the company’s, directors’ report dated May 28, 1982, its auditors report of the even date and its written reply dated March 22, 1985, to notice under Section 263 of the Act, that the investment and financial activities, undertaken in pursuance of the resolution dated January 2, 1978, included dealing and trading in shares, debentures, stocks, etc., also.

18. It is in the above background that the main question that arises for consideration in the present appeal is whether on the facts and circumstances of the present case the company before us can be treated as an ” Investment company” within the meaning of the expression used and explained in Clause (c)(ii) of the Explanation to Sub-section (8) of Section 40A of the Act.

19. The relevant part of Sub-section (8) of Section 40A as it stood at the relevant time, reads as under :

” 40A(8). Where the assessee, being a company (other than a banking company or a financial company), incurs any expenditure by way of interest in respect of any deposit received by it, fifteen per cent. of such expenditure shall not be allowed as a deduction.

Explanation. — In this sub-section,– . . .

(ii) an investment company, that is to say, a company which carries, on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, or securities issued by the Government or a local authority, or other marketable securities of a like nature ; or ”

20. It may be pointed out that in the above definition of “financial company” fall only such investment companies which (i) carry on the business of acquisition of shares, stocks, bonds, debentures etc. and

(ii) such business is their” principal business “. To my mind in the above definition of ” financial company” which is to mean ” an investment company” for the purposes of Sub-section (8) of Section 40A, stress has been laid on the nature and extent of business being carried on by such a company. The expression ” acquisition ” and ” principal business ” used in the language of Clause (c)(ii) are of much significance and need to be given their true meaning. The first, to my mind, should suggest an act or state of more than mere ” dealing ” or ” trading ” and the other should carry a meaning synonymous to the expression ” mainly “. In other words, the expression ” acquisition ” should embrace the element of ” holding” within its meaning and the expression ” principal business” should mean the main business which brings the major part of income to the company.

21. The term ” acquisition” has quite a wide concept, meaning the procuring of property or the taking of it permanently or temporarily. What it means is that the entire bundle of rights which vested in the original owner of a property passes on from him to the acquirer and nothing is left in the owner or holder. It is, therefore, not a term of art. It has got a definite meaning. It means coming into possession of, obtaining, gaining or getting as one’s own. Again, since the expression ” acquisition” is used in the context of the business of an ” investment company”, the term “investment company” shall have to be understood in its popular sense as used by businessmen. When so construed, the expression ” a company, which carries on, as its principal business, the acquisition of shares, stock, debentures”, etc., would mean a company which derives a major part of its income from investments in contradistinction to the income from dealing or trading in shares, stocks, debentures, etc. In this behalf, reference may be made to Clause 66 of the memorandum of association of the company where the term used is ” invest”.

22. A similar question, as is presently before us, appears to have arisen for the consideration of their Lordships of the Supreme Court in the case of Nawn Estates (P) Ltd. v. CIT [1977] 106 ITR 45. In that case, the assessee was a private limited company incorporated under the Indian Companies Act, 1913, and the shares were held by the members of Nawn family. For the assessment years 1955-56 to 1959-60, the Income-tax Officer noted that the rents accruing to the said company from lands and house properties formed the major part of its income. He was, therefore, of the view that it was a company whose business consisted mainly in the holding of investments as envisaged by Sub-section (f) of Section 23A of the Indian

Income-tax Act, 1922, and Explanation 2(i) thereto. On appeal, upholding the-view of the Appellate Assistant Commissioner, the Tribunal held that ” the appellant was not a company whose business consisted wholly or mainly in the dealing in or holding of investments “. On a reference by the Revenue, the Calcutta High Court answered the question in favour of the Revenue and against the assessee. On these facts, the Supreme Court, at the very outset, pointed out that ” it would be seen that the expression ‘company whose business consists wholly or mainly in the dealing in or holding of investments “, consists of two parts, viz., (1) a company whose business consists wholly or mainly in the dealing in investments and (2) a company whose business consists wholly or mainly in holding of investments, and proceeded to examine the true meaning of the latter part of the above expression. At the time of arguments, the assessee-company urged that the said expression should be given the same technical meaning as borne by the expression ” investment companies “, used in Section 87(f) of the Indian Companies Act, 1913, or as used in Section 372(11) of the Companies Act, 1956, and, therefore, should be confined to such companies whose principal business was the acquisition and holding of shares, debentures, stocks or other securities. As against it, the Revenue had contended that the said expression should relate to a company whose income was derived from investments in contradistinction to the income received from manufacturing or processing or trading operations and the word ” investments” in the context in which it occurs should be understood in its ordinary popular sense and be not given any technical meaning. Accepting the stand of the Revenue, their Lordships examined the construction and true meaning of the term “investment” and quoted the following words of Lord Normand in Commissioners of Inland Revenue v. Tootal Broadhurst Lee Co. Ltd. [1949] 29 TC 352, 373 (HL) with approval (at page 50 of 106 ITR) :

“The meaning of ‘investment’ is not its meaning in the vernacular of the man in the street but in the vernacular of a businessman. It is a form of income-yielding property which the businessman looking at the total asset of the company would single out as investment . . .

(emphasis supplied)

and also of Macnaghten J. in Commissioners of Inland Revenue v. Rolls-Royce Ltd. [1944] 2 All ER 340 :

” The word ‘investment’, though it primarily means the act of investing, is in common use as meaning that which is thereby acquired; and the primary meaning of the transitive verb ‘to invest’ is to lay out money in the acquisition of some species of property . , .”

(emphasis supplied)

23. After having examined other similar English cases, their Lordships held that ” the position that emerges from the above-mentioned decisions is that the aforesaid expression cannot be limited to companies whose principal business is the acquisition and holding of shares, debentures, stocks or other securities but also covers companies whose primary or principal source of income is house property or capital gains as well”. Finally, their Lordships referred to the definition of the expression ” investment companies” given in the Dictionary of English Law by Earl Jowitt (volume II) (1959 edition) :

” Companies whose income consists mainly of investment income, i.e., income which, in the hands of an individual, would not be earned income”,

(emphasis supplied).

24. The ratio decidendi of the above case, to my mind, fully covers the issue before us and there should be no escape from the conclusion that the expression ” financial company ” used in the bracketed language of Sub-section (8) of Section 40A of the Act includes such ” investment company” only which carries on, as its principal business, acquisition of shares, stocks, debentures, etc., and holds such acquisition as its ” investment” in the nature of capital assets and not as a business asset in the nature of stock-in-trade. In other words, the investment in the acquisition of shares, stocks, debentures etc. must take the form of income-yielding property which could be singled out as an investment on a look at the total assets of the company. It is in that sense that I understand the meaning of the transitive verb ” invest” used in Clause 66 of the memorandum of association of the company.

25. Income from investment should be in the nature of ‘ unearned’ income and should not partake of the character of ” earned ” business income. That characteristic of the nature of its income, which should make the major part of its income, would then represent its business activity of acquiring shares, stock, debentures, etc., in contradistinction to a business activity of dealing or trading in shares, stocks and debentures so as to entitle an investment company to claim exemption from the mischief of Section 40A of the Act. It thus necessarily follows that income accruing to such a company by its carrying on, as its principal business, acquisition of shares, debentures, stocks, etc., would be dividend or interest income which would not fall within the ambit of Section 40A(1). But, if income accruing to a company (may be it is called an investment company elsewhere in the Act or in the Companies Act, 1956, or has even been declared so by the Reserve Bank of India), is the result of its carrying on, as its principal or main business, dealing or trading in shares, debentures or stocks, etc., such a company would not and could not be treated as a ” financial company ” meaning ” investment company ” for Clause (c)(ii) of the Explanation to Sub-section (8) of Section 40A and its income being business income would attract the provisions of Sections 40A(1) and 40A(8) of the Act. It would thus be seen that the distinction between a company whose business consists wholly or mainly in the dealing in investments and a company whose business consists wholly or mainly in the holding of investments, as pointed out by the Supreme Court in the case of Nawn Estates (P) Ltd. [1977] 106 ITR 45 is real and not merely academic. It is the latter and not the former type of company which has been, in my opinion, recognised as an ” investment company ” in Clause (c)(ii) of the Explanation to Sub-section (8) for exemption from disallowance of certain percentage of interest expenditure under subsection (8) of Section 40A of the Act. Let us now examine whether the company before us satisfies the test of an ” investment company “, as stated above, and qualified for exemption from a cut in interest expenditure under Section 40A(8) of the Act.

26. In order to know as to what are the assets of the company and how they have been utilised a glance at its balance-sheet as on December 31, 1981, would be necessary. And it is as follows :

Prabiiat Fabrics Private Limited
Balance-Sheet Ss at 31-12-1981

LIABILITIES

(Rs.)

ASSETS

(Rs.)

1.

SHARE CAPITAL

1. Authorised

10,00,000

1. Fixed assets

3,110

2. Issued subscribed paid up

1,20,000

2. Investments (unquoted fully paid up shares of various
co-operative banks).

65,150

2.

RESERVES & SURPLUS

11,71,591

3. Current assets

3.

SECURED LOANS Sangli Bank

20,29,265

1. Stock in trade (at cost)(quoted equity shares of
Reliance Textile Industries Ltd.)

3,54,69,090

4.

UNSECURED LOANS From shareholders and others

5,97,25,583

2. Unsecured
sundry debtors

4,22,330

5.

Current liabilities and provisions

96.52,906

3. Cash & bank balances

4,24,851

4. Loans & advances (Unsecured)

1, To employees

2,000

2. To others

3,60,64,610

3. Tax deducted at source

22,43,029

5) Misc. expenses

4,275

7,26,99,345

7,26,99,345

27. The details of particulars given in the balance-sheet evidently reveal that, as on December 31, 1981 (relevant for the year under consideration), the company had fixed assets worth Rs. 3,110 only and its total investments, comprising unquoted fully paid up shares of various co-operative banks, stood at Rs. 65,150 only. The current assets amounting to Rs. 3,34,69,390 were utilised as stock-in-trade for dealing in quoted equity shares and debentures of Reliance Textiles Industries Ltd. and not as investment in acquiring such shares and debentures. In other words, the company had carried on, as its principal business, dealing and trading

in shares and debentures so as to bring “business income” to it. During the year under consideration, it had not carried on, as its principal business, acquisition of shares and debentures, etc., so as to bring dividend and interest income to it, giving to it thereby the character of an ‘investment company’ within the meaning of the term defined in Clause (c)(ii) of the Explanation to Sub-section (8) of Section 40A. This point is further borne out clearly if we just have a look at the profit and loss account showing as to what income was earned and from which sources.

28. The summarised position of the profit and loss account for the period ending December 31, 1981, may be stated thus :

Profit and Loss Accounts (Shares A/c)

Particulars

Particulars

(Rs.)

(Rs.)

(A)

To opening stock

1,46,92,703

By sales

6,63,75,396

” Purchases

8,21,08,110

” Closing stock

3,34,69,990

” Gross profit

30,44,572

9,98,45,386

9,98,45,386

(B)

To Various expenses

38,29,231

By Gross profit A/c.

30,44,572

” Net profits

15,63,500

” dividend income (after tax deduction of Rs.

4,25,513)

23,48,159

53,92,731

53,92,731

29. The above picture of P & L account clearly shows that a major part of its income had come to the company from its trading activities of purchases and sales of shares and debentures. The funds of the company were not “invested” in accordance with the object enshrined in Clause 66 of the memorandum of association. Its business consisted wholly or mainly in the dealing in investments and not in holding of investments. Its principal business brought business income to it which made the major part of its total income. The business income amounted to Rs. 30,44,572 as against dividend income of Rs. 23,48,159. As no interest income was shown in the profit and loss account, the dividend income seems to be inclusive of interest income for the obvious reason that investments in unquoted fully paid up shares of various co-operative banks totalled Rs. 65,150 and the quoted equity shares of Reliance Textile Industries

Ltd. utilised as stock-in-trade could not have yielded that much of dividend income. The debentures, loans and advances and current accounts in banks were also there to bring interest income to the company.

30. Now, taking an overall view of the business activities of the company, I feel convinced that, during the year under consideration, the company had not carried on, as its principal business, the acquisition of shares, debentures, stock, etc. Instead, it is fully established on record that the company had carried on, as its principal business, trading and dealing in shares, debentures, stock, etc. It had, therefore, earned the major part of its income which was computable under the head ” Profits and gains of business or profession “. I am, therefore, of the opinion that the appellant-company was not a ” financial company” within the meaning of the term as defined and explained in Clause (c)(ii) of the Explanation to Sub-section (8) of Section 40A. That being so, the exemption contemplated in Sub-section (8) of Section 40A was not available to it.

31. The other fact that the company was assessed as an investment company by the Income-tax Officer in earlier years, i.e., assessment years 1980-81 and 1981-82, does neither create any bar to us nor operates as estoppel against the Revenue to know the true character of the company for computation of its income for the year under consideration. Each assessment, being separate and independent, is to be made on its own merits.

32. Since the principal business of the company in the year under consideration is found to be that of purchase and sale of shares and debentures and not providing finance, it cannot be held to be a financial company within the meaning of Clause (c)(iv) of the Explanation to subsection (8) of Section 40A of the Act.

33. In the final analysis, I am led to conclude that the assessment as made by the Income-tax Officer treating the appellant company as a financial (investment) company and on that ground not applying the provisions of Section 40A(8) of the Act in the computation of its income was rightly held by the learned Commissioner as erroneous and prejudicial to the interests of the Revenue. In my opinion, the order under appeal should stand.

34. The appeal is dismissed.

ORDER OF REFERENCE TO THIRD MEMBER

P.J. Goradia, Accountant Member

35. Because of the difference of opinion between the Members of the Bench who heard the above appeal, the point of difference is required to be referred to a third Member for his opinion and, therefore, we propose the following question for the opinion of the third Member :

” Whether the Commissioner of Income-tax erred in setting aside the assessment for the assessment year 1982-83 on the ground that the Income-tax Officer failed to make the disallowance in accordance with Section 40A(8) of the Income-tax Act, 1961?”

36. The Hon’ble President is requested to do the needful in the matter.

ORDER OF THIRD MEMBER

Ch. G. Krishnamurthy, President

37. The assessee in this case is a private limited company deriving income from purchase and sale of shares. It had filed a return declaring an income of Rs. 4,92,859 and the Income-tax Officer completed the assessment by making certain adjustments on a total income of Rs. 7,14,790. In para 2 of the assessment order, the Income-tax Officer made the following observation :

” Provisions of Section 40A(8) are not applied as the assessee-company is a financial company (investment company) as defined in Clause (c) of Section 40A(8). ”

38. It may also be mentioned here that, while filing the return of income, the assessee filed a computation sheet adding at the end a note stating:

” The company is an investment company and hence a financial company within the meaning of Section 40A(8), Explanation (c)(ii) of the Income-tax Act, 1961. Therefore, there will be no disallowance under Section 40A(8) of the Act.”

39. The Income-tax Officer, evidently, accepted this contention of the assessee and did not make any disallowance of interest under Section 40A(8).

40. Subsequently, the Commissioner of Income-tax came to the view that the provisions of Section 40A(8) of the Income-tax Act applied and that interest at 15% should have been disallowed and the non-disallowance of interest was erroneous and caused prejudice to the interests of the Revenue. He issued a notice on March 16, 1985, proposing to disallow interest at 15 per cent. observing that the assessee-company was not an investment company but only a trading company and, to a trading company, the provisions of Section 40A(8) applied and interest at 15% should have been disallowed. The assessee objected to this notice by filing

a detailed reply on March 22, 1985, wherein it pointed out that the assessee-company was only an investment company and that was its main object and, pursuant to this object, it even changed its name from Prabhat Fabrics Pvt. Ltd. to Barkha Investments and Trading Co. Pvt. Ltd. and sought to support its view from the correspondence that took place between the company and the Registrar of Companies and also the resolutions passed by the board of directors of the company. It also relied upon its balance-sheet to show that its investments in shares and securities had increased from Rs. 3.34 crores in the previous year to Rs. 3.60 crores in the year under appeal which, according to it, was only on account of investments and not on account of trading. It also pointed out that it was carrying on financial transactions in addition to investment operations both of which were covered by Section 40A(8) making the section inapplicable to the facts of the case. Reference was also made to the definition of investment company under the Non-Banking Financial Companies ( Directions ) 1977, issued by the Reserve Bank of India where an investment company was defined as a company which is a financial institution carrying on as its principal business acquisition of shares and securities. It was pointed out that this definition was more or less the same as the definition of an investment company adopted in Section 40A(8)(c) of the Income-tax Act. Finally, he pointed out that, out of the gross total income of Rs. 23.60 lakhs, income from other sources amounted to Rs. 23.48 lakhs which showed and proved that the operations of the company mainly consisted of income chargeable under the head ‘Income from other sources’ and therefore, the company must be regarded as an investment company.

41. The Commissioner of Income-tax dealt with all these points in his order and ultimately came to the conclusion that the assessee was only a trading company and not a financial company and the provisions of Section 40A(8) clearly applied and directed the Income-tax Officer to disallow the interest at 15% in accordance with Section 40A(8) of the Income-lax Act by setting aside the assessment.

42. Aggrieved by this order, the assessee appealed to the Tribunal and repeated the same arguments as were urged before the Commissioner.

43. The learned Accountant Member, on an interpretation of Section 40A of the Income-tax Act, came to the conclusion that this section was applicable to the persons, i.e., companies which are having income under the head “Business” also and there could not be business unless there was trading in shares and, therefore, a financial company or an investment company must necessarily carry on the business of purchase and sale of shares also in addition to holding shares for investment. According to him, the investments could be held as stock-in-trade also in order to satisfy the requirements of Section 40A. He held that the assessee-company was a financial company as defined in the exclusion provided in Clause (c) of the Explanation in Section 40A(8) and the Commissioner of Income-tax erred in proposing to disallow the interest. He referred to the background in which Section 40A(8) was introduced by the Finance Act of 1975 and held that it was a measure taken to make the deposits accepted by companies costlier than the deposits accepted in the banking sector and, in this context, the Reserve Bank of India had a primary role to play to control the credit in the country and, if, in the exercise of that role, it gave a definition of an investment company and, if that definition tallies with the definition adopted in the Income-tax Act, the definition must be given due weightage and, according to that definition, the assessee-company fell within the meaning of an investment company, although it was trading in shares.

44. But the learned Judicial Member was not prepared to accept this view. He referred to the objects of the assessee-company for which it was incorporated to draw an inference that its main object was to deal in shares and not to act as a financial company or as an investment company. According to him, investment in shares is only an incidental or ancillary object and not the main object. Subsequently, a resolution was also passed on January 2, 1978, to the effect that the assessee-company should start investments and financial activities as provided for in its memorandum of association and, thereafter, it started in dealing in and trading of shares, debentures, etc. Then, he referred to Section 40A(8) and the Explanation added thereto. It explained what a financial company meant. According to him, a financial company is an investment company which carries on as its principal business the acquisition of shares, stocks, bonds, debentures, debenture stock or securities issued by the Government or a local authority, or other marketable securities of a like nature. Since the expression ” acquisition” was used in the explanation, according to him, the acquisition of shares, stocks, etc. should be only with the element of holding them as investments and that holding should be the principal business and, if investments are acquired for holding, they naturally excluded dealings in them as trading assets. Therefore, if they were trading assets, then it could not be said that the acquisition was for the purpose of holding and, therefore, it could not be said to be a financial company. In this context he made a reference to a decision by the Supreme Court

in the case of Nawn Estates (P.) Ltd. v. CIT [1977] 106 ITR 45 to draw support for his view that there ought to be investment in shares by way of holding. The learned Judicial Member drew a distinction between dealing in investments and holding of investments and held that dealing in investments was not what was contemplated by Section 40A(8), for, a company to fall within the meaning of a financial company, investments must be held by the company.

45. Then he referred to the balance-sheet of the assessee-company and held that what was shown in the current assets in the balance-sheet was termed as stock-in-trade of the closing stock of shares which, according to him, did not support the view that those shares were held by the assessee-company as investments. He also noted that the shares account yielded a profit of Rs. 30,44,572 while the income from dividends was only Rs. 23,48,159 and since the income from dealing in shares was more than the dividend income, the assessee-company, by any standard, could not be said to be a financial company. An argument was raised before the Bench that, in the earlier years 1980-81 and 1981-82, the Department had treated the assessee-company as an investment company and that factor should have been borne in mind by the Department, particularly by the Commissioner of Income-tax and the assessment made by the Income-tax Officer which was in accordance with the earlier practice adopted by the company should not have been jettisoned. The learned Judicial Member referred to this argument and held that the procedure adopted in the earlier years did neither create any bar nor operate as an estoppel against the Revenue to depart from the earlier view, if correct facts or new facts come to light because inasmuch as each assessment is separate and independent and is to be made on its merits. These are in the main the reasons that prevailed with the Judicial Member to disagree with the view expressed by the learned Accountant Member.

46. On account of the difference of opinion between the two members, the following point of difference of opinion was referred to me as a Third Member for my opinion :

“Whether the Commissioner of Income-tax erred in setting aside the assessment for the assessment year 1982-83 on the ground that the Income-tax Officer failed to make the disallowance in accordance with Section 40A(8) of the Income-tax Act, 1961?”

47. I have heard learned counsel for the assessee and the departmental representative at sufficient length. Their arguments were reiteration of their respective stands taken before the authorities below. Learned counsel for the assessee relied heavily on a decision of the Gujarat High Court in the case of Distributors (Baroda) Put Ltd. v. CIT [1968] 69 ITR 614 which was approved by the Supreme Court in CIT v. Distributors (Baroda) P. Ltd. [1972] 83 ITR 377, wherein the Supreme Court had to interpret Clause (i) of Explanation 2 to Section 23A of the Indian Income-tax Act, 1922, which also dealt with a situation like the one before us, namely, business consisting of ” wholly or mainly in the dealing in or holding of investments “. The interpretation of this expression became relevant to apply the provisions of Section 23A of the Indian Income-tax Act, 1922. There, the Supreme Court pointed out that, when the Legislature speaks of the business of ” holding of investments “, it refers to real, substantial, or systematic or organised course of activity of investment carried on by an assessee for a set purpose such as the earning of profits. The Supreme Court pointed out in this case at page 3132 of the report that ” It is easier to understand when the section speaks of a company having the business of dealing in investments though, to say that the company is dealing in investments may, at first sight, look somewhat incongruous. When the Legislature spoke of dealings in investments, it meant dealing in shares, stocks and securities, etc. But when a person invests in the shares of some of the companies, it is difficult to say that his business is one of investing. In commercial circles, investing is not considered as business. An investor may feel perplexed if he is called a businessman “.

48. Then the Supreme Court pointed out that in Bengal and Assam Investors Ltd. v. CIT [1966] 59 ITR 547, it was held that an individual who merely invests in shares for the purpose of earning dividend does not carry on a business and that the only way he can come under Section 10 of the Act is by converting the shares acquired by him into stock-in-trade, i.e., by carrying on the business of dealing in stocks and shares. Relying upon these observations which have now acquired the authority of the law of the land, it was submitted that since there cannot be any business of investing, i.e., business of acquisition, the expression ” business of acquisition ” must take within its fold dealing in shares also and, therefore, when the dealings in shares and acquisition of shares are both involved, which ought to involve as a necessary concomitant of acquisition of shares, it must be held that the definition of financial company is satisfied. He further submitted that, as enunciated by the Supreme Court, there can in law be dealing in shares also, while acquiring shares. Both transactions should, therefore, be looked at together as one composite whole and not de hors the other. The learned Judicial Member, according to learned counsel for the assessee, made a mistake in concentrating only upon dealing in shares, overlooking the fact that there cannot be a business of acquisition of shares unless there is included in it dealing in shares also. An investor in shares cannot hold on to the shares purchased even if he knows that the prices of the shares are crashing and he must, if he wants to avoid loss, offload the shares which he can do only by selling them and, therefore, a sale in such circumstances is a compulsion and it cannot be said to be a dealing in shares. So also, when an investor in shares acquires the knowledge that shares are available at cheaper rates and if he has the knowledge that there would be escalation in prices, he can purchase the shares and then sell them at a profit with a view to improve his acquisition. Even then, he cannot be said to be a dealer in shares. By multiplying examples of this nature and drawing very heavily upon the enunciation of the law by the Supreme Court in the case referred to above, learned counsel submitted that the dealing in shares should not have been held against the assessee so as to attract the provisions of Section 40A(8) to disallow the interest at 15%. He commended the view expressed by the learned Accountant Member for acceptance. He also pointed out that the decision of the Supreme Court relied upon by the learned Judicial Member in the case of Nawn Estates (P) Ltd. v. CIT [1977] 106 ITR 45 is not at all apposite. That was a decision given for a different purpose and in dealing with a different situation and different section, the purpose of which was totally different. That analogy given in a different context should not have been imported in dealing with the present situation like the one where Section 40A(8) was concerned with so many other ramifications. In sum, his argument was that the assessee-company was a financial company although, in the process of holding investments by way of acquisition, it was dealing also in shares and primacy should not have been given to the dealings in shares but should have been construed only as an ancillary or incidental act in the process of acquisition of shares.

49. Learned departmental representative, on the other hand, relying very heavily on the various observations made by the Judicial Member and also the copies of the accounts particularly the shares account extracted by the Judicial Member in his order, submitted that the main purpose of the assessee was only to deal in shares and not to hold shares as investment in the sense of acquiring shares for being held as investments. The assessee is only a trading company and not an investment company. Tracing the history of Section 40A(8), he submitted that the assessee was only trying to take advantage of the exceptions provided in Section 40A(8) to escape the disallowance of interest which otherwise is

mandatory. Referring to the composition of income, he sought to draw support for the view that the assessee could never have been a financial company notwithstanding the treatment given to it in the earlier years. It is not difficult to envisage a financial company turning into a trading company and vice versa. Neither any documents nor any rules in this regard are required to be implemented or followed. Intention is the primary ingredient to fix whether a financial company has been turned into a trading company or a trading company into a financial company. The facts gathered by the Department and so neatly marshalled by the Judicial Member in his order do indicate the intention that the assessee, in this year, notwithstanding anything that happened in the earlier years, had only been dealing in shares. The increase or decrease in the holdings at the end of the year as depicted by the balance-sheet is not a result of acquiring more shares for the purpose of acquisition but a result of trading. Therefore, the increase should not be construed as an increase in shareholding acquired for the purpose of holding them as investments. That is how his argument proceeded.

50. After a careful consideration of these arguments and the relevant facts and the record, it occurred to me that a more appropriate view in this case would be to hold that the assessee-company is not a financial company but only a company engaged in trading activities in so far as the facts of this year are concerned. I do not have to reproduce Section 40A(8) in this order as it has been already reproduced by my learned brother, the Judicial Member, in his opinion. A careful reading of Section 40A(8) would show that the legislative mandate is that if a company, not being a banking company or a financial company, incurs any expenditure, by way of interest in respect of any deposit received by it, 15 per cent. of such expenditure shall not be allowed as a deduction. In so far as the object of Section 40A(8) is concerned, it is very clear that 15 per cent. of the interest expenditure incurred by a company other than a banking company or a financial company, shall not be allowed as a deduction. In other words, except banking and financial companies, the other companies receiving deposits are not to be allowed the entire amount of interest paid, except by undergoing the cut imposed by the section. The purpose is very clear to understand. A trend has developed in the country, particularly in the corporate sector to receive deposits by offering very high rates of interest sometimes bordering on usuriousness. This tendency has not only deprived the public financial institutions like the banks, etc., from securing deposits but the public are being cheated into making

deposits with those companies lured by the offer of high rates of interest without any proper security for refunding of the amounts. Instances where the depositors were cheated of refunds were not uncommon. The Legislature stepped in to put an end to this unethical and deceptive practice. It has, therefore, imposed a curb by disallowing the interest on the payments of interest offered to achieve a twin objective. One is to regulate the flow of funds into the companies which are not banking and financial companies and, secondly, to ensure the repayment of the refunds by weeding out the unstable companies. Since banking and financial companies were excluded from the operation of this limitation, it became necessary for the Legislature to define ” a financial company “. Therefore, Explanation (c)(ii) was added which said that a financial company means an investment company, that is to say, a company which carries on, as its principal business, the acquisition of shares, stock, bonds, debentures, debenture stock, etc. That is, firstly, it must be an investment company, secondly, it must carry on the business of acquisition of shares and, thirdly, that business must be its principal business.

51. It is now pertinent to note what the Supreme Court had to say about the meaning of the expression ” wholly or mainly in the dealing in or holding of investments ” as a business in relation to the operation of Section 23A of the old Income tax Act of 1922, for which learned counsel for the assessee has relied upon CIT v. Distributors (Baroda) P. Ltd. [1972] 83 ITR 377 (SC), which is close and somewhat akin to the definition of ” principal business ” now under consideration. The Supreme Court said that, in the expression, “wholly or mainly in the dealing in or holding of investments”, the word ” mainly” in that clause must necessarily take its colour from the word “wholly” preceding that word in those provisions. In other words, the company which comes within the scope of those provisions must be one whose primary business must be in the dealing in or holding of investments. If a company engages itself in two or more equally or nearly equally important business activities, then it cannot be said that the company’s business consists wholly or mainly in the dealing in a particular thing. Further, even in a case where a company has more than one business activity and one of its activities is more substantial than the others, unless that activity is the primary activity of the company, it cannot be said that that company is engaged in wholly or mainly in any one of its business activities. Section 23A applies only to cases where the primary activity of the company is in the dealing in or holding of investments.

52.
Then the Supreme Court went on to explain the meaning of the expression ” business of holding of investments ” which is also akin to the expression used in the Explanation to Section 40A(8). It held that when the Legislature speaks of the business of holding of investments, it refers to real, substantial and systematic or organised course of activity of investment carried on by an assessee for a set purpose such as earning of profits. In this context, the Supreme Court also referred to the objects clause of the memorandum of association and then said that, if there are more than one object and dealing in or holding of investments is one of the several objects, it could not be said that the primary object of the company is to carry on the business in dealing in or holding of investments because the objects of the company are manifold. The same view was taken by the Calcutta High Court in the case of Great Pyramid Insurance Co. Ltd. v: CIT [1976] 102 ITR 394, which was also relied upon by learned counsel for the assessee. Here again, the meaning of ” investment company ” as used in Section 109(ii) of the Income-tax Act, 1961, came up for interpretation and the meaning given to that expression in the 1922 Act by the Supreme Court in CIT v. Distributors (Baroda) P. Ltd. [1972] 83 ITR 377 was applied. This being the law of the land on the subject, on which reliance also has been very heavily placed by learned counsel for the assessee, applying these principles to the facts of the case before me, I have to discern as to what is the primary activity of the company. Whether the business consisted of wholly or mainly in the acquisition of shares which expression ” wholly or mainly ” is, in my opinion, equal to the expression ” principal business ” used in the Explanation to Section 40A(8). One test is to see how the shares have been dealt with by the assessee. The share account of the assessee shows an opening balance of Rs. 1,46,92,703. Then there are purchases in the year for Rs. 8,21,08,110. Thus, the total holdings were of Rs. 9.68 crores. Of this, Rs. 6.63 crores were sold leaving a balance of Rs. 3,34,69,990. If a company is engaged in the business of acquisition of shares as an investment company, it is difficult to see how there can be so many sales and so many purchases running into crores and that too all through the year. It is no doubt true that, for the purpose of acquisition of shares, dealing in shares may become necessary but that dealing in shares can only be for the limited purpose of protecting the interest of the acquisition in order that losses are avoided and gains are maximised but, if a regular trading like purchases and sales of this nature is carried on, it shows a totally different object, namely, to deal in shares as a trading activity and not to hold those shares as investment. I can appreciate acquisition of shares even to the extent of

Rs. 8.21 crores as shown in the purchases but I am unable to appreciate the sales of Rs. 6.63 crores. Therefore, the sales must have been made only with a view to earn profits in a trading activity and the quantum and magnitude of the purchase and sales do not, in my opinion, disclose the primary object of the company as acquiring the shares for investment.

53. Further, what was shown in the balance sheet as current assets was only the closing stock of the shares. When the closing stock of the shares in the trading activity by the assessee is shown as its current assets, it is difficult to accept that that current asset constituted an investment, merely because of the magnitude of the amount. The share account, therefore, clearly discloses the interest of the company, according to me not to hold the shares as investment but only as a trading asset and Rs. 3.34 crores worth of shares as current asset is not to be misunderstood as investment. Even in the balance-sheet, these shares were shown as stock-in-trade and not as investments. Secondly, as rightly pointed out by the departmental representative, the gross profit in the trading activity of the shares was as high as Rs. 30.44 lakhs and the dividend income is about Rs. 28 lakhs before deduction of tax. The receipt of dividends may disclose a situation that the shares were held as investments and the dividend was received on the shares held as investments but this may also disclose that the dividends received on shares purchased-cum-dividends or sales made ex-dividend. No one has gone into this aspect. Therefore, simply because there is a dividend income of Rs. 28 lakhs, it does not mean that that was the main activity of the assessee-company.

54. Again, reverting to the observation made by the Supreme Court in Distributors (Baroda) P. Ltd. [1972] 83 ITR 377, that if a company engages itself in two or more equally or nearly equally important business activities, then it cannot be said that the company’s business consists wholly or mainly in dealing in a particular thing. Here, even if I hold that the dividend income is from shares held as investments, the income from those two activities was equally or nearly equal so that it cannot be said that the assessee-company’s principal business was acquiring shares for investment. It is also not known as to on what shares the assessee received dividend of Rs. 28 lakhs unless it is on purchase of shares-cum-dividend and sale of shares–ex-dividend. Though this is an inference I drew from the copies of the accounts made available to me, there are no investments shown in the balance-sheet from which it could be said that dividend income of Rs. 28 lakhs could be realised and the amount of Rs. 3.34 crores shown as stock-in-trade of shares is not investment but only the stock-in-trade of the shares purchased for trading activities.

55. For these reasons, I am of the opinion that the assessee-company cannot be said to be a financial company within the meaning of the Explanation added to Section 40A(8). It may be true that the definition given of an investment company or a financial company either under the Companies Act or by the Reserve Bank of India, may be similar to the definition given in Section 40A(8) or nearly similar to it but from the mere similarity of definition, one cannot say, unless the facts support the definition, that the assessee-company is a financial company or not. May be the Reserve Bank of India treated the assessee-company as a financial company and I would not know why and for what purpose the Reserve Bank of India had to treat the company as a financial company. That, in my opinion, will not however, be conclusive for deciding whether the assessee-company falls within the definition of a financial company referred to in the Explanation to Section 40A(8). As I said earlier, the purpose of the financial company and its definition in Section 40A(8) are totally different. A financial company is to receive shares and to hold them as investment without dealing in them as a trading activity and the holding of those shares must be the principal business of the financial company. It is also pertinent to note that, under the Explanation, the principal business of an investment company should not be only of acquisition of shares but it can extend to acquisition of stocks, bonds, debentures, debenture stock or securities issued by the Government or local authority or other marketable securities of a like nature. It is difficult to say that an investment company having its principal business of acquisition of shares, stocks etc. will deal in those shares and stocks as if it is a trading commodity. Dealing in shares and stocks as trading commodity is counter to and at variance with and also contraindicative of and inconsistent with the acquisition of shares for investment. An investor would not deal in shares as frequently as a trader. Dealing in shares on day-to-day basis throughout the year distinguishes it from acquisition of shares by way of investment.

56. For these reasons, I am inclined to agree with the view expressed by the learned Judicial Member.

57. The matter will now go before the regular Bench for the disposal of the appeal in accordance with the opinion of the majority.