Law:

Section:

Section 40A(8) of the Income-tax Act, 1961 - Business disallowance - Interest on deposits - Assessment year 1982-83 - Whether merely because investments are held as stock-in-trade, it would not debar assessee from being treated as an investment company - Held, yes - Whether shares and securities have to be transferred in name of person, namely, company acquiring such shares or securities and in absence of such a relevant entry, company cannot successfully urge that it is an 'investment company' - Held, yes - Assessee-company derived income from business of purchase and sale of shares - Assessee had placed on record fact that it was treated and registered as an 'investment company' by RBI in light of provisions of Non-Banking Financial Companies (Reserve Bank) Directions, 1977 - Assessing Officer held that section 40A(8) was not applicable as assessee was a financial company as defined in clause (c) of Explanation to section 40A(8) - Tribunal, however, held that assessee-company was not a financial company within meaning of clause (c) of Explanation to section 40A(8) - Whether, on facts, it could be said that Tribunal had committed an error in law in not taking into consideration factum of classification and registration of assessee by RBI and further committed an error in law in brushing aside past history of assessment of assessee as an 'Investment company' without bringing any distinguishing material on record - Held, yes FACTS The assessee-company derived income from the business of purchase and sale of shares. While finalizing the assessment, the Assessing Officer held that section 40A(8) was not applicable as the assessee was a financial company as defined in clause (c) of section 40A(8). The Commissioner, being of opinion that the assessee was a trading company and section 40A(8) was applicable, issued a notice under section 263. The assessee in his reply explained that the company was treated as an investment company under Reserve Bank of India's Non-banking Financial Com- panies Directions, 1977 and had been classified by RBI and also registered with it. Rejecting the explanation of the assessee, the Commissioner held that as the assessee had purchased…

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