D.G. KARNIK, J.

This appeal under Section 260-A of the Income Tax Act, 1961 (for short " the") is directed against the Order dated 1st October, 2001 of the Income Tax Appellate Tribunal, Panaji Bench, Panaji.

2. The respondent no.1 M/s. Parle Plastics Ltd., (for short "the assessee"), filed a return of income on 29th November, 1997 declaring nil total income for the Assessment Year 1997-98. The case was taken up for scrutiny by issuing a notice under Section 143(2) of the. The Deputy Commissioner of Income Tax (Inv.), Panaji Goa, who was the Assessing Officer held that the total income of the assessee assessable to tax was Rs.2,35,09,482/-. Aggrieved by the order of assessment, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), Belgaum. The Commissioner of Income Tax (Appeals) partly allowed the appeal and remanded the matter to the Assessing Officer for recomputation of interest in the light of the decision. Aggrieved by partial rejection of the appeal, the assessee filed a further appeal before the Income Tax Appellate Tribunal, Panaji Bench, Panaji (for short " theAT"). The ITAT allowed the appeal filed by the assessee in part. It however rejected the contention of the assessee that it had an option not to claim depreciation for the purpose of availing of deduction under section 80-IA of the Act. TheAT also rejected the contention of the assessee that the loan received by it from Acqua Minerals Pvt. Ltd. (for short "AMPL") could not be held to be a deemed dividend under section 2(22)(e) of the. Aggrieved by the decision of theAT, the Revenue has filed the present appeal.

3. The appeal was admitted by this Court by an order dated 24th June, 2002 as to one substantial question of law. Thereafter, the assessee filed an application being Civil Application No.599/2005 requesting the Court for framing an additional substantial question of law. By our order dated 23rd August, 2010, the civil application was allowed and one additional substantial question of law was framed.

4. Accordingly, the appeal relates to the following substantial questions of law :

(1)Whether in the facts and circumstances of the case, for the purpose of availing of allowable deduction under Section 80-IA of the Income Tax Act, 1961 the total income of the assessee is required to be computed by deducting allowable depreciation under Section 32 even if the assessee had not claimed it

(2)Whether on the facts and in the circumstances of the case the finding of theAT that the amount of Rs. 2,18,60,949/- does not represent deemed dividend u/sec.2(22) (e) of the, is correct

5. The facts giving rise to the aforesaid questions of law are briefly stated below :

The assessee is a private limited company engaged in the business of manufacture of plastic caps for mineral water bottles. During the Assessment Year 1997-98, the assessee declared a total income of Rs. 1,36,558/-, the whole of which was claimed as a deduction under Section 80-IA. The Assessing Officer noticed that the company had claimed deprecation of Rs.23,38,686/- under the Companies Act, but had not claimed it as a deduction by way of depreciation under Section 32 of the. According to the assessee, in view of the decision of this Court in the case of Sri Someshwar Sakhar Karkhana Ltd., 177 ITR 443 [LQ/BomHC/1988/685] , as also in the case of Kolhapur Oxygen Acetylene Pvt. Ltd., 190 ITR 574 [LQ/BomHC/1991/142] , the Assessing Officer cannot, suo motu, allow depreciation where the assessee had not claimed it in his return. He claimed that the allowance of depreciation was a benefit available to the assessee to claim, but not the one which could be thrusted upon him against his wish. The Assessing Officer rejected this contention and deducted the amount of depreciation from the total income of the assessee under Section 32 of the. This finding has given rise to the question No.1 framed above.

6. The assessee had taken an unsecured loan from its sister concern AMPL and the loan amount of Rs.2,18,60,949/- and was due and payable by the assessee to AMPL at the end of previous year ending 31st March, 1997. Majority of the share capital of the assessee was held by two individuals namely Mr. Ramesh Chauhan and Mrs. Zainab R. Chauhan. Ramesh Chauhan held 54 % share capital and Mrs. Zainab Chauhan held 20 % share capital of the assessee. The same two persons were also the majority shareholders of AMPL. Mr. Ramesh Chauhan held 53.33 % of the share capital of AMPL and Mrs. Zainab R. Chauhan held 13.33 % of the share capital of AMPL. In view of the fact that AMPL was a company in which public was not substantially interested and in view of the fact that the said two persons held majority of the share capital in the Assessee Company as well as in AMPL, the Assessing Officer held that Rs.2,18,60,949/-which was a loan by AMPL to the Assessee company, should be treated as a deemed dividend in its hands under Section 2(22)(e) of the. He, accordingly, added Rs.2,18,60,949/- as the "deemed dividend" in the hands of the assessee and computed it in the total income of the assessee. The Commissioner of Income Tax (Appeals) modified the decision of the assessing officer by holding that only the sum of Rs. 11,68,135/- which was received by the assessee by way of loan/advance during the relevant previous year could be treated as an income by way of deemed dividend. The carried forward balance of the loan of the previous years could not be treated as the deemed dividend during the relevant previous year. He however granted liberty to the Assessing Officer to take action under section 150 of the Act. TheAT held that granting of loans was a substantial part of the business of AMPL and as such the loan could not be treated as the deemed income in the hands of the assessee. The Revenue is in appeal against the decision of theAT.

7. Regarding first question of law:

This question of law stands concluded by a decision of the Full Bench of this Court in the case of Plastiblends India Limited vs. Additional Commissioner of Income-Tax and ors., (2009) 318 ITR 352 (Bom.) [LQ/BomHC/2009/2302] (FB). In that case, in the return for the Assessment Year 1997-98, the assessee therein had added back depreciation (as shown in its books) to the net business profit while computing his income for the purpose of Income Tax. In short, the assessee computed its total income without claiming depreciation under Section 32 of the. After making the deductions and additions allowable and disallowable under the, the assessee determined the gross total income on which it claimed 100 per cent deduction under Section 80-IA of the. The return was processed under Section 143(1) and accepted without any adjustment. Subsequently the assessment was reopened by the Assessing Officer on the ground that deduction under Section 80-IA of thewas to be determined on the gross total income computed after deducting all allowable deductions under Section 30 to 43D of the, including current depreciation allowable under Section 32 of the Act, whereas the assessee had computed the gross total income without deducting depreciation allowable under the. After hearing the assessee the Assessing Officer passed a reassessment order computing the gross total income after deducting the current depreciation allowable under Section 32 of the. The assessee appealed to the Commissioner (Appeals) who directed the Assessing Officer not to deduct the current depreciation in computing the gross total income.

On further appeal by the Department, theAT set aside the order of the Commissioner (appeals) and restored the reassessment order passed by the Assessing Officer. On an appeal to the High Court by the assessee contending that the assessee had an option to claim or not to claim current depreciation allowable under Section 32 of the Act, the matter was referred to the Full Bench. Affirming the order of the Tribunal, the Full Bench held that the special deduction under Chapter VI-A of the, (which includes Section 80-IA) has to be computed on the gross total income determined after all deductions allowable under Sections 30 to 43D of the and any device adopted by the assessee to reduce or inflate the profits of eligible business has got to be rejected. Quantum of deduction under Section 80-IA of thehas to be determined by computing the gross total income from the business after taking into consideration all the deductions allowable under Sections 30 to 43D of the. In view of the decision of the Full Bench, question No.1 is answered in favour of the Revenue and against the assessee.

8. Regarding the second question of law : During the relevant assessment year (A.Y. 1997-98), the income received by a person by way of dividend is taxable and is to be included in the total income of the person. The word "dividend" has been defined under Section 2(22) of the. The definition of "dividend" is inclusive and begins with words "that the dividend includes". Section 2(22) of the Act, in so far as it is relevant for our purposes, reads thus :

"2(22) "dividend" includes -

(a) ...

(b) ...

(c) ...

(d) ...

(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) (made after the 31st day of May, l987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)) or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits;

but "dividend" does not include -

(i) ...

(ia) ...

(ii) any advance or loan made to a shareholder (or the said concern) by a company in the ordinary course of its business, where the lending of money is a substantial part of the business of the company;

(iii) ..."

In the light of this definition, we would have to consider whether the amount of Rs.2,18,60,949/- shown to have been received by the assessee by way of loan from AMPL could be treated as "deemed dividend" in its hands under Section 2(22) of the. The admitted facts are that AMPL which is the lending company is a private limited company in which the public are not substantially interested. It is also not disputed that Shri Ramesh Chauhan, during the relevant period, held 53.33 % of the share capital of the AMPL and also held 54 % of the share capital of the assessee company. Counsel for the assessee did not dispute that all the conditions laid down under clause (e) of Section 2(22) of thefor treating the loan advanced by AMPL to the assessee company as a dividend were satisfied. He, however, submitted that even the amount which was received as loan by the assessee from AMPL during the relevant previous year fell within the inclusive clause (e) of Section 2(22) it could not be treated as dividend, in view of the fact that the amount fell under clause (ii) of Section 2(22) of theand was specifically excluded from the definition of the dividend.

9. The amounts of loan have been noted in paragraph No.25 of the order of theAT and the correctness thereof is not disputed before us. The position of the assessees accounts in the books of AMPL was as under :

"Opening debit balance b/f. Rs.1,76,39,425

Add :

(i) Payments made by way of

advance or loan during the year.

(a) on 10.9.96 Rs.6,00,000

(b) on 31.3.97 Rs.5,68,135 - 11,68,135

(ii) Provision for interest debited

to the appellants account on

31.3.97. 32,13,367 -Total 2,20,20,927

Less :

Adjustment entries on credit side 1,59,974

--

Closing balance c/f. Rs.2,18,60,953

This shows that during the relevant previous year (F.Y.1996-97), AMPL had actually lent to the assessee only a sum of Rs.11,68,135/-in two installments, namely Rs.6,00,000/- on 10.9.1996 and Rs.5,68,135/- on 31.3.1997. The opening balance of Rs.1,76,39,425/-was not advanced by AMPL to the assessee during the relevant previous year and could, therefore, be not treated as the amount of loan or advance received by the assessee during the relevant previous year. The said amount, therefore, could not be included as the dividend (hereinafter, referred to as "the deemed dividend") under clause (e) of Section 2(22) of the. The amount of Rs.32,13,367/- represented the provision for the interest which was to be paid by the assessee to AMPL on the old outstanding loan of Rs.1,76,39,425/- and further loan of Rs.11,68,135/- advanced during the relevant financial year. This was merely an entry regarding the provision. No interest was actually received by AMPL. This amount which was not paid by the AMPL to the assessee cannot be treated as a loan/advance paid by the AMPL to the assessee during the relevant previous year. The opening words "any payment" occurring in clause (e) of Section 2(22) of thecontemplates actual payment made by the company to the assessee for being treated as a dividend in computing income of the assessee. Moreover making of a provision for an interest which the assessee would ultimately be required to pay to the lender on the money lent cannot be regarded as a payment made by the company to the assessee. As such, the amount of Rs.32,13,367/- which represents only the provision made for interest which the assessee was liable to pay to AMPL by way of an interest on the outstanding amount could not be regarded as the payment made by AMPL within the meaning of clause (e) of Section 2(22) of the. Only the amount of Rs.11,68,135/-which was actually received by the assessee as and by way of loan or advance from AMPL would fall within inclusive clause (e) of the definition of "dividend" appearing in Section 2(22)(e) of the.

10. The next question to be considered is whether even the said amount of Rs.11,68,135/- which was received by the assessee by way of loan or advance from AMPL and consequently fell within clause (e) of Section 2(22) was required to be excluded in view of clause (ii) which provides for exclusion of certain amounts from the definition of the dividend. A plain reading of clause (ii) of Section 2(22) of theshows that any advance or loan made by a company to a shareholder or a concern in which the shareholder has a substantial interest would not be regarded as a dividend if the advance or loan was made by the (lending) company, if the two conditions are satisfied namely (i) that the loan or advance was made by the (lending) company in the ordinary course of its business and (ii) lending of money was a substantial part of the business of the (lending) company. At the relevant time, AMPL was engaged in the business of production, sale and distribution of soft drinks, aerated water and mineral water. The assessee was engaged in the business of manufacture of plastic caps for bottles. A judicial notice can be taken of the fact that during the relevant assessment year (A.Y. 1996-97) some soft drinks were sold in glass bottles, having metal caps, some soft drinks were also sold in plastic/pet bottles bearing plastic caps. Mineral water was almost exclusively sold in plastic/pet bottles or jars bearing plastic caps.

The business of the assessee was complimentary to the business of AMPL. The assessee was also supplier of plastic caps to AMPL. It is not uncommon for a manufacturer of a product to give some advance to the suppliers of raw material or other parts used by the manufacturer in manufacturing its products. Such advances are commonly made in the usual course of business. Apart from the business of manufacture, supply and distribution of soft drinks and mineral water, AMPL was also engaged in the business of lending money. The money was lent by AMPL to the assessee in usual course of business of the AMPL which included business of granting loans and advances. The first condition under clause (ii) of Section 2(22) of thewas satisfied. Ms. Dessai, the learned Counsel appearing for the Revenue, however, submitted that lending of money was not a substantial part of the business of AMPL. Consequently, the second condition for exclusion provided under clause (ii) of Section 2(22) of thewas not satisfied. Ms. Dessai submitted that objects clause of AMPL does not contain lending of money as one of the main objects. Though a copy of Memorandum of Association has not been filed on record, it is not the case of the Revenue that the act of lending money was ultra vires the objects clause of AMPL-the lending company. It is not the case of the Revenue that AMPL had no power under the Memorandum of Association to lend any money or that the business of advancing and lending money could not be undertaken by the AMPL at all.

According to Ms. Dessai, lending of money was not the main object, though it may be an other object under the Memorandum of Association of AMPL. Ms. Dessai further submitted that though lending or advancing of money in the usual course of business may be an activity permitted by the Memorandum of Association of AMPL, the actual business of lending money was not the substantial part of the business of AMPL. In order to consider the activity of money lending as a substantial part of the business of the lending company (AMPL in this case), the business of money-lending must constitute more than 50 % of the business of lending company. We are unable to agree for the reasons indicated below.

11. The expression used under clause (ii) of Section 2(22) is "substantial part of the business". We would, therefore, have to ascertain the meaning of the word "substantial", appearing in the expression "substantial part of the business". Strouds Judicial Dictionary, Fifth Edition, gives the first meaning of word "substantial" as "A word of no fixed meaning, it is an unsatisfactory medium for carrying the idea of some ascertainable proportion of the whole". The decision of Terrys Motors Lt. v. Rinder (1948) S.A.S.R. 167) is given in support of this meaning. In the meaning no.8, while considering "substantial amount", it is stated that out of a rent of L 80 p.a.., L 13 p.a. attributable to the amount paid for furniture, was a substantial amount, on the basis of the decision in Maclay v. Dixon 170 L.T. 49. In meaning no.15, relying upon the decision of Ladbrooke (Football) v. William Hill (Football) (1964) 1 W.L.R. 273, it is said that in deciding whether the reproduced part of copyright material is a "substantial" part of the whole, it is the quality rather than the quantity of the part that should be considered. Blacks Law Dictionary, Sixth Edition defines the word "substantial" as "of real worth and importance; of considerable value; valuable; belonging to substance; actually existing; real; not seeming or imaginary; not illusive; solid; true; veritable. Something worthwhile as distinguished from something without value or merely nominal." No decision was cited before us wherein a view has been taken that in order to show that a part of the whole to be treated as "substantial part", the part must exceed 50% of the whole.

In our view, the expression "substantial part" does not connote an idea of being the "major part" or the part that constitutes majority of the whole. If the legislature really intended that more than 50% of the business of the lending company must come from the business of lending, nothing prevented the legislature from using the expression "majority of business". If the legislature at all intended that a particular minimum percentage of the business of a lending company should come from the business of lending, the legislature could have specifically provided for that percentage while drafting clause (ii) of Section 2(22) of the. The legislature had deliberately used the word "substantial" instead of using the word "major" and/or specifying any percentage of the business or profit to be coming from the lending business of the lending company for the purpose of clause (ii) of Section 2(22) of the.

We would give a an illustration to ascertain the meaning of the expression "substantial business" or "substantial income" of a company. In the modern days, large number of companies do not restrict to one or two businesses. They carry on numerous activities and carry on numerous businesses and have numerous business divisions. Let us take a case of a first company which has 3 divisions of works consisting of three different types of business. Turn over as well as the profit of the first division is 40%; turn over and profit of second division is 30% and the turn over and profit of the third line of business is 30%. In the case of this company no part of the business has turn over exceeding 50% and no part of the business company generates profit of more than 50% of the total. In such a case can it be said that none of the businesses of the said company is a substantial business of the company. In our view not. The first business which constitutes 40% of the turn over and contributes 40 % to the profit would be the single largest part of the business of the company, the second and third divisions of the business, each of which contributes 30% of the turn over as well as profit of the company, though not the major and not even single largest part of the business of the company, would still be a substantial part of the business of the company, because if any part of the three divisions of the business of the company was to be closed down, that would result in loss of turn over and/or business of 30%, ordinarily no company would regard such part of the business as insignificant. As rightly observed in Strouds Judicial Dictionary, it is not possible to give any fixed definition of the word "substantial" in relation to "a substantial business of a company". Any business of a company which the company does not regard as small, trivial, or inconsequential as compared to the whole of the business is substantial business.

Various factors and circumstances would be required to be looked into while considering whether a part of the business of a company is its substantial business. Sometimes a portion which contributes substantial part of the turn over, though it contributes a relatively small portion of the profit, would be substantial part of the business. Similarly, a portion which relatively a small as compared to the total turnover, but generates a large, say more than 50 % of the total profit of the company would also be substantial part of its business. Percentage of turn over in relation to the whole as also the percentage of the profit in relation to the whole and sometimes even percentage of a manpower used for a particular part of business in relation to the total man power or working force of the company would be required to be taken into consideration. Employees of a company are now called its "human resources" and, therefore, the percentage of "human resources" used by the company for carrying on a particular division of business may also be required to be taken into consideration while considering whether a particular business forms substantial part of its business Undisputedly, the capital employed by a company for carrying on a particular division of its business as compared to the total capital employed by it would also be relevant while considering whether the part of the business of the company constitutes "substantial part of the business" of the company.

12. Applying these tests to the present case, we do not find that theAT has committed any error in coming to the conclusion that lending of money was a substantial part of the business of AMPL. The ITAT has noted that 42% of the total assets of AMPL as on 31.3.1996 and 39% of the total assets of AMPL as on 31.3.1997 were deployed by it by way of total loans and advances. By no means, the deployment of about 40% of the total assets into the business of lending could be regarded as an insignificant part of the business of AMPL. The ITAT has also held that the income AMPL had received by way of interest of Rs.1,08,18,036/- while its total profit was Rs.67,56,335/-,. Excluding the income earned by AMPL by way of interest, the other business had resulted into net loss. In our view, theAT has taken into consideration the relevant factors and has applied the correct tests to come to the conclusion that lending of money was substantial part of the business of the AMPL. Since lending of money was a substantial part of the business of AMPL, the money given by it by way of advance or loan to the assessee could not be regarded as a dividend, as it has to be excluded from the definition of "dividend" by virtue of clause (ii) of Section 2(22) of the. Hence, question no.2 is answered in favour of the assessee and against the Revenue.

13. For all these reasons, the appeal is partly allowed. Question no.2 is answered in favour of the assessee and against the Revenue. However, in view of the fact that question no.1 has been answered in favour of the Revenue and against the assessee, the matter is remanded to the Assessing Officer for recomputing the income of the assessee in the light of this decision. In view of the mixed success, the parties are left to bear their own costs.