COMMISSIONER OF INCOME-TAX Vs. BHARAT NIDHI LTD

JUDGEMENT

(1.) THIS reference under Section 66 (1) of the Indian Income-tax Act, 1922 (Act 11 of 1922), arises in these facts and circumstances.

(2.) THE assessee was incorporated as a public limited company under the Indian Companies Act, 1913, on September 21, 1942, with the name Bharat Bank Limited. In paragraph 3 of its memorandum of association items (a) and (b) concern banking business alone and so does the beginning sentence of item (c) which reads--" to carry on the business of banking in all its branches and departments--". The rest of the item (c) and all the remaining items down to item (s) substantially correspond to items 1 to 17 in Section 277f of the Indian Companies Act, 1913. Those are such items of business which may be carried on by any person or company not carrying on the business of banking. Even in Section 277f of the above Act it is clearly stated that a banking company, apart from its principal business, may engage in addition in one or more of the 17 items of business which then follow. At the end of paragraph 3 it is declared that the company undertook to restrict its activities only to such banking business as specified in that paragraph or to such others as may be allowed under any Act relating to banking or otherwise or those as may be allowed by the Governor-General-in-Council by notification in the Gazette of India. This obviously is confined to such of the items in paragraph 3 as deal with the business of banking and does not restrict the remaining part of item (c) and items (d) to (s) in it. It is then stated that the objects specified in the several paragraphs of the memorandum of association shall be regarded as independent objects and accordingly shall be in no way limited or restricted in their application (except when otherwise expressed in such paragraphs) by reference to the objects in any other paragraph or the name of the company but may be carried out in as full and ample a manner and construed and applied in as wide a sense as if each of the said paragraphs defines the object of a separate, distinct and independent company.

(3.) ON March 10, 1949, was enacted the Banking Companies Act, 1949 (Act 10 of 1949), which by Section 5 (1) (c)of it defines "banking company" to mean " any company which transacts the business of banking in India", and the expression " banking " is defined in Section 5 (1) (b) of the same to mean " the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise". Sub-section (1) of Section 6 of this Act reproduces practically all the items of business in Section 277f of the Indian Companies Act, 1913, and Sub-section (2) of this section provides that " no banking company shall engage in any form of business other than those referred to in Sub-section (1) ". But even Section 6 of Act 10 of 1949 describes those items of business as items in addition to the business of banking by a banking company. Section 7 of this Act provides that no company shall carry on the business of banking, unless it uses as part of its name at least one of the words " bank ", " banker " or " banking ", and that no other company than a banking company can use those words after the expiry of two years from the commencement of that Act, A banking company is required to take a licence from the Reserve Bank to carry on business as a banking company and in the case of an existing banking company an application for such a licence is to be made within six months of the commencement of the Act, but such a company may carry on the banking business until licence is granted to it or a notice is given to it that the licence cannot be granted to it, with this that in the latter case the Reserve Bank is not to give notice in that respect to such an existing banking company before the expiry of three years referred to in Sub-section (1) of Section 11 or of such further period as the Reserve Bank may under that sub-section think it fit to allow. It is apparent that the business of banking has in substance been statutorily separated from other business and it can only be carried on subject to the statutory restrictions as in Act 10 of 1949.