The word 'investment' in Explanation 2 (i) to Section 23 A of the Indian Income-tax Act, 1922, should be understood in its popular sense and not in any technical sense.

( 1 ) THIS is a reference under Section 66 (1) of the Indian Income-tax Act, 1922. The assessee is a private limited company. Its shares were held by the members of the Nawn family. Its main source of income was from property assessed under Section 9 of the Act in the relevant years. There is no dispute that the provisions of Section 23a of the Act are applicable to the assessee.

( 2 ) THE facts relevant for our purposes to invoke the provisions of Section 23a in the assessment years under consideration are as follows :

Dividend declared

1955-56 31-3-1955 236,242 100,562 135,680 100,000

1956-57 31-3-1956 250,464 108,795 141,669 100,000

1957-58 31-3-1957 257,986 151,087 106,899 87,500

1959-60 31-3-1959 361,338 209,505 151,333 100,000

Assessment year

Accounting year ended

Total income assessed Tax payable Undistributed balance of total income

( 3 ) NOW, Section 23a gives power to the Income-tax Officer to assess companies to super-tax on undistributed income in certain cases. Explanation 2 to the section prescribes the different statutory percentages in the cases of different classes of companies. A company in order to avoid the liability to pay the super-tax envisaged by Section 23a has to declare dividends at the appropriate statutory percentage of the total income as reduced by taxes referred to in Section 23a (1 ). According to Explanation 1, in the case of a company " whose business consists wholly or mainly in the dealing in or holding of investments ", the prescribed percentage is 100. If, however, this provision does not apply, the percentage prescribed would be not 100 but 60.

( 4 ) WE have already observed that the assessee-company's main source of income was from property assessed under Section 9. With regard to the assessment years noted above, the Income-tax Officer's view was that the lands and properties which the company had held were investments and it was a company whose business consisted wholly or mainly in the dealing in or holding of investments. In the relevant years, therefore, according to the Income-tax Officer, the assessee should have declared 100% of the distributable balance of its total income as dividends. But the assessee had declared more than 60% but less than 100% and the Income-tax Officer, applying the provisions of Section 23a, levied super-tax on the balance of the distributable profits at the appropriate rates that were in force.

( 5 ) BEFORE the Appellate Assistant Commissioner the assessee contended that it was not a company whose business consisted wholly or mainly in the dealing in or holding of investments. The Appellate Assistant Commissioner accepted this contention by following an order of the Income-tax Appellate Tribunal in Income-tax Appeal No. 5490 of 1961-62 for the assessment year 1958-59 given on the 6th April, 1963.

( 6 ) THEREAFTER, this matter went to the Tribunal but, in view of the previous judgment, the Tribunal also held in this case that the assessee was not a company whose business consisted wholly or mainly in the dealing in or holding of investments.

( 7 ) THE following question has been referred to this court :"whether, on the facts and in the circumstances of the case, the assessee is a company whose business consists wholly or mainly in the dealing in or holding of investments ?"

( 8 ) IN a number of decisions English courts have construed the word "investment". We shall refer to these decisions a little later. Broadly speaking, it has been held that the word "investment" is not a term of art with a defined or technical meaning but should be understood in the ordinary popular sense as used by businessmen. In the popular sense, "investments" means conversion of money into some species of property from which income or profit is expected to be derived. From this point of view, where an assessee's main function is to lay out moneys in the purchase of immovable properties and go on receiving rents from the