K.R. DIXIT, J.M. In all these appeals grounds are same arising out of same facts except for difference in figures which are not material. Therefore, they are dealt with by this common order. 2. first ground is that CIT(A) has erred in allowing interest paid by assessee to bank. assessee had taken on lease substantial portion of building from HUF whose members had controlling interest in and management of assessee company. There was agreement by assessee with that HUF to advance sum of Rs. 6 lacs to HUF for purpose of erection of partitions interest he building and completion of other work such as interior decoration etc., so that, that building could be given to bank on rent assessee charged concessional rate of 6 per cent to HUF while it paid higher interest to bank. assessee actually advanced sum of Rs. 8,50,000 to HUF by borrowing it from bank. ITO, therefore, disallowed interest difference on this extra amount of Rs. 2,50,000 which assessee had lent to HUF, on ground that there was no agreement in respect of this extra amount of loan. 3. CIT(A) has allowed this interest amount. He has observed that "due to cost escalation, HUF had to invest more money for completing construction and hence larger amount of loan had to be given by assessee to HUF". 4 . It is important to note that ITO has not disallowed interest difference on sum of Rs. 6 lacs. He has disallowed it on excess amount over Rs. 6 lacs. Therefore, case of Revenue is not that excess interest is disallowable. Its case is based on absence of agreement regarding excess amount given as loan over and above Rs. 6 lacs for which there was agreement. CIT(A) has rightly allowed that amount because absence of written agreement cannot be ground for disallowance. It could be allowed on basis of business expediency and it is not necessary that there should be formal written agreement for that purpose. oral understanding between assessee and HUF would be sufficient for purpose. Therefore, we see no reason to interfere with decision of CIT(A). For reasons stated above and reasons stated in respect of last ground in this appeal also, we uphold his order on this point. 5 . next ground is that CIT(A) has erred in holding that remuneration to Directors was not excessive. amount of Rs. 18,250 has been paid to Directors out of which ITO disallowed amount of Rs. 12,000 under s. 40(c) (1). CIT(A) has observed as follows : "It is important to note that Director's remuneration is well within monetary limits laid down under s. 40(c) . Actually, remuneration claimed is only Rs.2,000 per month and there are some meeting fees paid. I would agree with appellant that remuneration claimed is reasonable and does not call for any disallowance. On behalf of appellant, I am specifically told that director concerned is assessed on substantially high income and there cannot be any allegation of attempt at saving income-tax by giving higher remuneration by appellant company to director. addition of Rs. 18,250 is deleted." This reasoning is also quite correct and we, therefore, reject appeal on this point. 6 . next ground is in respect of head of income under which rent received from bank was to be considered. As stated above, assessee had taken on lease part of building rented it out on higher rent to bank after erection of partitions, and interior decoration was done. ITO regarded rent as income from other sources and, therefore, rejected assessee's claim setting off unabsorbed losses of past years against this income. CIT(A) considering activities of assessee held that rent income was income from business and allowed claim of assessee. 7 . learned Departmental Representative relied upon decision of Supreme Court in case of Karnani Properties Ltd. vs. CIT (1971) 82 ITR 547 (SC). On other hand, learned counsel for assessee relied upon he decision of Supreme Court in he case of S.G. Mercantile Corporation (P) Ltd. vs. CIT 1972 CTR (SC) 8 : (1972) 83 ITR 700 (SC) and pointed out various steps taken by assessee in order to earn this rental income. He also pointed out that assessee's business in chemicals was continued in relevant period. 8. assessee had given details of activities in respect of this income before Commissioner which are as follows : (i) assessee negotiated with bank and ascertained requirements and agreed to make suitable adjustment in building for giving it on rent to bank. (ii) It entered into arrangement with owner of building, i.e., HUF and agreed to advance sum of Rs. 6 lacs to owner so that owner could make further construction and make available to assessee additional floors which could be exploited by development, alterations etc. to earn better income in future. (iii) assessee procured and arranged for funds from bank w h i c h invited considerable discussion with bank. It gave necessary guarantees and obtained personal guarantee from Directors. (iv) It incurred travelling expenses which IAC has recognised as being for business needs of assessee. (v) assessee incurred substantial expenditure in changing colour scheme etc. of premises and erecting partitions for making it suitable for u s e by bank which took it on rent. It also incurred expenditure on electrical fittings and installing fans. (vi) It employed many persons for maintenance, watch and ward. Finally assessee submitted as follows which has been quoted and relied upon by CIT(A): "In view of aforesaid facts, namely, object of company, magnitude of transactions of taking property on lease, scheme of taking further such premises on lease at future date, generating finances from banks etc., to carry out this activity, to give advance to owner for undertaking future construction for business needs of assessee, type of development expenditure alterations, colouring, repairs, maintenance, employment of staff for maintenance, security and other purposes, it will be clear that activity was business activity and nothing else." 9. In case of Karnani Properties Ltd. (supra) Supreme Court observed that "from facts found by Tribunal it follows that services rendered by assessee to its tenants were result of its activities carried on continuously in organised manner, with set purpose and with view to earn profits. Hence, those activities have to be considered as "business activities". In that case assessee company owned Karnani Mansion consisting of numerous residential flats and over dozen shops. All these were let out to tenants who made monthly payment which included charges for electric current, for use of lifts, for supply of hot and cold water, for arrangement for scavenging, for providing watch and ward facilitates as well as other amenities. It purchased high voltage current in bulk, converted same into low voltage current in its own power house within premises and supplied power to tenants. It also maintained separate water pub-house and boiler for supply of hot and cold water to tenants. company provided electric lifts for benefit of tenants. For all these purposes assessee maintained large number of permanent staff. learned departmental representative, argued that activities in case of Karnani Properties Ltd. (supra) were far more extensive than in this case and that, therefore, assessee's activities should not be regarded as business activities. 10. In case of S.G. Mercantile Corpn. (P) Ltd. (supra) one of objects specified in its memorandum of association was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of land, houses and other real and personal property and to deal with same commercially. Within less than two weeks of its incorporation company took on lease market place for initial term of 50 years, undertaking to spend Rs. 5 lakhs for purpose of remodelling and repairing structure on site. It was also given right to sublet different portions. assessee's activity during period covered by asst. yrs. 1956-57 to 1958-59 consisted of developing property and letting out portions thereof as shops, stalls and ground spaces to shopkeepers, shareholders and daily casual market vendors. question was whether assessee's income from subletting was assessable as business income or as income from other sources. It was held that income from subletting stores was business income. Court observed that definition of word ":business" as given in s. 2(4) showed its amplitude and it could embrace within itself dealing in real property as also activity of taking property on lease, setting up market thereon and letting out shops and stalls interest he market. 11. activities listed above carried out by assessee for purpose of giving property on rent to bank appear to be continuous series of activities with plan ultimately to give property on higher rent and earn income by way of difference in rent which assessee paid to lessor and which assessee earned from bank. Therefore, applying above two observations of Supreme Court we hold that activities of assessee were business activities and income earned by way of rent falls under head "Income from business". Accordingly assessee is entitled to set off claimed by it. CIT(A)'s order is confirmed. 12. last ground is regarding assessee's claim for amounts paid to HUF as scooter and cycle parking charges. From ITO's order it is seen that they are far in excess of what assessee has actually received. Now it must be presumed that what assessee received is reasonable because that must be from outsiders. Therefore, what he has paid in excess is unreasonable. ITO has rightly disallowed excess. We, therefore, reverse CIT(A)'s order and restore that of ITO for all years. On this point appeals are allowed. On reading order of my brother, I found that last ground was left out. I have, therefore, dealt with it and incorporated it in above order. R.M. METHA, A.M. In result appeals are partly allowed. I have perused order of my learned brother but regret that I have not been able to persuade myself to agree with same in respect of some of grounds. Before I proceed further I would like to state certain accepted facts which are necessary to bring out nature of controversy. 2 . assessee company till and upto asst. yr. 1978-79 was engaged interest he activity of manufacture and sale of chemicals. During asst. yrs. 1979- 80 to 1981-82 whcih are presently in appeal this activity was reduced to bare minimum so much so that company did not consider it necessary to even drawn up separate Manufacturing & Trading A/c. 3 . During previous year pertaining to asst. yr. 1979-80 company entered into agreement on 1st July, 1978 with L.M. Patel & B.M. Patel, HUF, whereby it took on lease portion of building know as "suraj Plaza' for monthly rental of Rs. 9,970. members of aforesaid HUF have substantial and controlling interest in assessee company. company thereafter undertook certain work of certain partitions in aforesaid premises as well as interior decoration work and subsequently let it out to Bank of Baroda at rent substantially higher than what was payable to HUF. 4. At this stage it would be necessary to state that there is no appreciable discussion regarding this aspect either in draft assessment orders framed by ITO or in final orders. This could also be said of directions issued by IAC under s. 144B as well as objections raised by assessee before IAC. It seems that no serious challenge came from side of assessee to action of ITO in taxing income under head "Other sources". As example reference is made to order of ITO for 1y 1979-809 which deals with issue by following observations: "11. Since income from sublease of property cannot be considered as income from business, it is assessed as income from other sources." 5. There is no whisper of any objection having been taken on this issue to draft assessment order in letter dt. 3rd April, 1982 filed with ITO (page 74 of paper book) as also detailed letter dt. 31st Aug., 1982 (page 15) filed with IAC. 6. In course of hearing before CIT(A) assessee in fact took up following ground of appeal ; "9. ITO was not justified in taxing income on account of property leasing arrangement etc., made with Bank of Baroda, in view of fact that in assessment of M/s L.M. Patel and B.M. Patel (HUF) for this very assessment year, ld. ITO, ld. IAC has held that (HUF) 'had actually let premises to Bank of Baroda and M/s Amora chemicals Pvt. Ltd. (I.e. assessee) were mere name lenders. assessee (i.e. HUF) would, therefore, b e liable to pay tax on income realised from rental of this premises'. same income (Para 7.2 of IAC's direction under s. 144B in HUF case) cannot belong to two entities and as income has been taxed considering it as that HUF, it cannot be taxed in assessee's assessment and required to be deleted." 7 . This ground by itself is self-explanatory as it shows that Revenue itself has taxed entire rental income from Bank of Baroda in hands of HUF treating company as mere name lender. It was only later on that additional ground was moved to urge that rental income was "income from business" 8 . It may, however, be stated that in other two years under appeal, namely, asst. yrs. 1980-81 and 1981-82 matter was taken up at ITO stage as well as in proceedings before IAC under s. 144B. As unlike 1979-80 assessee took up issue in original grounds of appeal. company however took up ground regarding taxability of income in hands of company when it had been already taxed in hands of HUF for both these years (same as ground No. 9 for 1979-80). perusal of order of CIT(A) for all years, however, shows that there is no adjudication in respect of this common ground of appeal and it is also not clear whether company withdrew ground as there is no mention of this either in appellate orders. 9. learned CIT(A) has dealt with issue in following manner : "On my request, appellant has given detailed note in six sheets dt. 12th Dec., 1984. factual position given therein clearly supports appellant's plea that it should be treated as business activity. For sake of brevity, I am not incorporating herein all those facts and contentions, but I must reproduce conclusion contained in first part of Para 10 of that note. This runs as follows : "10. In view of aforesaid facts namely object of company, magnitude of transactions of taking property on lease, scheme of taking further such premises on lease at future date, generating finances from banks etc. to carry out this activity, to give advances to owner for undertaking future constructions for business needs of assessee, type of development expenditure of alterations, colouring, repairs, maintenance, employment of staff for maintenance, security and other purposes, it will be clear that activity was business activity and nothing else." 9. copy of that note is being forwarded to ITO along with this appellate order for information and record. I would uphold appellant's plea and direct ITO to allow set off of brought forward unabsorbed losses and depreciation; while benefit of unabsorbed development rebate would be allowable subject to satisfaction of other conditions like creation of statutory reserve etc." 10. perusal of letter dt. 12th Dec., 1984 addressed to CIT(A) (pages 83 to 88) brings out following facts : (1) attempt has been made to show that company diversified its activities and undertook work of procuring commercial premises on lease and after carrying out certain changes etc. in them gave them to Bank to earn income. (2) assessee has also tried to show that it has undertaken detailed activity of procuring premises, negotiating with customers, ascertaining their requirements and making suitable changes in premises. (3) It has also tried to explain that it has its own business organisation to carry out such activity. It has also stressed on aspect that it has carried out detailed negotiations with Bank for procuring funds and has also given necessary guarantees and undertaking to Bank. (4) It has also been urged that expenses under certain heads such as 'salary' have gone up. It has also been contended that travelling expenses with India have been primarily for purposes within India have been primarily for purposes of negotiating Bank loan. 11. As regards these, following contradictions stand out : (1) In para 2 it has been stated that necessary amendments in 'Object Clause' of Memorandum were undertaken and were approved by authorities. fact is that we are here involved with asst. yrs. 1979-80 to 1981-82 with previous year ending 31st March, 1979, 31st March, 1980 and 31st March, 1981. petition to Company Law Board under s. 17 of Companies Act, 1956 was moved in 1981 only and decided vide order dt. 29th Aug., 1981. In other words company was not empowered to carry out aforesaid activities at point of time when it took premises on lease in 1978. reference to item No. 1 in "Notes to Accounts" forming part of audited accounts (page 68) is relevant. "1. Company has done business in acquiring property on lease and letting it on sublease which is not covered under its object clauses. process o f altering memorandum so as to include same in objects of Company are in process." This is also fact stated in order of Tribunal in ITA Nos. 557 to 559/Ahd/85 dt. 13th Oct., 1986 in respect of assessee's appeals before Tribunal for same years. Tribunal observes "We also find from order passed by Commissioner(A) that activity of leasing premises taken on lease has been taken as business activity. As against this scanning accounts of limited company, we find in notes to accounts on page 124 of paper book that business done in acquiring property on lease and letting it on sub-leasing is not covered by object clause of assessee and process of altering memorandum is continuing." (2) assessee has stressed on aspect of "negotiations with (2) assessee has stressed on aspect of "negotiations with customers" which in this case happens to be only one namely Bank of Baroda. very fact that premises were taken on lease vide agreement dt. 1st July, 1978 and immediately thereafter given on rent to Bank gives impression that discussions were more or less finalised prior to entering into agreement on 1st July, 1978. assessee has also admitted there is no lease agreement with Bank. (3) stress laid on 'procurement of funds' and furnishing of guarantees and undertakings to Bank also does not assume much importance keeping in mind fact that premises itself have been leased to Bank. funds in facts have been provided to lessor HUF which is comprised of same set of people as those who constitute assessee company itself. (4) It has also been explained in letter dt. 12 Dec., 1984 that travelling expenses were incurred for undertaking activity connected with bank loan. In draft assessment order on other hand (page 3) ITO observes that "it has not been proved that tours were connected with purpose of business of assessee company". ITO in fact allowed only Rs. 700 out of travelling within India and disallowed entire amount spent on foreign tour. assessee did not even raise objection to proposed disallowance in its letter dt. 3th April, 1982 (page 74) addressed to ITO. matter was only taken up for first time in letter dt. 31st Aug., 1982 (page 75) sent to IAC when it was sought to explain as follows : "Regarding other travelling expenses, it may be stated that for negotiating with high officials of Bank of Baroda and for other incidental work of company, directors and other employees incurred travelling expenses." assessee in Para 5 of aforesaid letter (page 85) has explained that travelling expenses in India were only for negotiations with bank officials and have reproduced following extract purported to be part of directors issued by IAC under s. 144B(4) of Act ; "After considering contention of assessee that travelling expenses in India were only for negotiations with high officials of Bank of Baroda that expenses are for business needs of assessee and they are of Revenue in nature." perusal of directions (page 7) in Para 5 does not reveal any such directions. relevant observations of IAC are "However, regarding other travelling expenses of Rs. 4,261, I feel that expenses are for business need of assessee and they are of Revenue in nature." It appears that IAC issued his directions taking into account totality of circumstances governing expenditure of which travelling for purposes of bank loan was only part and not entire whole. It is important to note that assessee has sought to misquote at CIT(A) stage. (5) assessee has thereafter sought to impress upon CIT(A) that incurring of expenditure on constructing partitions, interior decorations and electrical fittings was also part of "business activity". It has also been urged that assessee had to engage extra staff on account of undertaking on lease aforesaid property and thereafter letting it out on rent. decision in preceding Paras in only to highlight fact that submissions before CIT(A) by means of letter dt. 12th Dec., 1984 were purely of general nature ; unsupported by any evidence. As pointed out, some of facts had also been misquoted and assessee did not care to point out to CIT(A) that approval of proposed amendment to Objects Clause came in well after expiry of previous years under consideration. All these submissions lose their importance when viewed from point of view that lessors and lessees are same set of persons. order of CIT(A) also suffers from infirmity that he did not give opportunity to ITO to meet points raised in letter. 12. It is in light of facts stated above that Tribunal is to consider whether income from letting out property under consideration is to be treated as "income from business', or "income from other sources." According to me income has to be taxed as "income from other sources" on basis that (1) company was not authorised to carry on business of acquiring property on lease and letting it on sublease as pointed out by its auditors. reliance placed on decision of Supreme Court in case of S.G. Mercantile Corporation (P) Ltd. (supra) is to no avail since this fact itself is distinguishable. following observation of their Lordships is relevant: "The paramount consideration which would weigh is whether acquisition of property was by way of investment and whether property was let out because of assessee having title in same or whether acquisition and letting out of property constituted business and trading activity of assessee. question as to whether above activity is being carried on by individual or company, and in latter case, further question as to whether carrying on of said activity was object of incorporation of company as given in memorandum of association would also have some relevance." Again it is observed on page 708 as follows: "The appellant company, as stated earlier, was incorporated on 25th Jan., 1955. object for which company was formed, inter alia, was to take on lease or otherwise acquire and to hold, improve, lease or otherwise dispose of, land, houses and other real and personal property and to deal with same commercially. Within less than two weeks of its incorporation appellant- company took on lease property in question and undertook to spend Rs. 5 lakhs for purpose of remodelling and repairing structure of site. appellant was also given right to sublet different portions. appellant's activity during period of these years in question consisted of developing demised property and letting out portions of same as shops, stalls and ground spaces. All these facts point out to conclusion that taking of property on lease and subletting portions of same was part of business and trading activity of appellant. conclusion of Tribunal that activities of appellant in taking lease and subletting demised premises were undertaken with object of doing business was warranted on facts of case. Likewise, conclusion of Tribunal that appellant-company in letting out leasehold property was not acting as owner but as trader was borne out by material on record." It is apparent that decision was given on facts of case and one of which was that objects clause of Memorandum provided for such activity. This is not so in case of assessee company. (2) assessee's case to effect that taking of property on lease, carrying out certain modifications, giving it on further rent, etc. was part of concerted business activity falls to ground since it is established fact that lessors and lesses are same set of persons. As mentioned earlier if any such activity was there, assessee has not been able to prove it by placing any facts or evidence on record. As admitted by company there is no lease agreement with Bank of Baroda. It is also admitted fact that partitions etc. were constructed to suit requirements of bank. As mentioned earlier assessee did not have much to do since under terms of agreement dt. 1st July, 1978 it obtained various floors to building which were ready in all respects. It only undertook lighting and other internal partition work and thereafter handed it over to Bank which had already been decided upon as tenant. (3) As observed from records very transaction of taking property on lease and then again letting it out to bank is in dispute on account of fact that same income has been taxed in hands of HUF as well by treating assessee as benamidar. This fact was not brought to our knowledge at time of hearing but has been extracted from order of CIT(A) and grounds of appeal before him. (4) assessee company has not brought anything on record to show that it undertook such activities in respect of other properties as well. 13. I would accordingly reverse order of CIT(A) and hold that income under consideration is to be treated as "income from other sources" and not "income from business". I would, however, like to mention that this decision is given on facts of case and is without prejudice to litigation which may be pending case and is without prejudice to litigation which may be pending regarding taxability of rental income in hands of HUF as well. 1 4 . next issue which arises for consideration is disallowance/addition on account of interest which has been worked out by ITO at figure of Rs. 3.687 for asst. yr. 1979-80 and Rs. 24,863 and Rs. 29,595 for asst. yrs. 1980-81 and 1981-82 respectively. basis of addition is outined in order of ITO for asst. yr. 1979-80 as under : "8. details of interest received show that assessee received total amount of Rs. 26,262 being interest @ 6 per cent on total amount of Rs. 8,50,000 from L.M. Patel & B.M. Patel, HUF. According to agreement, assessee was to advance sum of Rs. 6,00,000 only at 6 per cent interest from 1st July, 1978. details of Rs. 26,262 (at 6 per cent) are as under : On Rs. 1,00,000 from 1-4-1978 to 31-3-1979 Rs. 6,000 On Rs. 95,000 from 17-4-1978 to 31-3-1979 Rs. 5,434 On Rs. 1,65,000 from 11-8-1978 to 31-3-1979 Rs. 6,312 On Rs. 2,40,000 from 12-9-1978 to 31-3-1979 Rs. 7,890 On Rs. 2,50,000 from 17-3-1979 to 31-3-1979 Rs. 625 From above particulars, it will be noticed that assessee has received interest at rate of 6 per cent in respect of periods prior to date of agreement. Interest has also been charged @ 6 per cent on amounts advanced in in excess of Rs. 6,00,000 agreed to be advanced at 6 per cent interest for and from 1st July, 1978 only. Therefore, interest charged for period 1st April, 1978 to 30the June, 1978 at lower rate of 6 per cent was not covered by agreement. Similarly, interest at 6 per cent on Rs. 2,50,000 which is in excess of amount of Rs. 6,00,000 is according to me, not correct rate of interest. In respect of Rs. 2,50,000, assessee ought to have charged interest at rate of 15 per cent rate of which it borrowed money from Bank of Baroda for making advance to lessor HUF. On aforesaid facts, proportionate interest as worked out below is considered as assessee's income and added to total income : On Rs. 1,00,000 from 1-4-1978 to 30-6-1978 Rs. 1,500 On Rs. 95,000 from 17-4-1978 to 30-6-1978 Rs. 1.250 On Rs. 2,50,000 from 17-3-1979 to 31-3-1979 Rs. 937 . Rs. 3,687 In Para 6 of his directions, IAC, Br-I, Baroda has agreed to with contention of ITO". 15. basis on which learned CIT(A) has deleted additions in all 3 years is as follows: "..............this addition of interest cannot be made firstly because, terms of written agreements can be varied within limits orally and further such variation might be inferred even from conduct of parties. In this particular case, such inference is certainly warranted. Due to cost escalation, HUF had to invest more money for completing construction and hence, bigger amount of loan is given by appellant to HUF. Last but not least is circumstances that in context of another ground of appeal infra, I am going to hold that appellant's activity of taking lease of building from HUF and then after erection of partitions and completion of other works of interior decoration etc., it is being given on rent to Bank of Baroad, consisted activity of business which warranted quantification of income from that activity under head "Income from business". In this view of matter, loan given to HUF would be for purpose of business and no addition can be made for any part of interest attributable to it. said addition of Rs. 3,687 is deleted and ground of appeal is allowed." 16. It was on similar reasoning that additions on this account were deleted for subsequent two years. It seems that CIT(A) while deleting addition has been influenced by decision taken by him to effect that activity of taking building on lease from HUF and thereafter giving it on rent to bank constitutes "business activity". However, as this aspect of matter has been reversed, same cannot be relied upon to strongly at present. I am not in agreement with observations of learned CIT (A) to effect that terms of written agreement can be varied orally and further that such variation can be inferred even from conduct of parties. According to me if agreement is sought to be varied or modified then it should be done either by means of resolutions, writings or clear conduct on part of parties. In this case there is no evidence on record to show that original agreement whereby sum of Rs. 6 lacs was to be advanced at interest rate of 6 per cent was sought to be altered either as matter of policy or agreement. According to me, company was to provide only to extent of Rs. 6 lacs at concessional rate of interest and nothing over and above. It would not be prudent businessmanship to advance loan at rate of 6 per cent whereas same funds have been obtained from bank by paying interest @ 15 per cent. I would further hold that written agreement between parties cannot be changed orally and that conduct of parties can help in interpreting agreement when doubtful but not when it is absolutely clear. Tribunal at moment is not concerned with amount upto Rs. 6 lacs, but only amount over and above. There is no doubt that Department has accepted sanctity of agreement up to extent of Rs. 6 lacs, but that does not mean that any amount advanced over and above Rs. 6 lakhs and that also at concessional rate of interest should not bear scrutiny. According to facts available on record all that company was required to do was to provide to HUF funds and even presuming that on account of cost escalation larger amount had to be advanced this does not mean that company should be put to loss by obtaining fund at rate of 15 per cent interest and advancing them at 6 per cent. I would accordingly proceed to confirm action of ITO for all 3 years under appeal and as there is no dispute at this stage regarding calculation, additions are confirmed. order of Commissioner(A) is accordingly reversed. 17. I would, however, like to state at this stage that learned counsel for assessee in course of his arguments tried to make out case that part of funds advanced to HUF came out of cash balance lying with company other than loan taken from back. This according to me is new line of argument which is being urged at this late stage and cannot be considered. perusal of entire record shows that this matter was never raised at any of lower stages and it would require examination of fresh facts which have not been brought no record. I proceed to reject same. 1 8 . As regards next ground which pertains to disallowance on account of remuneration to director, I would only like to state that I am in agreement with conclusions reached by my learned brother in his order. 19. last issue arising for determination is disallowance made by ITO in all 3 years on account of "Scooter Cycle Parking Charges". ITO in course of proceedings observed that assessee had made payments on account of scooter and cycle stand to HUF in all 3 years under consideration. According to ITO there was no agreement for payment of such charges to HUF. It was also observed by ITO that payment was unreasonable keeping in view amount actually earned by assessee in respect of scooter and cycle stand. Before I proceed further I would like to state that amounts received and paid on account of scooter and cycle stand is extracted from assessment orders are as under: Amount Assessment Amount Amount paid to year received disallowed HUF Rs. Rs. Rs. 1979-80 3,856 13,500 9,644 Rs. Rs. Rs. 1980-81 9,442 18,000 8,558 Rs. Rs. Rs. 1981-82 9,114 36,000 26,886 20. learned CIT (A) disposed of matter in appeal pertaining to asst. yr. 1979-80 as under: "Next ground of appeal is directed against disallowance of Rs. 9,644 shown as paid by appellant company to HUF for scooter parking. This item also relates to activity of taking building on lease from HUF and then after getting certain things done, its being given on rent to Bank of Baroda. reasoning given in para 4 above in regard to disallowance of interest would apply mutatis mutandis to this item. This is outgoing of business and there cannot be any allegation of attempt at saving tax in hands of appellant and that HUF taken together. This addition to Rs. 9,644 is also deleted." He deleted additions for subsequent two years as well following same reasoning. 21. According to me CIT (A) has clubbed this transaction as well with other activity of leasing property. He has also applied reasoning adopted by him in respect of disallowance on account of interest which I have discussed in earlier ground. In view of my decision in holding leasing activity as "income from other sources" and confirming disallowance on account of interest, I proceed to confirm addition in respect of scooter and cycle stand charges as well. I do so ground] that firstly payments are not part of agreement dt. 1st July, 1978 nor is it paid by means of any other agreement. According to me payments are not warranted by factor of reasonableness. According to me aforesaid payment is extraneous in nature and not warranted by any business consideration. 22. Further language of s. 37(1) and s. 57(iii) are not identical. scope of s. 37(1) is much wider than s. 57(iii). For purposes of claim under s. 57 (iii) assessee has to prove that expenditure has been laid out or expended wholly and exclusively for purposes of making or earning income under head "income from other sources". assessee in this case has not been able to bring any material on record to justify payments to HUF on account of scooter and cycle stand charges. decision of ITO to disallow amount after adjusting receipts is absolutely in order and same is confirmed. orders of CIT (A) to this extent are reversed for all three years. 23 . As result, appeals filled by Revenue for all three years are partly allowed. Reference under Section 255 (4) of IT Act, 1961. As we have differed on following two questions, we refer them to Hon'ble President for opinion of Third Member under s. 255(4) of Act: "1. Whether rent received by assessee from bank was business income ? 2. Whether interest difference on extra amount of Rs. 2,50,000 can be allowed as deduction ?" Hon'ble President has assigned following two questions for decision of Third Member under s. 255(4) of IT Act, 1961 : "1. Whether rent received by assessee from bank was business income? 2. Whether interest difference on extra amount of Rs. 2,50,000 can be allowed as deduction?' Y. UPADHYAYA, V.P. AS THIRD MEMBER 2 . Both points of dispute are interrelated. assessee is limited company dealing in manufacture and sale of chemicals. assessee during year under appeal entered into agreement dt. 1st July, 1978 with L.M. Patel and B.M. Patel, HUF and it took on lease partly constructed building known as "Suraj Plaza" on monthly rent of Rs. 9,970 per floor. building at time of agreement was constructed up to 8th floor. It was further provided in agreement that rent shall be payable by company at said rate for further floors to be constructed by HUF. assessee-company agreed to advance loan of Rs. 6 lakhs carrying interest of 6 per cent per annum. However, assessee-company granted loan of Rs. 8,50,000 to HUF and charged interest at rate of 6 per cent. 3 . assessee company arranged with Bank of Baroda, on oral agreement, for leasing out said property on higher rent and also got overdraft facility carrying interest of 15 per cent per annum. rent received and paid for asst. yrs. 1979-80, 1980-81 and 1981-82 are as follows: Assessment year Rent received Rent repaid 1979-80 Rs. 4,29,427 Rs. 1,36,463 1980-81 Rs. 8,49,672 Rs. 2,99,852 1981-82 Rs. 8,49,3 51 Rs. 3, 23 ,029 assessee company was of opinion that by virtue of cl. 8 of Memorandum of Association assessee-company was authorised to take property on lease and give it out on lease. However, doubt was spelled by auditors and note to this effect was appended to final accounts. assessee-company passed resolution on 15th Jan., 1979 in Ordinary Annual General Meeting effecting various changes subject to approval of Company Law Board (Western Region, Branch Bombay). Company Law Boards approved amendment by its order dt., 29th Aug., 1981. 4 . assessee claimed that income from rent received by assessee should be assessed as income from business. assessee further claimed interest paid on fund borrowed from Bank of Baroda as deduction. ITO found that assessee was not authorised by its object clause to take property on lease and, therefore, it was only income from other sources and it was not it business income. Further ITO found that there was agreement for advancing of Rs. 6 lakhs carrying interest of 6 per cent per annum. There was no agreement between assessee-company and HUF for further sum. He found that assessee-company paid interest of 15 per cent to bank. He, therefore, charged additional interest of 9 per cent on loan advanced to HUF and added same to total income of assessee. 5 . CIT (A), after considering facts, activities of assessee, came to conclusion that assessee took out lease from HUF and further gave it only to Bank of Baroda which constituted business activities of assessee. He was also of opinion that assessee paid additional interest on commercial expediency. He, therefore, treated income from rent as income from business and allowed interest paid by assessee. 6 . Department came in appeal before Tribunal and learned Accountant Member and Judicial Member could not come to common conclusion on accessibility of rent and on interest which was paid by assessee on excess amount. Judicial Member, after considering decision in S.G. Mercantile Corporation (P) Ltd's case (supra) and facts of case, alteration and decoration made by assessee in premises, came to conclusion that assessee was earning income from rent as income from business. He also found that additional interest was paid by assessee on commercial expediency and same cannot be disallowed merely on ground that there was no agreement for additional amount. Accountant Member, on other hand, did not agree with above conclusion. He was of opinion that there was restriction in object clause of assessee to take property on lease. change for alteration in objective of memorandum was only approved by Company Law Board on 29th Aug., 1981 after close of previous year relevant to asst. yr. 1981-82. There were no business activities of assessee and alteration and decoration made by assessee did not constitute activity of business. Consequently, point of difference was referred to Hon'ble President and case has come up before Third Member. 7. departmental representative Mr. A.K. Hajela very strongly supported order of Accountant Member and stated each of facts and stated that company was not authorised by object clause, amendment was made after close of previous year relevant to asst. yr. 1981-82, assessee was not having any business activities and, therefore, finding given by Accountant Member should be confirmed. He particularly referred to decision in CIT vs. Motilal Hirabhai Spg. & Wvg. Co. Ltd. 1977 CTR (Guj) 674 : (1978) 113 ITR 173 (Guj) to show what activities of assessee would constitute 'business'. Shri Raval assisted by Shri V. Dey illustrated facts and stated that it is not correct that assessee company was not having clause for taking property on lease. In this contention he referred to cl. 3 of object clause of memorandum of association. He said that when matter was disputed by auditor it was immediately taken up by assessee- was disputed by auditor it was immediately taken up by assessee- company to remove doubts and resolution was passed on 15th Sept., 1979 and approval was sought of Company Law Board which was received on 29th Aug., 1981. He further stated that object clause is not conclusive for determination of head of income. actual activities of assessee must be taken into consideration. He relied on CIT vs. Himalayan Tiles & Marble (P) Ltd. (1975) 100 ITR 177 (Bom) and 1959 37 ITR 49 (SC). (Sin). He stated steps taken by assessee for earning income from property. He indicated that assessee was not having surplus fund which was invested in property for earning rent. It was venture by assessee. assessee company took on lease partly constructed building, advanced loan by borrowing money from bank and it was great venture of assessee whether assessee will be able to get good tenant so that assessee may get higher rent than what was paid by it and assessee not only took this risk but assessee also made various alternations and decorations so that bank was attracted to offer gainful rent to assessee. Therefore, activity of assessee was not of as investor but it was activity of businessman. Therefore, Judicial Member rightly held that income from rent should be assessed as income from business. He also supported order of Judicial Member on allowance of interest. He indicated that fund was given to HUF for constructing other floors of building which were to be taken by assessee-company on monthly rent as decided earlier and same was in interest of assessee. Consequently, assessee advanced some more fund in business interest and, therefore, it should be allowed. 8 . short point for decision for Third Member in view of questions referred are: Whether amount received by assessee is income from business and whether additional interest could be allowed during these years. plea taken by assessee and conclusion of Judicial Member appears to be correct. assessee has taken partly constructed building on lease from L.M. Patel and B.M. Patel, HUF on lease. It is correct that HUF was interested in assessee company. However, nothing has been said by Department on fairness of lease rent paid by assessee or fund granted by it for construction of other floors. Therefore, it will not be fair to comment on these facts while deciding points o f difference. assessee-company had on one hand taken property o n lease. On other it was able to get Bank of Baroda for taking property on lease on much higher rent. It is correct that assessee was not having surplus fund to invest with view to earn money by way of rent. assessee took great adventure. It took property ono lease and thereafter it took steps to get good tenant. Much had been said on object clause of assessee took great adventure. It took property on lease and thereafter it took steps to get good tenant. Much had been said on object clause of assessee. cl. 8 of object clause runs as follows : "(8) To purchase, take on lease or in exchange, hire-purchase on hire purchase basis or otherwise, acquire any property and any rights and privileges therein which Company may think necessary or convenient for purpose of its business and in particular any land, buildings, easements, machinery, plant and stock-in-trade; and either to retain any property to be acquired for purposes of Company s business or to turn same to account as may seem expedient." It is not very clear whether clause includes power to take property on lease or does not include. However, when dispute was raised by auditors, assessee immediately took steps and resolution was passed on 15th Jan., 1979 subject tot he approval of company Law Board and Company Law Board accorded its sanction by its letter dt. 29th Aug., 1981. It is correct that object clause itself could not be conclusive. One must see cumulative activities of assessee-whether activity constituted adventure in nature of business or efforts of assessee was only to earn rent from property. assessee had taken property on lease. It had appointed Director to look after building. When doubt was expressed by auditor it took steps to amend object clause. It made efforts to get good client. It got overdraft facility from bank. It sanctioned loan at cheaper rate to HUF so that it can have benefit of other floors. If all these activities of assessee are taken into consideration along with decided cases it is clear that activities of assessee were activities of businessman and, therefore, income earned by assessee from leasehold property was assessee s income from business. leasehold property was assessee s income from business. 9. second profit is well related to first one. assessee advanced sum of Rs. 8,50,000 to HUF for construction of other floors. loan carried interest of 6 per cent p.a. assessee did not have surplus fund. fund was arranged from Bank of Baroda. Bank of Baroda charged interest on fund granted by it at 15 per cent p.a. agreement between assessee-company and HUF was for advance of Rs. 6 lakhs. assessee-company, during year under appeal, advanced Rs. 8,50,000 and charged interest at 6 per cent. additional interest paid by assessee to bank on Rs. 2,50,000 was disallowed by ITO which had been allowed by CIT(A). 1 0 . payment of interest should be considered from angle of businessman. loan was granted in business interest of assessee. assessee wanted that some more floors should be constructed by HUF and those floors should be available on same monthly rent as agreed between assessee-company and HUF. This was object of granting loan on cheaper interest. HUF could not manage construction of floors within fund granted by assessee-company and accordingly assessee-company granted additional fund of Rs. 2,50,000 on same interest. As funds were granted in business interest of assessee even though there were no agreements for additional funds or assessee- company paid higher interest, interest could not be disallowed. 1 1 . answer to questions referred to there Third Member are, therefore, as follows : (1) rent received by assessee on facts and circumstances of case from, bank was business income. (2) interest on extra amount of Rs. 2,50,000 should be allowed as deduction. matter is referred to Bench to pass order so that final order can be passed after taking view of majority decision. *** INCOME TAX OFFICER v. AMORA CHEMICALS (P) LTD