What can be the tests to determine “substantial part of business” of lending company for the purpose of application of exclusion provision under section 2(22)?

CIT Vs. Parle Plastics Ltd. (2011) 332 ITR 63 (Bombay High Court)

Under section 2(22), dividend does not include, inter alia, any advance or loan made to a shareholder 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. The expression used in the exclusion provision of section 2(22) is “substantial part of the business”. The expression “substantial part” does not connote an idea of being the “major part” or the part that constitutes majority of the whole. Sometimes a portion which contributes a substantial part of the turnover, though it contributes a relatively small portion of the profit, would be termed as a substantial part of the business. Similarly, a portion which is relatively small as compared to the total turnover, but generates a large portion, say more than 50% of the total profit of the company would also be a substantial part of its business. Percentage of turnover in relation to the whole as also the percentage of the profit in relation to the whole and sometimes even percentage of manpower used for a particular part of the business in relation to the total manpower or work force of the company would be required to be taken into consideration for determining the substantial part of business. The capital employed for a specific division of a company in comparison to total capital employed would also be relevant to determine whether the part of the business constitutes a substantial part.