High Court Of Judicature At Madras

A. Vr. V. Vellayappa Chettiar And Another V. Commissioner Of Income-Tax, Madras

No. 04-04-1952

JUDGMENT

SATYANARAYANA RAO, J.

The following question was referred to us for decision by the Income-tax Appellate Tribunal, Madras :--

" Whether on the facts and in the circumstances of the case, the amount of Rs. 4,744 which was a profit realised on the sale of an asset belonging to the money-lending business of the appellant was liable to be assessed as a part of the total income of the assessee. " *

We have no difficulty in answering this question in the negative and in favour of the assessees

The applicants before the Tribunal were partners in a firm which carried on money-lending business under the style of V. VR. VR. Firm, Ambolangode, in Ceylon. The firm, being non-resident, was never separately assessed ; but the individual income of the partners was considered in the assessment, concerning them. The firm purchased in 1932 vacant sites in Ambolangode and in 1934 and 1936 constructed certain structures which they let out to tenants. The money for the purchase of these vacant sites and also for putting up the structures came out of the money-lending business. They opened a separate account in the money-lending business for this purpose. The rents derived from the tenants to whom the property was let were also credited in the separate account. In 1946 the property was sold for a sum of Rs. 45,000 and the net profit realised by the firm was Rs. 9,488 and the share of each partner was Rs. 4,744. The partners claimed that this was a capital receipt and should not be included in the total income of the assessees during the assessment year 1946-

47. This claim was rejected by the Income-tax department and also by the Appellate Tribunal and hence this reference

From the statement of facts in the order of the Appellate Tribunal and from the judgment of the Appellate Tribunal in dealing with the assessment it is made clear that this property was not purchased in lieu of discharge of debts of the money-lending business but purchased independently from the funds of the partnership. It is no doubt true that the income was included in the profits of the business, but that does not, in our opinion, make any difference as the property acquired represents the capital invested by the firm, which of course earned some income, which was included in the profits of the business. It was never treated as a part of the stock-in-trade of the money-lending business. Under different circumstances it may be possible to treat the immovable property acquired in the course of money-lending business as part of the stock-in-trade of the business. But from the beginning the firm treated this as an investment and had no idea of ever selling this property until 1946 when the future of Indian business in Ceylon became uncertain and the firm was obliged to wind up its money-lending business in Ceylon and return back to IndiaIt is contended on behalf of the Income-tax Commissioner by Mr. Rama Rao Saheb that the inclusion of the income in the profits of the business is a clear indication that it was treated as stock-in-trade. The Appellate Tribunal seems to have treated that the burden of proving that it was not a stock-in-trade but was an investment was on the assessees. We are not prepared to view the question from this point of view. If, on the facts, it is clear that from the beginning they intended this as an investment and not as a stock-in-trade, the mere fact that the income was included in the profits of the business would not convert what was a capital investment and a capital asset into a stock-in-trade. The increased return derived by the sale of the property is merely an accretion to the capital asset and not profit earned by the utilisation of stock-in-trade. The question therefore referred to us, as stated already, must be answered in the negative and in favour of the assessees. As the assessees have succeeded, they are entitled to their costs, which we fix at Rs. 250

Reference answered in the negative.

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