1960 (2) TMI 51 - HC - Income Tax

Summary

Issues:
1. Whether income from properties is chargeable to tax under the Business Profits Tax Act as income from business.

Analysis:
The case involved an assessee firm engaged in money-lending business that also held house properties as part of its stock-in-trade. The firm's income from these properties was initially computed under section 9 of the Income-tax Act. The Tribunal upheld the inclusion of this income under the business profits tax assessment. The central question was whether this income from properties should be taxed under section 9 or section 10 of the Income-tax Act. The judgment referred to the Supreme Court's ruling in United Commercial Bank Ltd. v. Commissioner of Income-tax, emphasizing the specific heads under which income should be charged. It was concluded that income from properties, even if part of the stock-in-trade, should be assessed only under section 9 of the Income-tax Act.

Regarding the applicability of the Business Profits Tax Act, the definition of "business" in section 2(3) of the Act was crucial. The Act defined business to include various activities, with profits chargeable under section 10 of the Income-tax Act. Rule 1 of Schedule I specified that business profits should be computed in accordance with section 10 of the Income-tax Act. However, rule 3 of Schedule I, which dealt with income from investments or property, did not apply to the assessee's money-lending business. The judgment highlighted that only profits chargeable under section 10 of the Income-tax Act could be considered for business profits tax assessment.

The judgment emphasized that income for business profits tax should align with the definition of profits in section 2(16) of the Business Profits Tax Act, which referred back to Schedule I and section 10 of the Income-tax Act. It was clarified that not all income from a business automatically falls under the scope of business profits tax. The legal fiction created by the proviso to section 2(3) deemed income from property as business income only in specific circumstances. The judgment rejected the argument that income from properties, acquired and held as part of business activities, should be treated as business income for the business profits tax assessment. It differentiated the requirements of the Business Profits Tax Act from those of the Excess Profits Tax Act, emphasizing the specific criteria for assessing profits under the former.

In conclusion, the judgment held that income from the properties, not computed under section 10 of the Income-tax Act, did not meet the criteria for business profits tax assessment. It underscored the statutory test of whether income falls within the scope of section 10 of the Income-tax Act for determining its eligibility for business profits tax. The judgment clarified that the legal provisions governing business profits tax required a specific alignment with section 10 of the Income-tax Act for income to be considered taxable under the Business Profits Tax Act.