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Issues Involved:
1. Whether the sums of Rs. 8,300, Rs. 8,020, and Rs. 35,000 could be regarded as income liable to be assessed. Issue-wise Detailed Analysis: 1. Whether the sums of Rs. 8,300, Rs. 8,020, and Rs. 35,000 could be regarded as income liable to be assessed. Facts: The assessee, a money-lender, acquired lands from debtors in discharge of their debts and subsequently sold these lands, realizing profits. The lands were held for significant periods before being sold. The Income-tax authorities assessed the difference between the purchase and sale prices as taxable income. Arguments: - Assessee's Counsel: Argued that the lands acquired were not part of the stock-in-trade of the money-lending business. The subsequent sale of these properties and reinvestment of proceeds in the business did not retrospectively make them part of the stock-in-trade from the date of their purchase. - Commissioner's Counsel: Contended that the properties were purchased in discharge of loans advanced in the course of money-lending business. The proceeds from the sale were utilized for the business, implying that the properties continued to be assets of the business, making the profit taxable. Legal Precedents: - A.H. Wadia v. Commissioner of Income-tax: The Federal Court held that it is a question of fact whether properties purchased in discharge of loans become part of the stock-in-trade. The burden of proof is on the Department to establish that the properties were part of the trading assets. - Gurucharan Prasad v. Commissioner of Income-tax: The court observed that long retention of properties and non-inclusion of their income in business accounts indicated that the properties were not part of the stock-in-trade. - Virappa Chettiar v. Commissioner of Income-tax: The absence of evidence showing that land income and expenses were included in business accounts meant there was no justification for assessment as business profit. - Himatlal Motilal v. Commissioner of Income-tax: The Bombay High Court held that loss on the sale of property purchased in satisfaction of a mortgage decree was a capital loss, not a business loss. - Chettiappa Chettiar v. Commissioner of Income-tax: The Full Bench of the Madras High Court held that properties taken over in satisfaction of debts and sold for profit were part of the business if the course of dealings indicated such a practice. - Chellapa Chettiar v. Commissioner of Income-tax: The court held that the assessee was entitled to a deduction of interest on capital borrowed for business purposes, even if represented by agricultural lands received in repayment of debts. Judgment: The High Court held that it is a question of fact whether properties purchased in discharge of loans become part of the stock-in-trade of the money-lending business. The Department must prove this fact, though the onus may shift to the assessee based on circumstances or presumptions. The court noted that the Department only proved that the assessee purchased and sold properties after long periods. There was no evidence that the properties or their income were included in business accounts. The court inferred that the properties were kept as investments due to market depression and not as part of the business assets. The sale of properties many years later to increase business capital did not make them part of the stock-in-trade. Conclusion: The court answered the question in the negative, indicating that the sums of Rs. 8,300, Rs. 8,020, and Rs. 35,000 were not liable to be assessed as income from the money-lending business. The respondent was ordered to pay the petitioner's costs, with an advocate's fee of Rs. 250. Reference Answered in the Negative.
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