1991 (4) TMI 84 - HC - Income Tax

Summary

Issues Involved:
1. Whether the surplus of Rs. 1,60,482 realized by the assessee constituted profits from business.
2. Whether the Tribunal was justified in not deciding the issue regarding the levy of interest under section 215 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Surplus Realized as Business Profits

Facts and Tribunal's Findings:
The assessee, along with his brother, purchased a claim of Rs. 31,39,661 from Messrs. Straw Board Dealers against Tungabhadra Pulp and Board Mills Ltd. for Rs. 4,03,560, incurring additional incidental expenses. They later settled the claim for Rs. 7,50,000, resulting in a surplus of Rs. 1,60,482 for the assessee. The Income-tax Officer treated this surplus as business profits. However, the Appellate Assistant Commissioner and the Tribunal found the surplus to be income of a casual and non-recurring nature, not taxable under section 10(3) of the Act.

Revenue's Argument:
The Revenue contended that the assessee's actions indicated a scheme to earn profits, arguing that the assessee, a money-lender, had foreknowledge of Tungabhadra Pulp and Board Mills Ltd.'s potential profitability due to his connection with the principal company, India Sugar and Refineries Ltd. The Revenue cited cases such as CIT v. Himalayan Tiles and Marble Pvt. Ltd. and P. D. Ghanekar v. CIT to support their claim that the transaction was an adventure in the nature of trade.

Court's Analysis and Judgment:
The court distinguished the present case from the cited cases. In Ghanekar's case, the court found a clear venture in the nature of trade due to prior knowledge and the nature of the transaction. In Himalayan Tiles, the proximity between purchasing the claim and realizing the profit indicated a trade venture. However, in the present case, the Tribunal found that the assessee's motive was to avoid the liquidation of Tungabhadra Pulp and Board Mills Ltd., not to earn profits.

The court emphasized that the burden of proving that a receipt is taxable as income lies with the Revenue. The Supreme Court's decision in Parimisetti Seetharamamma v. CIT was cited, which states that the Department must prove that a receipt falls within the taxing provision. The court found that the Revenue failed to rebut the assessee's declared motive of avoiding embarrassment to Tungabhadra Pulp and Board Mills Ltd.

The court also referenced its own decision in CIT v. Radheshyam R. Morarka, which held that merely showing the possibility of profit does not establish a trade venture. The court concluded that the Department did not provide sufficient evidence to counter the assessee's motive.

Conclusion:
The court answered the first question in the affirmative, in favor of the assessee, holding that the surplus realized did not constitute business profits.

Issue 2: Levy of Interest under Section 215

Facts and Tribunal's Findings:
The Tribunal did not decide on the issue regarding the levy of interest under section 215, as the Appellate Assistant Commissioner had directed that interest should not be levied if the income was reduced to nil.

Court's Analysis and Judgment:
Given the court's decision on the first issue, resulting in a nil return for the assessee, the second question became moot. The court concluded that there was no need to answer the second question.

Conclusion:
The court did not provide an answer to the second question, as the deletion of the disputed amount resulted in a nil return, making the issue of interest under section 215 irrelevant.

Final Judgment:
The court answered the first question in the affirmative, in favor of the assessee, and did not provide an answer to the second question. There was no order as to costs.