1937 (2) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Account-attribution for profit on the sale of Government securities.
2. Proof of profit on the sale of property being outside the scope of the Income Tax Act.
3. Entitlement to reduced assessment due to previous over-assessment.

Detailed Analysis:

Issue 1: Account-attribution for profit on the sale of Government securities
The first issue revolves around whether the profit from the sale of Government securities should be attributed to the profit and loss account or capital account. The assessee invested client deposits in Government securities and sold them at a profit during the accounting period. The core question is whether this profit is on capital account or revenue account. The court noted that the controversy between 'capital' and 'revenue' is complex and often case-specific. The assessee argued that the investment was 'fixed capital' and not 'stock-in-trade,' thus the profits should not be considered part of business gains under Sec. 10 of the Income Tax Act. The court, however, found that the deposits were received in the course of business, and the burden of proof lay on the assessee to show that the profits were not taxable. The court referenced various cases but concluded that the profits were part of the business income, thus taxable. The court answered this question in the affirmative.

Issue 2: Proof of profit on the sale of property being outside the scope of the Income Tax Act
The second issue concerns whether the profit from the sale of property, acquired in connection with the business for the purpose of realizing money, is outside the scope of the Income Tax Act. The property was taken over from a debtor and sold at a profit by the new company. The court emphasized that the intention at the time of acquisition is crucial. The Department found that the property was acquired with the intention of reselling at a profit. The assessee failed to prove otherwise, and the court held that the profit was not a mere windfall but a business income. The court answered this question in the negative.

Issue 3: Entitlement to reduced assessment due to previous over-assessment
The third issue addresses whether the assessee is entitled to a reduced current assessment due to previous over-assessment. The assessee had previously attributed part of the cost of an asset to the interest account and returned "Interest on securities" in excess of what was receivable. The Income Tax Officer adopted a cash basis for the current year, leading to potential double assessment. The court noted that the legality of this procedure depends on Sec. 48-A(1) and (2), which applies only when excess tax has been actually paid. The court found no provision to grant relief at the current stage of assessment and answered this question in the negative.

Conclusion:
The court answered all three questions referred to it as follows:
1. The profit on the sale of Government securities should be attributed to the profit and loss account.
2. The profit from the sale of property is not outside the scope of the Income Tax Act.
3. The assessee is not entitled to a reduced current assessment due to previous over-assessment.