1961 (8) TMI 67 - HC - Income Tax

Summary

Issues Involved:
1. Whether the sum of Rs. 1,00,673 was liable to assessment under section 10 of the Income-tax Act as income under the head 'business'.

Issue-wise Detailed Analysis:

1. Whether the sum of Rs. 1,00,673 was liable to assessment under section 10 of the Income-tax Act as income under the head 'business':

The court examined whether the surplus amount of Rs. 1,00,673, generated from the sale of properties by the assessee company, was taxable as business income under section 10 of the Income-tax Act. The assessee, a private limited company incorporated in 1935, argued that the income should be considered either a casual receipt or a capital gain, contending that it was not a dealer in property or houses and that the sale was not an adventure in the nature of trade.

Memorandum of Association and Company Activities:
The court noted that the memorandum of association of the company explicitly allowed for the sale or traffic in house and other property. The company had engaged in the sale of properties almost from its early stages, indicating that such transactions were part of its business activities. The court highlighted that the company sold one property within four years of its incorporation and four other properties within three years thereafter, demonstrating a pattern of business activity.

Tribunal's Considerations:
The Tribunal upheld the decision of the Appellate Assistant Commissioner, which found that the sum of Rs. 1,00,673 was rightly assessed as business income. The Tribunal's decision was based on several considerations:
1. The objects of the company in the memorandum of association justified the sale or traffic in house and other property.
2. Actual sales took place almost from the early stages of the company's incorporation.
3. The assessee failed to prove that the sale proceeds were reinvested, thus not supporting the claim of changing investments.
4. The assessee failed to prove that the properties were sold to pay off a mortgage.

Arguments and Precedents:
The assessee's counsel argued that the receipt was a capital or casual receipt, emphasizing that the company's main business was to hold properties and earn rental income. However, the court dismissed this argument, stating that income from different sources can be assessed under different heads, and the presence of rental income did not preclude the classification of the sale proceeds as business income.

The court referenced several cases to support its decision, including:
- United Commercial Bank Ltd. v. Commissioner of Income-tax, which clarified that income-tax is a single tax levied on the total income of the assessee, classified and computed under various heads.
- Glasgow Heritable Trust Ltd. v. Commissioners of Inland Revenue, distinguishing it on the grounds that the assessee company in the present case was not merely holding and realizing properties but actively trading in them.
- G. Venkataswami Naidu & Co. v. Commissioner of Income-tax, which emphasized that the character of a transaction must be determined based on the totality of facts and circumstances.

Conclusion:
The court concluded that the assessee company was engaged in the business of trading in properties, as evidenced by its memorandum of association and actual business conduct. The sale of the four properties was within the company's ordinary trading activities, making the surplus of Rs. 1,00,673 a trading receipt rather than a capital receipt. The court answered the question in the affirmative, holding that the sum was liable to assessment under section 10 of the Income-tax Act as business income. The assessee was ordered to pay the costs of the reference.