1978 (6) TMI 2 - HC - Income Tax

Summary

Issues Involved:
1. Whether the surplus realized from the purchase of decrees was liable to be included in the assessee's business profits.
2. Whether the transactions constituted an adventure in the nature of trade.

Summary:

Issue 1: Inclusion of Surplus in Business Profits
The primary question was whether the amounts of Rs. 33,860 and Rs. 35,063, realized by the assessee from the purchase of decrees, should be included in his business profits. The Income Tax Officer (ITO) argued that these surpluses were profits from an adventure in the nature of trade, citing the assessee's lack of liquid funds, the nature of the decrees, and the interconnected transactions aimed at earning income. The Appellate Assistant Commissioner (AAC) upheld this view, noting that the decrees were purchased at a discount to gain substantial profit and that the assessee had a speculative motive.

Issue 2: Adventure in the Nature of Trade
The Income-tax Appellate Tribunal disagreed with the ITO and AAC, concluding that the transactions did not constitute an adventure in the nature of trade. The Tribunal noted the financial difficulties of Kalyan Mills Ltd. and the assessee's interest in the company and related entities. It found that the assessee's motive was more to relieve the debtor and expedite debt realization rather than to engage in a profit-making scheme. The Tribunal emphasized that the assessee had not undertaken similar transactions before or after and that there were no clear indicia of trade.

Court's Analysis and Conclusion:
The High Court examined the facts and previous judgments, including CIT v. Himalayan Tiles and Marble P. Ltd. [1975] 100 ITR 177 and Kanwarlal Manoharlal v. CIT [1975] 101 ITR 439. The court distinguished the present case from Himalayan Tiles, noting the assessee's close relationship with the judgment-debtors and the possible motive to help them. The court concluded that the dominant intention of the assessee was not sufficiently established as an adventure in the nature of trade. Therefore, the Tribunal's decision was upheld, and the question was answered in the negative, in favor of the assessee.

Final Judgment:
The surplus amounts were not chargeable to tax as profits of business, and the parties were to bear their own costs of the reference.