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Issues Involved:
1. Whether the sum of Rs. 60,940 could be assessed in the hands of the assessee-company as income from an adventure in the nature of trade. Issue-wise Detailed Analysis: Issue 1: Whether the sum of Rs. 60,940 could be assessed in the hands of the assessee-company as income from an adventure in the nature of trade. The case involves the assessment of a private limited company for the year 1959-60. The company acquired various businesses and claims from H.L. Gupta, the managing director, through agreements dated 25th April, 1953, and 29th September, 1956. The latter agreement specified that the vendor would retain liabilities and outstandings of the businesses. Subsequently, on 30th July, 1957, the company resolved to purchase two specific claims from H.L. Gupta for Rs. 57,716. During the relevant assessment year, the company received an arbitration award of Rs. 1,20,000 from the Government of India, leading to a net surplus of Rs. 60,940 after deducting legal costs. The Income-tax Officer (ITO) classified this surplus as taxable income from an adventure in the nature of trade, a decision upheld by the Appellate Assistant Commissioner (AAC). The Income-tax Appellate Tribunal, however, ruled in favor of the assessee, stating that the surplus was not assessable as profit from an adventure in the nature of trade. The Tribunal's decision was challenged, leading to this reference. The court examined the definition of "business" under Section 2(4) of the Indian Income-tax Act, 1922, which includes "any adventure or concern in the nature of trade." The court referred to the Supreme Court's judgment in G. Venkataswami Naidu & Co. v. Commissioner of Income-tax, which outlined factors to determine whether a transaction is an adventure in the nature of trade. These factors include the nature of the commodity, the purchaser's usual trade or business, and whether the transaction was isolated or part of a series. The court noted that the two claims were acquired ten months after the initial acquisition of the businesses, indicating an expectation of profit. The proximity between the acquisition of the claims and the realization of surplus further supported this view. The court also emphasized that the lack of compulsion to acquire these claims in July 1957 was a significant factor. The assessee argued that the transaction was isolated and that the company's memorandum of objects did not permit trading in actionable claims. However, the court held that these arguments were irrelevant for determining whether the transaction was an adventure in the nature of trade. The court distinguished this case from Janki Ram Bahadur Ram v. Commissioner of Income-tax, where the Supreme Court dealt with the acquisition of land, an asset generally regarded as capital. In contrast, the claims in this case were considered commercial commodities. Based on the totality of circumstances, the court concluded that the acquisition of the claims was an adventure in the nature of trade. Therefore, the surplus realized from this venture was liable to be included in the assessee's income under Section 10 of the Indian Income-tax Act, 1922. Conclusion: The court answered the referred question in the affirmative, holding that the sum of Rs. 60,940 was assessable as income from an adventure in the nature of trade. The assessee was ordered to pay the costs of the reference to the Commissioner.
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