1966 (7) TMI 11 - HC - Income Tax

Assessee is a HUF carrying on money-lending business - difference between the prices at which the properties were purchased and sold by the assessee - taxable income

Summary

Issues:
Taxability of excess amount realized from the sale of agricultural lands by the assessee.

Analysis:
The judgment pertains to a reference under section 66(2) of the Indian Income-tax Act, 1922, regarding the taxability of the sum of Rs. 19,795 representing the difference between the prices at which the properties were purchased and sold by the assessee. The Appellate Tribunal was required to provide further information on whether the prices of the lands were debited to personal or money-lending accounts and if the income and expenditure for the lands included agricultural aspects. The Tribunal found the necessary information was not readily available and conducted further inquiry. The High Court noted that the supplementary statement provided by the Tribunal was based on material not on record during the initial proceedings, emphasizing that such statements should be limited to existing evidence as per legal precedent, including the decision in Keshav Mills Co. Ltd. v. Commissioner of Income-tax.

The assessee, a Hindu undivided family engaged in money-lending business, acquired agricultural lands from debtors, some of which were sold in the assessment year 1954-55. The dispute revolved around the taxability of the excess amount realized from these sales. The department contended that the surplus from land sales became part of the money-lending business's capital, as evidenced by the treatment of income and expenses in the accounts. The Appellate Tribunal, whose findings were final, determined that the lands were part of the money-lending business's stock-in-trade, with surplus income contributing to the business's funds. The Tribunal highlighted that the surplus was not separately accounted for, and expenses were covered by general funds, indicating integration with the money-lending business.

The High Court emphasized that the treatment of the lands post-acquisition by the assessee contradicted the current argument against taxability. Citing precedent in Alapati Ramaswami v. Commissioner of Income-tax, the Court noted that whether properties acquired by a money-lender form part of the business depends on post-acquisition actions, such as accounting treatment and income utilization. In this case, the evidence indicated that the lands were indeed part of the money-lending business, with expenses covered by business funds and surplus income enhancing the business's capital. The Court referenced the rule in Varada Reddy v. Commissioner of Income-tax, aligning with the decision that the excess amount realized from land sales was taxable income. Consequently, the question was answered in the affirmative, holding the assessee liable for costs and advocate's fees.