1971 (7) TMI 44 - HC - Income Tax

Assessee purchased share in properties. There were litigations for partition - compromise had been entered into - transaction was not a trade - not established that the receipts in question were as a result of an adventure in the nature of trade - no part of the amount could be brought to tax under the head profits and gains of business

Summary

Issues Involved:
1. Whether the transaction was an adventure in the nature of trade and taxable under section 10 of the Indian Income-tax Act, 1922.
2. Whether Rs. 77,500 being the share of Henry John could be deducted from the profits even though it was not actually paid in the previous year when the method of accounting was cash.

Detailed Analysis:

1. Nature of the Transaction:
The primary issue was whether the transaction by which the assessee acquired the interest in John Mills property and subsequently sold it was an adventure in the nature of trade, making the profit taxable under section 10 of the Indian Income-tax Act, 1922. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal held that the transaction was carried out with a profit-making motive and involved risk, thus qualifying as an adventure in the nature of trade. The Tribunal emphasized that the assessee had been engaged in money-lending business, where such transactions are common, and concluded that the profit earned was taxable.

However, the High Court disagreed, stating that merely having a profit motive does not suffice to categorize the transaction as an adventure in the nature of trade. The Court noted that the revenue failed to establish that the transaction had the essential features of trade. The Court referred to the Supreme Court's observations in Saroj Kumar Mazumdar v. Commissioner of Income-tax and Venkataswami Naidu and Co. v. Commissioner of Income-tax, emphasizing that the burden of proof lies on the revenue to show that the transaction was in the nature of trade. The Court found no material evidence to support the Tribunal's conclusion that the transaction was part of the assessee's money-lending business or that it had the characteristics of trade. Consequently, the Court held that the receipt of Rs. 1,75,000 was not taxable as business income.

2. Deduction of Rs. 77,500:
The second issue concerned whether Rs. 77,500, being the share of Henry John, could be deducted from the profits even though it was not actually paid in the previous year when the method of accounting was cash. The Tribunal had allowed this deduction, reasoning that the liability to pay existed even though the amount was not paid.

However, the High Court did not address this issue in detail because it became academic in light of its finding on the first issue. Since the Court held that the transaction was not an adventure in the nature of trade and the receipt was not taxable, the question of considering deductions from the sum of Rs. 1,75,000 did not arise.

Conclusion:
The High Court answered the first question in the negative, in favor of the assessee, holding that the transaction was not an adventure in the nature of trade and thus not taxable under section 10 of the Indian Income-tax Act, 1922. Consequently, the second question became academic and was not answered. The assessee was entitled to costs assessed at Rs. 200.