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TMI Blog1971 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... ial properties or in the bungalows. Henry Celestine John went away to England in 1911, and did not return to India thereafter. It is alleged that taking advantage of his absence, other members of the family, who were in India, created charges on properties and protracted litigation ensued. Henry Celestine John decided to sell his undivided shares and interests in the properties. As the properties got involved in litigation he experienced difficulty in finding a purchaser who was willing to pay him a decent price. The assessee, Sri Kali Nath, advocate, was in the know of the entire affairs of the Johns and with his help one Beni Madho, brother-in-law of Raj Bahadur, the brother of Kali Nath, was set up as a benamidar for purchasing the property. On August 22, 1939, Henry Celestine John executed a sale deed in favour of Beni Madho in which it was stipulated that if Beni Madho succeeded in recovering any property, then half the gross value thereof would be paid to Henry Celestine John. Subsequently, Sri Beni Madho made a declaration that the real purchaser of the property was Rajbahadur. A litigation in respect of this property ensued. In the year 1943, a first appeal was filed by S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation is quite common. It, therefore, came to the conclusion that the entire transaction was in the nature of an adventure with a motive to earn profits. It was neither capital transaction, nor could it be described as a casual transaction. The profit earned by the assessee was, therefore, liable to be taxed under section 10 of the Act. The Tribunal also pointed out that, under the agreement, the assessee was liable to pay 50% of the proceeds to the estate of Henry Celestine John. It held that this liability was a permissible deduction. Even though the amount had not been paid back to the successors of Henry Celestine John, still the assessee was entitled to claim this deduction? In the result the Tribunal calculated the share of Kali Nath which could be included in his total income as Rs. 33,654. The manner in which this amount of Rs. 33,654 was worked out was as follows: Rs. Final receipts 1,75,000 Exclude share of H. C. John 77,500 -------------------------- 97,500 Further exclude cost and expenditure estimated 35,000 --------------------------- Balance 62,500 7/13th share 33,654 The assessee felt that the Tribunal went wrong in holding that the transaction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on money-lending business and assessed on interest earnings. In the case of money-lenders such transactions are quite common. In any case, we find that the whole transaction is clearly in the nature of an adventure with a motive to earn profit. We have no doubt that the surpluses arising from these transactions are clearly taxable." An analysis of the view expressed by the Tribunal shows that for holding that the money received by the assessee was liable to tax, it relied upon the following circumstances: (1) The motive behind the entire transaction entered into by the assessee was to earn profit and the profit is obviously liable to be taxed under section 10. (2) The assessee had been carrying on money-lending business and the transaction in question was such that was quite common in the case of persons-carrying on the money-lending business. In any case the whole transaction was in the nature of adventure with a motive to earn profit. Mere fact that the transaction has been entered into with a motive for earning profits is not sufficient to bring the profits so earned within the meaning of the word " income " which is taxable under the Income-tax Act. In order t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto by a party in the course of money-lending business. Moreover, the Tribunal has not stated any material on the basis of which it could be held that such transactions are entered into by money-lenders in the course of their money-lending business. It may be that money-lenders may purchase properties involved in litigation with a view to realise the amount which is due to them from their vendors. but it is. very doubtful if money-lenders would purchase properties involved in Litigation, as a part of their money-lending business where the purchase was wholly unconnected with a previous money-lending transaction between them and the owner of the property. In our opinion. this circumstance relied upon by the Tribunal is not based on material and cannot be taken into consideration for determining whether the profits earned by the assessee in this case were his business profits. Coming now to the last circumstance pointed out by the Tribunal, it appears that the Tribunal came to the conclusion that the transaction was an adventure in the nature of trade merely because in its view the assessee entered into this transaction with a motive to earn profit. As stated earlier, the burden of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the statement of the case, nor in any of the orders which have been filed along with the statement of the case. The fact remains that a compromise bad been entered into between Raj Bahadur, brother of the assessee, and the Johns and that Raj Bahadur gave up his claim under a decree passed in his favour by receiving a sum of Rs. 1,75,000. This transaction does riot bear the indicia of a trade. We know of no such trade in which the person makes profit by giving up a disputed claim after receiving some monetary compensation. It may be that the transaction in question was entered into with a motive for earning, profit ,but this circumstance by itself is not sufficient to show that the adventure which had been entered into by the assessee was in the nature of trade. Apart from saying that the transaction was entered into with a profit making motive the Tribunal has not stated anything to show as to why it considered the transaction to be in the nature of trade. On the material before us it is not possible to hold that the department has succeeded in establishing that the receipt of Rs. 1,75,000 was as a result of an adventure in the nature of trade. In this view of the matter the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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