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Issues: (i) Whether the receipts from the sale and lease of horses were assessable as business income and not as capital gains or income from other sources, and whether the horses were personal effects of the assessee; (ii) Whether the lease receipts were taxable in the year of accrual on the mercantile system of accounting or only in the years of receipt.
Issue (i): Whether the receipts from the sale and lease of horses were assessable as business income and not as capital gains or income from other sources, and whether the horses were personal effects of the assessee.
Analysis: The receipts from sale and lease of horses were held to arise from a business activity carried on by the assessee. Once the income was found to be business income, the claim that the sale proceeds should be assessed under the head capital gains did not survive. The finding that the horses were not personal effects also stood affirmed.
Conclusion: The receipts from sale and lease of horses were assessable as business income, not as capital gains or income from other sources, and the horses were not personal effects.
Issue (ii): Whether the lease receipts were taxable in the year of accrual on the mercantile system of accounting or only in the years of receipt.
Analysis: The assessee followed the mercantile system of accounting. The entire lease income accrued in the year of auction, and it was not permissible to spread the income proportionately over the years of receipt. The view taken by the Tribunal on accrual was upheld.
Conclusion: The lease receipts were assessable in the year of accrual and not in the years of receipt.
Final Conclusion: All the questions were answered against the assessee and in favour of the Revenue, and the references were disposed of accordingly.
Ratio Decidendi: Where receipts arise from a business activity and the assessee maintains mercantile accounts, income is taxable as business income in the year of accrual, and cannot be recharacterised as capital gains or deferred to years of receipt merely because payment is staggered.
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