Money-lender's acquired land is taxable as business income only if facts show it became stock-in-trade

Property acquired by a money-lender in satisfaction of a debt becomes taxable as business stock only if the facts show that it was actually incorporated into the money-lending business as stock-in-trade. Mere acquisition of land in discharge of loans, or later sale at a profit, is not enough. Relevant indicators include whether the property or its income and expenditure were entered in business accounts, whether sale proceeds were used in the business, and whether the asset formed part of an integrated trading scheme. On the stated facts, the properties were held for long periods, were not reflected in business accounts, and their income was not used in the lending business, so the sale proceeds were not taxable as business income.

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Issues: Whether profits arising on sale of lands acquired by a money-lender in discharge of loans advanced in the course of business were taxable as income from the money-lending business, on the footing that the lands had become part of the stock-in-trade.

Analysis: The governing principle is that whether property acquired by a money-lender in satisfaction of a debt has become part of the stock-in-trade depends on the facts of each case. Mere acquisition of land in discharge of a loan does not, by itself, impress the property with the character of business stock. Relevant indicia include entry of the property or its income and expenditure in business accounts, use of the property's proceeds in the business, treatment of the property as part of an integrated trading scheme, and other circumstances showing that the property was held as a business asset rather than as an independent investment. The Department bears the burden of proving that the property was so incorporated, though the onus may shift according to circumstances. On the facts, the properties were held for long periods, were not brought into the business accounts, no income from them was used in the money-lending business, and the mere fact that the assessee later sold them and increased his capital did not establish that they had been held as trading assets throughout.

Conclusion: The profits on sale were not taxable as income from the money-lending business, and the question was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: Property acquired by a money-lender in discharge of debts becomes taxable business stock only if the facts show that it was in fact incorporated into the business as stock-in-trade; mere ownership and later sale for gain are insufficient without proof of such treatment.

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