1961 (7) TMI 81 - HC - Income Tax

High Court: Properties from partition are capital assets, not taxable as stock-in-trade. Tribunal criticized.

The High Court ruled in favor of the assessee, determining that the properties allotted at partition should be treated as capital assets, not ... - Issues:1. Whether the properties allotted to the assessee sub-family at partition should be treated as capital assets or stock-in-trade of the money-lending business.2. Whether the profits from the sale of the properties are taxable under the Indian Income-tax Act.Analysis:The judgment involved a dispute regarding the characterization of properties allotted to the assessee sub-family at partition as either capital assets or stock-in-trade of the money-lending business. The Income-tax Officer initially taxed the profits from the sale of these properties as part of the business. The Appellate Assistant Commissioner set aside these assessments, considering the properties as capital assets. However, the Tribunal reversed this decision, stating that the properties became stock-in-trade due to the continuation of the money-lending business by the divided family members. The High Court directed the Tribunal to examine the accounts to determine how the assessee treated the properties and whether it was a new business or a continuation of the larger family's business.The Tribunal concluded that the assessee started a new money-lending business after partition, connected to the earlier family business. However, the High Court found this conclusion lacking in supporting evidence. The Tribunal's reliance on the mingling of income and the single account book for properties and money-lending transactions was deemed insufficient to classify the properties as stock-in-trade. The High Court emphasized that clear evidence is required to establish the conversion of capital assets into stock-in-trade. The Tribunal's oversight of the properties being shown as capital in the books and the utilization of property income for the money-lending business was considered inadequate to change the assets' classification.The High Court criticized the Tribunal for misinterpreting the court's direction and drawing erroneous conclusions without substantial evidence. In contrast, the Assistant Commissioner's approach was commended for reaching a logical conclusion. Ultimately, the High Court ruled in favor of the assessee, determining that the properties allotted at partition should be treated as capital assets, not stock-in-trade. The profits from the sale of these properties were held not taxable under the Indian Income-tax Act. The assessee was awarded costs, and the deposit was to be refunded by the Tribunal.