Business treatment of property acquired for debt discharge determines whether sale profit is taxable income.

Property acquired by a money-lender in discharge of a debt is characterised by its subsequent treatment in the business records. Where the income from the property is entered in the business accounts, related expenditure is debited there, and the balance is carried to business capital, the property may be treated as a business asset rather than a capital asset. The question is one of fact, and long retention or an asserted compulsion to sell does not outweigh accounting treatment supported by evidence. On that footing, profit on sale is taxable as income.

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Issues: Whether the agricultural properties acquired by the assessee in the course of his money-lending business were stock-in-trade or capital assets, and whether the profit arising from their sale was taxable income.

Analysis: The character of land acquired by a money-lender in discharge of a debt depends on the manner in which the property is dealt with after acquisition. Where the income from the property is brought into the business accounts, the expenditure on it is debited in those accounts, and the balance is taken to the business capital account, the property may properly be treated as part of the business assets. The question is one of fact, and the departmental finding will stand if supported by evidence. The long retention of the properties and the asserted compulsion to sell them did not displace the effect of the accounts and other material showing business treatment of the properties.

Conclusion: The properties were rightly treated as stock-in-trade, and the profit on sale was taxable as income.

Ratio Decidendi: Whether property acquired by a money-lender in satisfaction of a debt is stock-in-trade or a capital asset is a question of fact, to be decided from the subsequent treatment of the property and its income in the business accounts; if it is incorporated into the business assets, the profit on sale is taxable.

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