Business profit treatment of land sale surplus upheld where debt-recovered lands became stock-in-trade of money-lending business.

Surplus from the sale of lands taken in satisfaction of debts by a money-lender was treated as taxable business profit because the lands were shown to have become stock-in-trade of the money-lending business. The decisive indicia were that the income from the lands, the sale proceeds and the cultivation expenses were all entered in the business accounts, and the proceeds were used as circulating capital for further lending. The Court held that the absence of every factor found in earlier cases did not defeat that conclusion where the relevant business connections were established. The surplus was therefore not capital accretion.

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Issues: Whether the surplus arising on sale of lands taken in satisfaction of debts by a money-lender was capital accretion or taxable business profits.

Analysis: The lands were treated as part of the money-lending business assets because the income from the lands, the sale proceeds, and the cultivation expenses were all brought into the business accounts and the proceeds were used in the circulating capital for re-lending. The Court held that these facts were sufficient to show that the lands had become stock-in-trade of the money-lending business. The absence of every factor mentioned in earlier cases did not prevent such a conclusion if the relevant indicia were present.

Conclusion: The surplus was taxable business profit and not capital accretion. The question was answered against the assessee and in favour of the department.

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