1952 (9) TMI 43 - HC - Income Tax

Property transactions deemed revenue, not capital, in money-lending business

The Tribunal concluded that the purchase and subsequent sale of the Match Factory premises constituted transactions within the assessee's money-lending ... - Issues Involved:1. Whether the transaction of purchase of the Match Factory and the subsequent sale of its premises in different bits could legally be held to be a transaction entered into by the applicant in the course of its money-lending business.2. Whether the receipts of the applicant by the resale of the premises of the Match Factory were revenue receipts or capital receipts.Detailed Analysis:Issue 1: Transaction in the Course of Money-Lending BusinessThe Tribunal had to determine if the purchase and subsequent sale of the Match Factory premises were transactions conducted in the course of the assessee's money-lending business. The primary findings of fact by the Tribunal included:1. The assessee was engaged in banking and had advanced a loan to the Rohelkhand Ice Factory.2. The property (shares and assets of the Match Factory) was not purchased as an investment but accepted as payment towards the loan under circumstances indicating it was the only means of realizing the loan.3. The property was accepted when its market value was rising, and it was felt this was probably the only way to cut down the loss or earn a profit.4. The assessee had a rooted objection to investing in immovable property, evident from their conduct of selling the property as soon as feasible.The Tribunal concluded that these transactions were steps in the process of advancing and realizing the loan. The property was converted into cash as soon as possible, indicating it was held temporarily in lieu of the loan. The Tribunal's inference that the acquisition and sale were part of the money-lending business was supported by the facts. The judgment highlighted that the acquisition and subsequent sale of the property were analogous to a money-lender accepting and selling a valuable item (e.g., a watch) in lieu of a loan, which would still be considered part of the money-lending business.Issue 2: Nature of Receipts from ResaleThe Tribunal also had to determine whether the receipts from the resale of the Match Factory premises were revenue receipts or capital receipts. The assessee argued that the profit of Rs. 28,879 should be considered a capital receipt, resulting from the appreciation of the property's value as a capital investment. However, the Tribunal did not tax this amount as income from the business of acquiring and selling immovable property nor as an adventure in the nature of trade. Instead, it was held that the acquisition and sale were transactions within the money-lending business.The Tribunal's primary findings of fact supported the inference that the property was accepted and sold as part of the process of realizing the loan. The judgment emphasized that the property was not intended as a capital investment but was converted into cash to be available for the money-lending business. Consequently, the amount realized in excess of the loan was considered income from the money-lending business, making it a revenue receipt.The judgment also compared this case with a previous case (Gurucharan Prasad Jagannath Prasad v. Commissioner of Income-tax), where the properties were retained for eighteen years, indicating they were treated as capital investments. In contrast, the properties in the current case were sold shortly after acquisition, reinforcing the conclusion that they were part of the money-lending business transactions.Conclusion:1. The transaction of purchase of the Match Factory and the subsequent sale of its premises in different bits could legally be held to be a transaction entered into by the assessee in the course of its money-lending business.2. The receipts of the assessee by the resale of the premises of the Match Factory were revenue receipts.