1963 (9) TMI 81 - HC - Income Tax

Taxable Profit Determined for Assessee in Adventure Trade Transaction

Jaldu Manikyala Row and Ors. Versus Commissioner of Income Tax, Madras.

The High Court concluded that the sum of Rs. 75,040 received by the assessee was considered an adventure in the nature of trade and not exempt under ... - Issues Involved:1. Whether the sum of Rs. 75,040 is a receipt not from business but only of a casual and non-recurring nature exempt under section 4(3)(vii) of the Indian Income Tax Act, 1922.Issue-wise Detailed Analysis:1. Nature of the Receipt:The primary issue before the court was whether the sum of Rs. 75,040 received by the assessee was a receipt from business or a casual and non-recurring nature exempt under section 4(3)(vii) of the Indian Income Tax Act, 1922.The assessee, a merchant involved in various businesses, purchased a 25/56th share in a mortgage decree for Rs. 62,500 from Sarvarayudu, who was in financial distress. The assessee paid off Sarvarayudu's creditors and eventually realized Rs. 1,51,540 from the decree, resulting in a profit of Rs. 75,040 after expenses.The Income Tax Officer (ITO) held that the profit was from an adventure in the nature of trade and brought it to tax. The assessee contended that the transaction was a casual gain outside his line of business, intended to help Sarvarayudu and his brother Venkata Subba Row, and thus not taxable. The ITO rejected this contention, stating that the assessee's intention was to make a profit.The Appellate Assistant Commissioner (AAC) and the Income Tax Appellate Tribunal (ITAT) upheld the ITO's decision, noting the lack of evidence supporting the assessee's claim of altruistic motives. The ITAT found that the transaction bore the characteristics of a speculative venture in the nature of trade.2. Supreme Court's Remand:The Supreme Court remitted the case to the High Court to call for a finding from the ITAT on whether the assessee had the intention of assisting his brother and brother's son-in-law by preventing the sale of the mortgaged properties they had purchased. The ITAT found no evidence supporting this claim and concluded that the assessee's intention was to make a profit.3. High Court's Analysis:The High Court considered whether the transaction was an adventure in the nature of trade, which is a mixed question of fact and law. The court noted that the assessee, a shrewd businessman, undertook a planned and sustained operation to realize the full value of the decree, borrowing funds and incurring legal expenses. The court agreed with the ITAT's finding that the transaction was a trading activity, not an investment or an altruistic act.The court referred to the Supreme Court's decision in Venkataswamy Naidu & Co. v. Commissioner of Income Tax, which emphasized the initial intention to resell at a profit as a relevant factor in determining the nature of the transaction. The court found that the assessee's sole intention was to make a profit, making the transaction an adventure in the nature of trade.4. Conclusion:The High Court concluded that the transaction was an adventure in the nature of trade, and the profit of Rs. 75,040 was properly assessed to tax under section 10 read with section 2(4) of the Indian Income Tax Act, 1922. The court answered the question referred to it in the negative and against the assessee, holding that the profit was not exempt under section 4(3)(vii).The assessee was ordered to pay the costs of the Commissioner of Income Tax, with the advocate's fee fixed at Rs. 250.