1962 (12) TMI 93 - HC - Indian Laws

Money-lending company's profit taxable as trade income

Rukmani Co. (Private) Ltd. Versus The Commissioner of Income Tax

The court determined that the profit of Rs. 68,880 resulting from the purchase of a decree by a money-lending company was assessable to tax as it ... - Issues Involved:1. Whether the profit of Rs. 68,880 is a profit from a venture in the nature of trade or from speculation not wholly outside the scope of money lending.2. Whether the sum of Rs. 68,880 is assessable to tax.Issue-wise Detailed Analysis:1. Nature of Profit:The assessee, a money-lending company, purchased a decree from Sundaram Chettiar for Rs. 41,200 in 1947, which had a face value of Rs. 1,44,035. The assessee took steps to recover the decreed amount and realized Rs. 1,38,240 during the assessment year 1956-57, making a profit of Rs. 68,880. The assessee claimed this profit as non-taxable, arguing it was a casual, non-recurring receipt or an accretion to capital. The Income Tax Officer, however, classified the transaction as a business adventure, noting that the purchase was a business proposition aimed at making a profit. The Appellate Assistant Commissioner and the Tribunal upheld this view, emphasizing that the transaction, though isolated, was not foreign to the money-lending business of the assessee.2. Assessability to Tax:The Tribunal inferred that the profit was from a venture in the nature of trade, considering the circumstances and the intention behind the purchase. The assessee's argument relied on the precedent set in Mothay Gangaraju v. Commr. of Income Tax, where a similar isolated transaction was not considered taxable. However, the court distinguished the present case, noting that the assessee's intention was to execute the decree and realize the amount as part of its business operations, unlike the purely speculative nature of the transaction in Mothay Gangaraju. The court referenced Venkataswami G. Naidu and Co. v. Commr. of Income Tax, where the Supreme Court held that the intention to resell at a profit is a significant factor in determining if a transaction is an adventure in the nature of trade. The court also cited Sarojkumar Mazumdar v. Commr. of Income Tax, emphasizing that the dominant intention to embark on a trade venture controls the decision.Conclusion:The court concluded that the assessee's purchase of the decree was an adventure in the nature of trade, given the intention to realize the amount as part of its money-lending business. The profit of Rs. 68,880 was thus assessable to tax. The decision in Abubucker Sait v. Commr. of Income Tax was also considered, where the intention to trade at the time of purchase was deemed crucial. The court affirmed that the isolated nature of the transaction did not preclude it from being a business venture. The questions were answered against the assessee, and the profit was deemed taxable. The assessee was ordered to pay the costs of the department, with counsel's fee set at Rs. 250.