Casual non recurring receipt from a contingent loan arrangement is not taxable; reference application fee may be refunded as costs.

A contingent payment received under an agreement securing repayment of a loan, where no proprietary interest was acquired and no business of buying and selling existed, qualifies as a casual, non recurring receipt rather than business income or other assessable income; consequently it is not taxable under the Income tax Act, 1922. Separately, the statutory fee paid with a reference application falls within the costs and incidental matters deposited as security for the reference and, in the court's discretion, is refundable to the applicant.

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Issues: (i) Whether the sum of 6,000 received by the assessee under an agreement in consideration of a loan constituted taxable profits or gains of business or income from other sources under the Income-tax Act; (ii) Whether the fee of Rs. 100 paid with an application for reference under Section 66(2) forms part of the costs of the reference and is refundable in the Court's discretion.

Issue (i): Whether the receipt of 6,000 under the agreement was taxable as business income under Section 10 or as income from other sources under Section 12, or was a casual non-recurring receipt within Section 4(3)(7) of the Income-tax Act, 1922.

Analysis: The agreement provided for payment to the lender a share of sale consideration in return for a loan; the transaction was a private venture to secure repayment rather than an acquisition of any proprietary interest or part of a business of buying and selling mining concessions. There was no material showing that the receipt arose from a business carried on by the assessee or that the assessee acquired a right or interest in the mining properties; the receipt arose from a contingent allocation on sale and was non-recurring and accidental in character.

Conclusion: The 6,000 is not part of profits or gains of any business under Section 10, nor income under Section 12, but is a casual and non-recurring receipt within Section 4(3)(7) of the Income-tax Act, 1922; accordingly it is not taxable under the Act.

Issue (ii): Whether the Rs. 100 fee paid with an application under Section 66(2) is part of the costs of the reference and refundable at the Court's discretion under Section 66(6) of the Income-tax Act, 1922.

Analysis: Although the fee could be viewed as covering administrative expenses and deterring frivolous applications, authoritative practice of several High Courts treats the fee as part of the costs deposited as security for the reference; uniformity in procedural practice is desirable, and the fee therefore falls within costs and incidental matters the Court may award in its discretion.

Conclusion: The Rs. 100 paid under Section 66(2) forms part of the costs of and incidental to the reference and should be refunded to the applicant in the exercise of the Court's discretion.

Final Conclusion: The reference is answered in favour of the assessee on the taxability issue and in favour of the assessee on the costs issue; the receipt is non-taxable and the Rs. 100 fee is refundable.

Ratio Decidendi: A receipt arising from a private, contingent arrangement securing repayment of a loan, without transfer of proprietary interest and not forming part of an ongoing business, is a casual and non-recurring receipt and not taxable as business income under the Income-tax Act, 1922.

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