Conversion of partition property into stock-in-trade made sale profit taxable as business income

Properties received on partition are capital in character at inception, but they may be treated as stock-in-trade if the surrounding facts and the assessee's conduct show an intention to use them as trading assets. Here, the Tribunal relied on the treatment of the properties in the business accounts, the crediting of sale proceeds to the money-lending account, and the use of the proceeds in that business. Those facts supported the inference that the properties had been converted into stock-in-trade, and the sale profit was therefore taxable as income. In reference jurisdiction, no misdirection in law was shown to justify reappreciation of the factual finding.

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Issues: Whether the immovable properties allotted to the assessee on partition had been converted into stock-in-trade of his money-lending business so that the sale proceeds were taxable as income.

Analysis: A property received on partition is initially capital in character, but it may be brought into the stock-in-trade if the surrounding facts and treatment of the asset so show. The relevant enquiry is factual and turns on the manner in which the assessee dealt with the properties after partition. The Tribunal relied on the assessee's treatment of the properties in his business accounts, the credit of sale proceeds in the money-lending account, and the use of the income and proceeds in the money-lending business. These facts were sufficient material to support an inference that the assessee intended to treat the properties as part of his trading assets. In reference jurisdiction, the Court does not reappreciate the facts unless there is misdirection in law, and none was shown.

Conclusion: The properties were rightly treated as stock-in-trade and the sale profit was taxable as income. The finding was against the assessee.

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