AI Drafter 
TaxTMI 
TaxTMI 
1962 (9) TMI 75
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.... on money-lending business at Malacca and Tampin under the vilasam of P.AR.N.AR. and also at Tangak under the vilasam N.AR. In the course of these businesses the family acquired rubber estates which comprise rubber trees and coolie lines. The immoveable properties acquired in the course of the money-lending businesses were treated as the stock-intrade of the respective business in the course of which they came to be acquired. During the recent world war the properties suffered damage due to enemy action and claims were preferred to the Malayan authorities for payment of the compensation payable under the laws and regulations in force in that territory. The claim was made on 28th April, 1946. There was a partition among the members of the fa....
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....of the three grandsons, Peria Narayanan, Chinna Narayanan and Ramaswami, got 9,045 dollars. These amount were credited by them in their respective capital account in their books. In the assessment of these three individual for the assessment year 1954-55 the question raised was whether the sum of 9,045 dollars should be treated as income or capital. The Income-tax Officer brought the amount to tax on the basis that it was income. The view of the Income-tax Officer was that the sum represented damages received by the assessee in respect of the stock-in-trade of the original family and, being the money equivalent of the stock-in-trade, should be treated as a revenue receipt. On appeal to the Appellate Assistant Commissioner by the three in....
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....e. The Tribunal having refused to refer any question of law on an application made to it under section 66(1) of the Act, the assessees moved this court under section 66(2). Thereupon this court directed the Tribunal to refer the following question, namely, "whether on the facts and in the circumstances of the case the sum of 9,045 dollars being the compensation received from the Malayan Government towards war damages is income liable to be assessed to tax in the hand of each of the three assessees for the assessment year 1954-55?" Now the short question is whether the sum of 9,045 dollars received by each one of the assessees as war damage compensation in respect of the stock-in-trade of the original joint family is income receipt or ....
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.... or profits. On a partition the sole right of a member of the family is to get an allotment of his share in the assets available after discharging the family debts. For the purpose of ascertaining the assets existing at the date of the partition it is quite immaterial whether the family possessed them by way of capital or by way of subsequent accretions in the shape of profit...What is distributed amongst the sharers at the partition is the net residue of the estate after payment of family debts...There is no justification for this artificial attribution of profit to the assessee either in law or under the terms of the partition deed now in question." Learned counsel for the department contends that the partition did not have the effect ....
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....d the character of capital in the hands of the divided members. No doubt it is open to them to treat such capital as a stock-in-trade by employing it in the business and dealing with it as a stock-in-trade. But such treatment must be borne out by evidence of overt acts or by a systematic course of conduct. Learned counsel for the department was unable to point out any such evidence which can lead to the inference of the divided members who formed themselves into a partnership treating the claim to the war compensation damage amount as being in the nature of a stock-in-trade in the business. In the fact there is no reference to this claim either in the partition deed or in the partnership deed. There is nothing on record to impute any kind o....