TMI Blog1960 (8) TMI 98X X X X Extracts X X X X X X X X Extracts X X X X ..... o to convert the properties into cash when a suitable opportunity arose. The Income Tax Officer also relied upon earlier and similar transactions where properties were taken in lieu of debts and subsequently sold, the difference between the purchase and the sale price of the properties being also brought into the profit account. In the view, that these transactions were treated by the assessee-bank itself as incidental to its banking or money-lending business, the Income Tax Officer brought the above amount to tax as its income. The appeals to the Assistant Commissioner and the Tribunal failed. It may be stated that the Tribunal took the view that the assessee was in fact also a dealer in real property and that the profits from the sales during the year were assessable on that basis and in the normal course. The Tribunal was also inclined to hold that the method of disposal of its stock-in-trade, either in a forced sale or otherwise, could have no bearing on the assessability of the profits therefrom. It is not, however, quite clear from the appellate order of the Tribunal whether all these four items of properties were considered to be the stock-in-trade of the assessee as a deale ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in 1949, the bank contends it would not have sold those properties at all. The obvious suggestion was that these properties ceased to be the stock-in-trade of its money-lending business. According to the assessee, therefore, the sale of these properties and the realisation of profits by such sales cannot be regarded as income from its banking business. 5. We may even at the outset express our view that it has not been established that the bank was also a dealer in real property. Such a view was not taken by the Department, either by the Income Tax Officer or by the Appellate Assistant Commissioner. If regard is had to the fact that the four sales on the prior occasion in 1940-41 had been treated by the bank itself and by the Department as having been effected in the course of its money-lending activities, there seems to be no reason why a different conclusion should be drawn in the case of the sales on October 23, 1949. It does not appear to us that there was any material before the Appellate Tribunal which could have logically led it to conclude that the bank was also a dealer in properties. It was brought to our notice that the memorandum and articles of the bank did not pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank on its southern side, and the directors thought that it could be usefully acquired for the purposes of the bank. It must be emphasised that the bank itself did not hold any decree against the mortgagor, Narayanaswami, in execution of which decree the property was brought to sale or was bid for and purchased by the bank. Narayanaswami was no doubt indebted to the bank also, but the purchase of the property in auction was not in discharge of that liability. That fact is made clear by the resolution of the board of directors placed before us. How the liability of Narayanaswami to the bank was discharged is not in evidence before us, nor is it necessary for purposes of the present reference to enquire into that matter. It is abundantly clear that the purchase of this property was not in lieu of any debt due to the assessee bank. What the board of directors proceeded to do was to acquire an item of property which adjoined the banks premises with a view to make use of that building for the purposes of the bank. It should follow as a necessary consequence that the acquisition of this property did not by itself make it part of the stock-in-trade of the money-lending business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee is a banking institution earning its profits by money-lending. Having acquired the properties in realisation of moneys which it had lent, the properties were kept on for various periods ranging from 9 to 15 years, during which time the income therefrom was brought into the account of the bank and dealt with in the course of its banking business. The properties at the time they were purchased undoubtedly represented the converted form of the stock-in-trade of the banking business, viz., money, and when they were reconverted into money, it must, in our opinion, represent the assets of the bank which formed its money-lending assets. Unless there is clear and irrefutable evidence that the bank intended to take away the equivalent of the value of its properties out of its money-lending business, the profit made on the transaction by the resale of the properties must necessarily be regarded in the light of the profits of the money-lending business. 10. As we said, authority is not lacking. In the judgment of this court in R.C. No. 49 of 1946, a similar question arose. The assessee in that case was also a bank which advanced money to a debtor on the security of its merchandise. Afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases and sale prices was brought to tax as income from the business. In the judgment of this court, reference was made to A. H. Wadia v. Commissioner of Income Tax, wherein Mahajan, J., observed : Mere ownership of properties even if purchased from a source which originally was employed in the money-lending business, does not automatically make such properties part of such business, in the absence of any finding that the income of these properties was being used in that business or that those properties were subsequently treated as stock-in-trade of that business except perhaps in the case of banking institutions. 12. The last part of this extract is important in that it shows that in the case of banking institutions the normal view should be that the purchase of properties in realisation of debts due to the bank should be regarded as part of the money-lending transactions, whereby the properties themselves became part of the stock-in-trade of that business though, no doubt in the case of businesses other than that of banking institutions, a specific finding that the income of these properties was being used in that business and that those properties were subsequently tre ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
