TMI Blog1957 (10) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... Vinukonda, valued at ₹ 2,000 in full discharge of his debt. But on September 27, 1945, the said extent was sold and a sum of ₹ 10,000 was realised. On February 15, 1925, the assessee purchased 4 acres 56 cents for a sum of ₹ 4,480 from two other joint debtors Venkatachalapathi Rao and Subbarao. The assessee paid in addition to the discharge of the debt, some other amounts making up the consideration. The said property was sold by the assessee to one Subbarao on May 5, 1947, for a sum of ₹ 11,400. The assessee purchased from his debtors Akkamma and others land of the extent of 12 acres 29 cents on November 20, 1933, for ₹ 11,000. He bought also 5 acres 77 cents for ₹ 4,500 from one Veeriah on March 25, 1932, and 1 acre 37 cents for ₹ 800 from Ankamma on November 20, 1932. Out of the first item, on August 12, 1943, he sold 8 acres 29 cents along with another piece of land and 1 acre 13 cents purchased by him in 1939 for a total consideration of ₹ 30,955. He sold the other two items for ₹ 20,474 in 1948-49. On the basis of the aforesaid sales, he made a total profit of ₹ 35,000 in the year 1949-50. Neither the statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner of Income-tax*. The material facts in that case were: the Gwalior Durbar derived income from properties situated in British India which were purchased by the Durbar at execution sales in enforcement of mortgage decrees against mortgagors who had failed to pay the amounts advanced to them in the course of the money-lending business of the Durbar. The question was whether the property after its purchase continued to be part of the assets of the business of the Durbar so that the income arising from the properties could be subject to income-tax. The following observations of Kania, C.J., at page 76 may usefully be extracted: From this recital it only appears that the original money-lending transactions consisted of advancing loans on mortgagees. They had come to an end with the sale of the properties under the directions of the court............The fact that the properties are left in the hands of the Durbar, in my opinion, leads to no conclusion one way or the other. This is not a case where a money-lender sets apart a specified sum for his business and continues to keep an account of the properties as a part of the same business........................Under the circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel for the Commissioner contends that this decision is based upon the fact that, after the purchase, the assessee ceased to do business and that if be continued to do money-lending business, the Federal Court would have come to a contrary conclusion. It is true that the assessee ceased to do business after the purchase and though that fact might have been one of the considerations that weighed with the learned Judges, they clearly accepted and laid down the principle that the question, namely, whether properties purchased in discharge of loans advanced in the course of money-lending business continued to be part of the stock-in-trade falls to be decided on the facts of each case, having regard to the consideration pointed out by the learned Judges. A similar question arose in Gurucharan Prasad v. Commissioner of Income-tax [1951] 19 I.T.R. 42, whether properties allotted to the assessee, who was a money-lender, in discharge of his debts were part of the stock-in-trade of the money-lending business. Bhargava, J., in holding that they did not, observed at page 51: The assessee kept those properties with him for a period of 18 years. During this period, obviously, thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles laid down in the decisions considered supra. where in part satisfaction of a mortgage decree, the mortgagee purchased the mortgaged property for ₹ 60,000 and six months later sold the same for ₹ 38,000 it was held by the Bombay High court in Himatlal Motilal v. Commissioner of Income-tax [1932] 6 I.T.C. 159 that the loss on the sale was loss of capital invested in purchase of property and not an allowable business loss in the loan transaction. There, it was the converse case of an assessee setting up the plea that the loss was allowable business loss in a loan transaction. Rejecting that plea, Beaumont, C.J., says at page 161; So far as the property was concerned, it seems to me that the mortgagees, having bought it, it became their absolute property; they were entitled to occupy it themselves, or to let it or to sell it, better at a profit, if they will get one, or at a loss. This decision also indicates that the mere fact that the source of the purchase is' income of the money-lending business is not decisive on the question that the properties so purchased have become part of the stock-in-trade of the business. Strong reliance is plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses that it incurs on the maintenance of the properties are charged to its business account and receipts from the yield, of the properties are taken as the receipts of the business and brought to its Adhayam account. It is, therefore, clear from the aforesaid facts that it was part of the scheme of the assessee's business to purchase properties from debtors in discharge of debts, to sell them at a later stage for profit and in the meanwhile to treat them expressly as part of the stock-in-trade of the business. On the facts of that case, the Full Bench rightly held that the properties purchased became part of the stock-in-trade of the money- lending business. This decision, therefore, does not lay down any principle different from that stated by the other decisions. Where a person, who was carrying on business as a money-lender, borrowed money for his money-lending business and lent it out to constituents and was obliged, in the course of business, to receive agricultural lands in repayment of his debts from such constituents, a Division Bench of the Madras High Court in Chellapa Chettiar v. Commissioner of Income-tax [1937] 5 I.T.R. 97 held that the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the business. There may also be cases, particularly during the days of depression when the prospects of money-lending business are bleak, when a moneylender may close his business and convert his cash, which is in the shape of loans, into immovable property or reduce his business to the minimum extent possible and invest his excess cash on hand or money lent on loans in immovable properties without any idea of bringing them into his business with the faint hope that in future he may again improve his business. It cannot, therefore, be predicated as a proposition of law that, whenever a money-lender purchases properties in discharge of loans to third parties, the said properties become part of the assets of the business. That question falls to be considered on the facts of each case. In the present case. the Department has proved only two facts, namely that the assessee purchased some items and sold them in some cases after 11 years and in others after more than 20 years. Though after the purchase, the assessee continued to do money-lending business and though the properties were of an appreciable extent, it has not been established that either the properties or the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X
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