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TMI Blog1965 (3) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, 1957, the business at Kampar, Tappah and at other places in Malaya was run as a partnership firm with the assessee and five others as partners. This firm carried on business in money-lending and also in the purchase and sale of real properties. After April 13, 1957, this firm was dissolved and the assessee got one-sixth share in the assets of the firm, being lands, house properties and rubber estates. During the year under reference, viz., the year ending with April 13, 1957 (assessment year 1958-59), the money-lending transactions in the foreign places were entered in the books maintained at Kampar. The lands, house properties and rubber estates which the assessee got on dissolution of the firm were kept separately in the books maintained at Tappah. The assessee in each case sold three pieces of properties which had been taken over from the firm on its dissolution. The original cost price of these properties were not known. The assessee in Tax Case No. 3 of 1962 worked out a net surplus of 5,150 dollars, and the assessee in Tax Case No. 154 of 1962 worked out a surplus of 7,038 dollars, after deducting a certain sum as bonus relating to the sale of these properties. Similarly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eating the interest receipt as part of the income. As regards the taxability of profit, the Tribunal held that the division of the assets between the different places of business was only arbitrary, that in fact there was only one business in Malaya, that the properties in question were part of the stock-in-trade of such business and that therefore the profits realised from the sales of those properties were taxable. Thus, the order of the Appellate Assistant Commissioner on both the points was reversed and the amounts restored to assessment by the Income-tax Officer. In T.C. No. 3 of 1962, the assessee filed an application to the Appellate Tribunal to refer the questions of law set out already to this court, and the Tribunal has stated the case and referred it to this court. But, in T.C. No. 154 of 1962, inasmuch as the application filed by the assessees was rejected by the Tribunal, this court directed the Tribunal to state a case and refer it to this court for determination. Thus, the two references are before us for determination. The first question for consideration is whether, in computing for purposes of income-tax, the profits derived from the sales of these properties ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these are capital sales and not sales producing income. The test as observed by Lord Justice Clerk in Californian Copper Syndicate v. Harris [1904] 5 Tax Cas. 159 is: "It is quite a well settled principle in dealing with questions of assessment of income tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit…….assessable to income tax. But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on, or carrying out, of a business." Similarly, Farwell L.J. observed in Hudson's Bay Co. v. Stevens [1909] 5 Tax Cas. 424: "It is clear, therefore, that a man who sells his land, or pictures or jewels, is not chargeable with income tax on the purchase-money or on the difference between the amount that he gave and the amount that he received for them. But if instead of dealing with his property as owner he embarks on a trade in which he uses that pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness relating to purchase and sale of properties did not, on the closure of such business, become automatically the stock-in-trade of the money-lending business. It would certainly be open to the department to show that by conduct or otherwise the assessee had treated even those properties as part of the stock-in-trade of the money-lending business; but this has not been done in the present case." Similarly, in Murugappa Chettiar v. Commissioner of Income-tax [1962] 46 ITR 797, on a partition of a Nattukottai Chettiar undivided family, the sub-family, which was the assessee, was allotted for its share of the family properties certain items of real property. Certain items of money-lending transactions and some out standings were also allotted to the assessee. The real property so allotted had been acquired by the larger family in the course of its money-lending transactions and in the hands of that family had formed part of the stock-in-trade of the money-lending business. Subsequently, after the partition, some of the real properties allotted to the assessee were sold along with some other properties which it had acquired in the course of its own money-lending transactions. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the sums of ₹ 9,778 and ₹ 9,676 can be held to be interest receipts and as such part of the income of the assessees' headquarters' business, learned counsel for the assessees contends that the entries in regard to interest as entered in their account books cannot be treated as income of the business at headquarters. The business at headquarters and Penang and the investments in Tappah all belong to the assessees. It is common among the Chettiar firms to send their own moneys to the branches for purposes of doing money-lending business. When they remit the moneys to their branches, they calculate interest and make the necessary entries in their account books. Subsequently, as and when they receive interest earned by the branches in the moneys sent to them for the money-lending business, they make the necessary reverse entries at the time of preparing the profit and loss statements. Now the question is what is the effect of making credit entries in the interest account at the headquarters, at the time when the moneys are sent to the branches? The gist of the Tribunal's decision is that the effect of making a credit entry in the interest account at the headq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that when the credit entries in respect of interest payments had been made according to the mercantile method of keeping accounts, it was not open to the assessee to contend that he had not received the amounts in question by way of interest during the relevant periods. The facts of the case are these: the assessee and her deceased husband are residents in British India; originally her husband was carrying on business at Khurja and Aligarh in British India and at Chistian in the Indian State of Bahawalpur now part of Pakistan. The central set of accounts of the business were kept at Khurja. For the accounting year relevant to the assessment year, the interest account showed credit entries of two amounts as interest received on capital invested in the shop at Chistian. The Income-tax Officer took the view that the amounts in question represented the assessee's taxable income in India and he accordingly levied tax on them. It was contended before their Lordships of the Supreme Court that the amounts were not taxable, as the assessee neither received nor could be deemed to have received the amounts and that even otherwise they could not be assessed, as the entries in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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