Decided on August 14,1961



P.B.MUKHARJI,J. - (1.) THE following reference under s. 66(2) of the IT Act was directed by this Court upon the Tribunal for a decision of the question : "Whether, on a true construction of the memorandum of association of the company as well as the facts and circumstances of the case, the sum of Rs. 1,00,673 was liable to assessment under s. 10 of the Act as income under the head 'business'?" This was at the instance of the assessee, a private limited company by the name Mayfair Estates Ltd., Calcutta, incorporated in 1935.
(2.) THE facts as found in the statement of case may be briefly stated : In the year 1935, being the year of incorporation, the assessee-company purchased in one block certain buildings and a substantial portion of the purchase money was found by raising a loan on the security of these properties in Mayfair Road, Calcutta. Within four years of the incorporation, the company sold away in 1939 one of the properties and again, within a period of three years therefrom, the company sold four other properties in 1942. The difference of Rs. 1,328 between the purchase price and the sale price for the first sale in 1939 was assessed to income-tax for the year 1940-41. The sale of the properties in 1942 produced an income of Rs. 2,40,000 and a surplus of Rs. 1,00,673 was made after deducting the cost price, law charges, brokerage, etc., all aggregating to Rs. 1,39,327. The ITO brought this surplus to tax. The four properties that were sold in 1942 were Nos. 3 and 5, Mayfair Road, and Nos. 1 and 1/1, Old Ballygunge Road. The assessee then appealed to the AAC who upheld the decision of the ITO finding that the sum of Rs. 1,00,673 has been rightly assessed as a business income. The AAC further points out the circumstances of the first sale by finding that the assessee made an appeal against the 1940-41 assessment on a similar ground when the assessee sold 19, Raja Santosh Road, and when a surplus balance of Rs. 1,328 in respect thereof was assessed by the ITO as a business profit in 1940-41. The assessee even at that stage appealed to the Tribunal contending that it was not a business profit but was a capital receipt but the Tribunal held that this was a part of the activities of the company itself and as such the amount was taxable. The matter ended there so far as the first sale was concerned. From the decision of the AAC, the assessee in the present case appealed to the Tribunal. The main contention of the assessee before the Tribunal was that the income should have been held as a casual receipt or a capital gain. It was contended by the assessee that it was not a dealer in property or houses and the sale was not an adventure in the nature of trade. The Tribunal upheld the decision of the AAC and dismissed the appeal of the assessee. The decision of the Tribunal holding that this sum of Rs. 1,00,673 was the net profit of the sale transaction and was a business income rests on a number of cogent considerations, namely : (1) the objects of the company in the memorandum of association justify sale or traffic in house and other property ; (2) actual sales took place almost from the early stages of the company's incorporation ; (3) failure of the assessee to prove that the sale proceeds in respect of these properties were reinvested and, therefore, should be regarded as change of investments; and (4) failure of the assessee to prove that these properties were sold to pay off a mortgage. It was contended before the Tribunal by the assessee that the sale of the four houses was only for changing its investments. Nothing is proved or shown to establish what, if at all, was the form of the new investment after changing the old investment in house property. It was also contended by the assessee before the Tribunal that the sale of those house properties which were purchased with money obtained by loan and mortgage was effected with a view to pay off the mortgagee who was pressing for payment. Opportunity was given to the assessee to prove that fact, but the assessee failed to produce any material to support such a statement. We have no doubt in our mind that if a limited company such as the assessee had paid off a mortgage of over Rs. 2,00,000 it would have at least receipts, cheques and other documents to show that such payments were made. It is also established on record that the assessee conceded that these four house properties were fetching good rent and, therefore, it could not be said that there was any need for selling them. On behalf of the Department it was contended that the assessee took advantage of the war period to earn this large profit in 1942 by sale of these four houses in accordance with the declared object of the assessee in its memorandum of association. Dr. Pal, learned counsel for the assessee, has put forward the same contentions that were presented before the Tribunal. He contends that the receipt of this surplus is a capital receipt or a casual receipt. The reasons which he advances in support of his contention are : firstly, that this company's main business is to hold properties and to let them out on rent and earn an income from such rents and is, therefore, an assessee under s. 9 of the IT Act from the source "income from property"; secondly, his reason is that the company has not purchased any other property but only sold some. Therefore, he argues that where there are no corresponding purchases to match with the sales effected in this case it could not be said that the sale represented ordinary trading; and, thirdly, he submits that the assessee-company has sold only a small portion of its properties and continues to hold as a property-owner the larger bulk of this real estate. These are the three reasons submitted before us by Dr. Pal in support of his contention that the sum of Rs. 1,00,673 in this case is not an income under the head "business" but a capital receipt.
(3.) THE first reason of Dr. Pal can be disposed of briefly. The fact that certain items of the assessee's income are assessed under the head "property" under s. 9 of the IT Act cannot determine that another item, namely, the receipt of Rs. 1,00,673 in this case, cannot be an income from another source, namely, "business" under s. 10 of the IT Act. Income-tax is one single tax charged in respect of the total income of the previous year of the assessee. Sec. 2(15) of the IT Act defines "total income" to mean total amount of income, profits and gains referred to in s. 4(1) of the Act and computed in the manner laid down in the IT Act. Sec. 6 enumerates the various heads of income, profits and gains which are chargeable to income-tax and appears in Chapter III of the IT Act under the heading "taxable income". It is now well settled that ss. 7 to 12 of the IT Act under Chapter III direct the modes in which the income-tax is to be levied and computed. An assessee's income may come from different sources and heads and they will be computed and assessed under such different heads. The fact, therefore, that a particular source of income comes under s. 9 of the IT Act cannot mean that another item could not come under a different source of income under s. 10 of the IT Act. The point, in our view, is concluded and answered by the Supreme Court in United Commercial Bank Ltd. vs. CIT (1957) 32 ITR 688 (SC) : TC13R.1016 and specially the observation at pages 702 to 703. We are, therefore, unable to uphold the first reasoning of Dr. Pal. This Court holds that income-tax is only one tax levied on the sum total of the income classified and computed under various heads. That it is not a collection of different taxes on each separate head of income, is a principle which is well settled both here and in England : see the observations of the House of Lords in Attorney-General vs. London County Council (1900) 4 Tax Cases 265, : (1901) AC 26 and Salisbury House Estate Ltd. vs. Fry (H.M. Inspector of Taxes) (1930) 15 Tax Cases 266.;

Click here to view full judgement.
Copyright © Regent Computronics Pvt.Ltd.