S K AR K AR SOMASUNDARAM CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee belongs to the Nattukottai Chetty community. He was employed as an agent of the Chettinad Bank in Ceylon till 1942. During the course of the year he returned to India and established for himself a business in yarn and paper at Madurai. THE assessee's son-in-law was during all material times having a money-lending business at Colombo. In December, 1948, the assessee went for a short holiday to Ceylon for about 11 days. Admittedly, the assessee then had no idea of starting or doing any business or making an investment in that country. THE Chettinad Bank was then closing down. Amongst its assets in that country was a coconut lope of an extent of 149 acres. THE assessee got information that the bank was selling the property and bought it for a sum of Rs. 1, 10, 000. Having no monies of his own at that place, the assessee borrowed the amount necessary for the purchase of the property partly from his son-in-law and partly from certain others. He then employed a staff to work the estate and went on some occasions to that country with a view to supervise the same. He, however, made no attempts to pay off the debts contracted for the purchase in any manner whatsoever. In the first year the property yielded a net income of about Rs. 16, 485, a fairly high return for the price paid. Strangely enough, even that amount was not utilised to pay off the creditors. On November 1, 1950, the assessee sold the property to a resident of the place for a sum of Rs. 1, 50, 000. THE debts contracted for the purchase of the property were then paid off out of the sale proceeds. THE resultant profit to the assessee in the transaction was Rs. 36, 230. This amount was brought to Indian income-tax for the assessment year 1951-52 on the footing that it represented profits obtained by the assessee in the course of an adventure in the nature of trade, by the Income-tax Officer, Madurai, along with the assessee's foreign income of Rs. 16, 485 received by him in working the estate. THE assessee's contention that the purchase was made by way of investment only and that the profit of Rs. 36, 230 could represent only a capital accretion did not find acceptance either with the Appellate Assistant Commissioner on appeal or with the Appellate Tribunal on further appeal. THE Tribunal was directed under section 66(2) of the Act by this court to refer the following question for the opinion of the court

(2.) THERE are certain broad features in the case, the cumulative effect of which in our opinion would afford material sufficient to sustain the view taken by the department as well as by the Appellate Tribunal, viz. that the assessee embarked on an adventure in the nature of trade when he purchased the coconut tope in Ceylon. The assessee, apart from having been an ex-employee of the Chettinad Bank at Ceylon, had no other business connection with that country. That employment ceased in the year 1942 and, since then, he had no kind of interest in that country, either in regard to property or business. The assessee's business is entirely in India where he resides and owns properties as well. It was while he went on a short holiday trip to Ceylon that he met the agent of the Chettinad Bank and learnt that they were selling the property in the course of their closing down. One can reasonably assume that, in the context in which property came to be sold, the price offered would be favourable to the purchaser. The assessee having no money of his own at Colombo had to borrow the requisite sum from various persons. Admittedly, there was no hope of bringing in moneys from India to pay off the creditors, as there were restrictions in that regard. Nor was there any attempt made to discharge the debts for nearly a period of two years. This is all the more strange when the assessee was in receipt of about Rs. 16, 000 by way of income from the property itself. If he really intended to purchase as an investment, one would have expected the assessee to pay off at least a portion of the liability out of the income.

(3.) SECONDLY, while the examination of the reasons given by the Tribunal and the department might be relevant for the purpose of ascertaining whether an inference as to the intention of the assessee could be said to be legitimately drawn by them, the mere fact that some of the reasons given by them happen to be incorrect cannot be decisive of the question as to whether their conclusion is wrong. Indeed, what this court has got to consider in all such cases is whether there are sufficient materials on record to support the conclusion of the Tribunal. We shall, however, examine how far the contentions relied on by Mr. Srinivasan could be accepted. Learned counsel first contended that the purchase and sale of property in Ceylon, not being in the line of the business of the assessee, there could be no element of speculation or adventure in the nature of trade when he made the purchase. The question whether there was an adventure in the nature of trade or not is one of fact it cannot be assumed as a proposition of law that the fact that a particular transaction was not in the line of the assessee's business would make it any the less an adventure in the nature of a trade, if the intention for such an adventure on the part of the assessee had been otherwise proved.