P K N COMPANY LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) A registered firm of the vilasam of "P. K. N." was carrying on money-lending business at several places in India as well as in Malaya. In the year 1937, the partners of the firm incorporated a private limited company under the name of "P. K. N. Company Ltd." This company is the assessee. We shall refer in due course to the memorandum and articles of association of the company. To this company were transferred all the properties of the erstwhile partners of the firm, such properties as were situated in the district of Muar in Malaya. These properties consisted of several rubber and coconut plantations, houses and vacant sites. The process of this transfer which was item by item went on till 1940. The total value of the purchases came roughly to 16 1/2 lakhs of dollars. In the year of account ending 31st March, 1941, the company also purchased an estate known as Lee Rubber Estate for 2,62,655 dollars. This property is said to have adjoined the other rubber estates owned by the firm and subsequently transferred to the company. It also purchased a small house property for 5,000 dollars on 7th July, 1941. We may state even here that after 1941 the company did not purchase any other items of property.

(2.) THE share capital of the company was 6,60,000 dollars. It was treated as fully paid up and shares were allotted to the various partners of the firm who became the shareholders of the company. THE balance of the purchase consideration was retained as a liability of the company to be discharged in due course.

(3.) THE point for our consideration is, in other words, whether the company engaged itself in the business of purchase and sale of properties by the company were nothing more than what would be incidental to an owner of property realising part of his investment in the normal course of the enjoyment of his property.