S V R Y K N KANNAPPA CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to us for our opinion :

(2.) THE assessee was originally a member of a Hindu undivided family which carried on money-lending business at Batupahat in Federated Malay States. In the course of this business properties used to the purchased by the family in lieu of outstanding due. THEy undoubtedly formed part of the stock-in-trade of the business. THE family also earned profits by buying and selling immovable properties. In such cases properties used to be purchased for cash. It can, therefore, be said that the family did business in buying and selling properties in addition to their principal business of money-lending. All such properties were recorded in the books of the money-lending business with separate folio for each property in which the working expenses and the income therefrom were also entered. When properties were sold, profits and losses resulting from such sales were included in the profit and loss account of the business. On 7th November, 1940, there was a disruption of the family and in the partition that followed the business was allotted to the assessee as a going concern. According to the assessee he discontinued thereafter the business of buying and selling properties and confined his activities only to the money-lending portion thereof. THE Federated Malay States were occupied by the Japanese between the years 1942 and 1945.

(3.) THE assessee submitted that he was liable to pay income-tax on the profits of 4, 273 dollars but that he was not so liable in regard to the profit of 6, 136 dollars as the latter represented only a capital receipt. THE income-tax Officer did not accept that contention he discounted the assessee's story on the ground that it was difficult to believe that the assessee would have thought of investing the surplus funds in Malaya except for the purchase of the business. On appeal the Appellate Assistant Commissioner was of the opinion that the properties in question having been received by the assessee at a partition of the family they would constitute his capital and not stock-in-trade. He, therefore, deleted the assessment in relation to 6, 136 dollars. THE Tribunal took a contrary view on appeal by the department. THE Tribunal held that the erstwhile family was a dealer in properties which business it carried on as an integral part of its money-lending business and that such business was handed over to the assessee as a going concern at the time of the petition and that the property which formed part of the stock-in-trade of the business of the family (relating to purchase and sale of properties) would continue its character as stock-in-trade even in the hands of the assessee and any profits realised by sale thereof would be revenue.THEre can be no doubt that after the partition the assessee did not do any business in buying and selling properties.