RUKMANI CO PRIVATE Vs. COMMISSIONER OF INCOME-TAX

JUDGEMENT

(1.) THE assessee, Rukmani Company Private Ltd. purchased in March 1947, a decree from one Sundaram Chettiar. Sundaram Chettiar held the decree against the zamindar of Gothumalai and it was for the face value of Rs. 1,44,035. The assessee made the purchase for the sum of Rs. 41,200 only. Thereafter various steps were taken by the assessee in the court to recover the decreed amount. A short while after the purchase, the enactment abolishing zamindaries came into force, as a result of which the assessee as one of the creditors of the zamindar was enabled to obtain payment from the compensation amount payable to the zamindat by the State. During the account year relevant to the assessment year. 1956-57, the assessee realised a sum of Rs. 1,38,240 and after deducting his total upto that date of Rs. 69,360 made a profit of ifs. 68,880. In the return for that assessment, year, however, the assessee while showing the profit, claimed exemption as income of a casual and non-recurring nature. It was also contended before the Income Tax Officer that the outlay was made as an investment. The claim either as a casual or non-recurring receipt, or as an accretion to capital, indicated by these contentions, was rejected by the Income-tax Officer, who held that notwithstanding that tie transaction was an isolated one, it was nevertheless in the nature of a business adventure. He examined the circumstances under which the assessee purchased the decree and on the facts felt convinced that the purchase itself was as a business proposition. The amount was accordingly brought to tax. An appeal was taken to the Appellate Assistant Commissioner, who agreed in the view taken by the Income Tax Officer. The further appeal to the tribunal stressing that the profit was casual and non-recurring also failed, the tribunal taking the view that the only motive which prompted the assessee in purchasing the decree must have been to put it into execution and realise the amount covered thereby with a view to make a profit there on. There was no doubt a spirit of speculation which entered into the transaction. Nevertheless, the transaction itself was not so wholly foreign to the scope of the money-lending business of the assesses; that it could be regarded as not yielding taxable income.

(2.) IT is in these circumstances that on the application of the assessee Under section 66 (t) of the Indian income-tax Act, the following questions stand referred to us:

(3.) THAT the assessee company does business as a money lender is an undisputed fact. It is also seen from the appellate order that Sundaram Chettiar himself was one of the constituents of this company and he had borrowing transactions with the company. Indeed, as the Appellate Assistant Commissioner points out, the company had very few debtors, that is to say. it made advances and granted loans to only selected parties, one of whom was this Sundaram Chettiar. It is not quite clear whether Sundaram Chettiar had borrowed the moneys from Rukmani and Co. the assessee,. for the purpose of making advances to Subramaniam Chettiar or for financing the suit laid by Subramajiiain Chettiar to recover the moneys from the zamindar of Oothumalai. It is possible that he did both. But even leaving that consideration apart, the question is whether the purchase of the decree from sundaram Chettiar, though, no doubt an isolated transaction, was an adventure in nature of trade.