NALLATHAMBI PILLAI K Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AT the instance of the assessee, the following question has been referred to this court under Section 256 of the Income-tax Act, 1961.

(2.) THE assessee owns a number of houses and derives income therefrom. He also runs four hotels in Salem. On February 10, 1951, he purchased a house at 6/12, Trichy Road, and sold the same on March 11, 1952. Two months thereafter, on May 15, 1952, he purchased certain items of house properties at Devendrapuram in Salem and sold the same on November 27, 1957. On September 30, 3957, he had purchased a house property at 326-867-868, Chinaakadai Street, at a cost of Rs. 15,200. After making some improvements to this building at a cost of Rs. 6,203, he leased out the same for running a hotel from May 1, 1958, to April 30, 1959. He himself ran the hotel in that premises for a short time between April 23, 1959, and June 20, 1959. THE said property was ultimately sold on December 17, 1959. THE assessee constructed a house in 1952 at Swarnapuri in Salem at a cost of Rs. 24,000 and the same was ultimately sold in September, 1959. In December, 1959, the assessee purchased two blocks of houses in Sivaswamipuram Extension and sold the same some time later.

(3.) IT is urged by the assessee that unless it is shown that the house properties purchased and sold by the assessee are commercial assets, the sale proceeds of the same cannot be taken to be his business income and that the assessee is not at all a dealer in houses and house properties. IT is said that he is running only a hotel business and that the purchase of houses were only in the nature of investment. In this case the profit has accrued from the sale of house properties. If the house properties sold are capital assets or capital investments, the profit accrued has to be taken as an accretion of capital, for the sale proceeds represent capital in another form. But, on the other hand, if the sale of the house properties is in the course of the business, the profit accrued is on revenue account and has to be taxed as business income. If an article has been acquired for the purpose of trade then the profit arising from its sale must be brought into revenue account.