KALI NATH Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under Section 66(1) of the Indian Income-tax Act, 1922. The assessee in this case is Sri Kali Nath, in his capacity as an individual. The relevant assessment year is 1949-50, corresponding previous year ending on March 31, 1949.

(2.) THE facts giving rise to the present reference are that one Henry Celestine John claimed that he had 1/20th share in certain industrial properties known as John Mills property and one-fourth share in some bungalows. Other members of the family of Johns denied the claim of Celestine John, and alleged that he had no share either in industrial properties or in the bungalows. Henry Celestine John went away to England in 1911, and did not return to India thereafter. It is alleged that taking advantage of his absence, other members of the family, who were in India, created charges on properties and protracted litigation ensued. Henry Celestine John decided to sell his undivided shares and interests in the properties. As the properties got involved in litigation he experienced difficulty in finding a purchaser who was willing to pay him a decent price.

(3.) THE Income-tax Officer held that the entire transaction was carried on benami by Sri Kali Nath alone. In the result he held that the entire receipt of Rs, 1,75,000 was income of Sri Kali Nath. From this he deducted a sum of Rs. 35,000, the estimated cost of litigation as expenditure and taxed Rs. 2,50,000, (sic) as his income. In appeal, the Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. THE assessee then filed a second appeal before the Income-tax Appellate Tribunal. THE Tribunal relied upon certain observations made by the High Court in the first appeal in which the decree for partition had been passed and held that the motive behind the entire transaction was to earn profit and that there was also a risk involved in the transaction inasmuch as there was every likelihood that the suit might not succeed. THE Tribunal also observed that ever since 1942-43 the assessee had been carrying on money-lending business. Amongst the money-lenders such transactions of purchasing properties which was involved in litigation is quite common. It, therefore, came to the conclusion that the entire transaction was in the nature of an adventure with a motive to earn profits. It was neither capital transaction, nor could it be described as a casual transaction. THE profit earned by the assessee was, therefore, liable to be taxed under Section 10 of the Act. THE Tribunal also pointed out that, under the agreement, the assessee was liable to pay 50% of the proceeds to the estate of Henry Celestine John. It held that this liability was a permissible deduction. Even though the amount had not been paid back to the successors of Henry Celestine John, still the assessee was entitled to claim this deduction. In the result the Tribunal calculated the share of Kali Nath which could be included in his total income as Rs. 33,654. THE manner in which this amount of Rs. 33,654 was worked out was as follows : <FRM>JUDGEMENT_347_ITR88_1973Html1.htm</FRM>