BANSILAL GANGARAM Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS is a reference under section 66(1) of the Indian Income -tax Act. The assessee, inter alia, does the business of money -lending, general merchant, and is also an agriculturist. The property with which we are concerned is the property which has come to the assessee in the course of his money -lending business. The assessee maintains two sets of accounts separately -one for this general business and the other for money -lending. But inter -connecting the two sets of accounts, there is a current account. As already stated, during the course of money lending - business, the assessee acquired certain agricultural properties. After the acquisition of those properties in lieu of debt, the account of the debtor in money lending -business was closed, and the agricultural property account in the other set of books was debited in the amount of debt due from the debtor. In the account pertaining to the agricultural properties, the day to day expenses for agricultural operations were entered. Similarly, the income derived by the sale of agricultural produce was credited to that account. At the close of the year, the balance in this account was taken to the capital account of the assessee. The agricultural properties which the assessee had acquired during the course of his money -lending business were sold from time to time between the assessment year 1947 -48 to the assessment year 1958 -59. Sales to the extent of Rs. 8,000 were effected in assessment year 1947 -48, Rs. 1,500 in the assessment year 1951 -52, Rs. 9,000 in the assessment year 1952 -53 and Rs. 47,100 in the assessment year 1956 -57. The sales of these agricultural properties in those years were treated as stock -in -trade and the profits derived by the assessee thereon were brought to tax. The assessee during any of these years had raised no objection thereto. During the assessment year 1957 -58, the assessee sold agricultural property acquired by him during the course of money -lending for a consideration of Rs. 68,702. On these sales the Income -tax Officer estimated the profits at Rs. 10,305 and has brought them to tax. The assessee feeling aggrieved preferred an appeal before the Appellate Assistant Commissioner. The contention raised by the assessee before the Appellate Assistant Commissioner was that these lands were held by him as his capital assets. He has not acquired these lands with the intention to sell them, but he was only forced to sell them on account of tenancy legislation; the profit derived by the assessee thereon, therefore, could not be brought to tax as income. The Appellate Assistant Commissioner rejected the contention of the assessee and held that the lands were his stock -in -trade and, therefore, the profit derived by the assessee on the sale of these lands were taxable. Further appeal taken by the assessee to the Tribunal failed. On an application made by the assessee, the Tribunal has drawn up the statement of the case and referred to us the following question of law : 'Whether, on the facts and circumstances of the case, the sum of Rs. 10,305 can be considered to be income liable to be assessed ?'

(2.) MR . Terdalkar, who appears for the assessee, contends that the revenue authorities as well as the Tribunal were in error in holding that these lands were stock -in -trade of the assessee. On the other hand, according to Mr. Terdalkar, the circumstance that these lands were held for a number of years after they were acquired by the assessee coupled with the fact that the accounts of the debtors were not kept open but were closed at the time of the acquisition of the lands, and the fact that the sales were not voluntary sales but forced sales, clearly establish that the lands were held by the assessee as his capital asset and not as trading asset. In support of his contention, Mr. Terdalkar has placed reliance on a decision in Alapati Ramaswami v. Commissioner of Income -tax, at page 79 of the report. That passage runs as follows : 'The assessee kept those properties with him for a period of 18 years. During this period, obviously, these properties or their value were not available to the assessee for carrying on his money -lending business. His retention of these properties for such a long period clearly indicates that he treated these properties as his own property which had been received by him in satisfaction of his debts due from Lala Lachhman Das. He did not convert the properties almost immediately into cash for the purpose of carrying on his money -lending business.... There is a further circumstance that, during all this period, the assessee received income from these properties but he never credited it in the loan account of Lala Lachhman Das which he should have done in case he was acting on the assumption that those properties were the stock -in -trade of his money -lending business and were not properties by him in lieu of his debts due from Lala Lachhman Das.'

(3.) FROM the said observations, it is clear that if the income of the property acquired during the course of the business is used for the purposes of the business, then it is stock -in -trade of the business and not a capital asset of the assessee. The principle has been very emphatically stated in a Federal Court decision in A. H. Wadia, as Agent of the Gwalior Durbar v. Commissioner of Income -tax by Mahajan J., as he then was, in the following terms : 'It was a question of fact that had to be determined in this case whether the properties after they were purchased, or their income were still a part of the assets used by the Durbar in the money -lending business. If it was found that the income of these properties was still being used in money -lending operations or any operations connected with the money -lending business, the answer to the question would obviously be against the Durbar.'