VARADA REDDY M Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE questions referred to this Court by the Tribunal under S. 66(1) of the Indian IT Act are :

(2.) THE material facts necessary to appreciate the controversy that has arisen in this case may be narrated. The reference relates to the asst. year 1950 51. The assessee, who is an agriculturist, has also been carrying on money lending business, for a few decades. In the course of the business, he lent some money to one Seshureddi, prior to 1923 and, in that year, it was found that a sum of Rs. 1,400 was found due by him. That swelled up to Rs. 4,534 by 1933. As the debtor could not repay the debt, a suit was filed and the assessee obtained a decree for a sum of Rs. 4,690 against the debtor and, in satisfaction of the decree, he took in 1934 a piece of land belonging to the judgment debtor. The judgment debtor's account was thus squared off and the assessee's personal account was debited with a sum of Rs. 4,690 being the purchase price of the land. When the circumstances were propitious, he sold the same parcel of land for Rs. 20,000 in the year 1949 and thus made a profit of nearly Rs. 15,000. As the concerned ITO had no knowledge of this transaction at the time he made the assessment, he re opened the assessment under S. 34 of the IT Act when he came to know of the profit made by the assessee. It was contended on behalf of the assessee that the gain which he made out of the purchase of the land could not be regarded as a gain accruing from the money lending business in which case alone the income could be made subject to tax. The pleas of the assessee did not find acceptance with the ITO with the result that he treated this amount also as taxable income. On appeal, the AAC confirmed the order of the ITO in the view that S. 34 could be properly invoked and that the assessee was rightly assessed to tax.

(3.) WE are inclined to give effect to this argument. On the facts found it is clear that it was never treated as an asset of the money lending business of the assessee. It is plain from the statement of the case that as soon as the property was purchased in satisfaction of the decree, the account of the judgment debtor was closed and a sum of Rs. 4,690 representing the purchase price was debited in the assessee's personal account. The income from the land was blended with income from his other agricultural income, though it was entered in the same set of books wherein money lending transactions also were entered, since the assessee got only one set of books for all his activities. The expenditure incurred for the improvement of this land was never brought into the business account and no part of the income from this property was utilised for the business. It is thus abundantly clear that throughout the period of fifteen years, the assessee treated this land as the property of his family and not as part of the stock in trade of the money lending business. That being the situation the mere fact that the sale price was utilised for the purpose of increasing the capital of the business would not impress the property with the character of the stock in trade of the money lending business.