BOARD OF REVENUE Vs. RMARRMARUNACHALAM CHETTIAR

JUDGEMENT

(1.) The assessee is a Nattukkottai Chetti carrying on business in Madras and elsewhere as banker and money-lender. In the year of assessment, he remitted from Madras sums aggregating over 4 lakhs of rupees to Penang, such sums being invested there in Straits Settlements dollars, and ultimately reconverted into rupees and remitted back to Madras. The remittances were made on eight occasions within a period of four months in 1919 and the retransfer to Madras was on thirteen occasions covering a period of four months from the end of 1920 to the beginning of 1921. Owing to the fluctuations in exchange, which varied between 83 and 175 rupees per 100 dollars, the assessee made a profit of a considerable amount on the transactions. He has been assessed to income-tax on that profit, and the question referred to this Court is whether he has been correctly assessed. Under Section 51(1) of the Income-tax Act which was then in force, any question which has arisen with reference to the interpretation of any of the provisions of this Act may be referred to the High Court. This section probably gives wider powers than Section 66 of the Indian Income-tax Act of 1922, the consolidating Act now in force, which limits the reference to the High Court to questions of law. It is not, however, necessary to consider the exact meaning of the words of these sections because, the facts having been found, the question whether or not they bring the income within the reach of any particular section of the Act is a question of law.

(2.) Section 3 of the Act applies to all income from whatever source it is derived, if it accrues, or arises, or is received in British India. Certain exceptions are set forth in Section 3(2) and among those exceptions is to be found: viii. Any receipts not being receipts arising from business or the exercise of a profession, vocation, or occupation which are of a casual and non-recurring nature.

(3.) By the combined effect of Secs.5 and 9 income derived from business is chargeable to income-tax in respect of the profits of any business carried on by the assessee. In the United Kingdom, income-tax is payable on the balance of profits or gains derived from carrying on a trade or business. I can find no distinction in this matter between the laws of the two countries. The English Acts have not got the exception in so many terms of receipts of a casual and non-recurring nature; but, as, by the words of Section 3(2)(viii) of the Indian Act, receipts of a casual and non-recurring nature are only exempted when they are not receipts arising from business, the question to be considered both in India and England is whether a particular receipt is properly brought into account or omitted in arriving at the profits of a business. If the transactions are business transactions and result in a profit or loss made in the carrying on of the business, they must be brought into account; otherwise not. The questions which have arisen for decision have been whether particular transactions form part of a business carried on by the assessee. They need not be part of some already established business, but they must together form a business. If the transactions form part of the ordinary business of the assessee, the profits or losses on them must, of course, be brought into account. But where they are outside the scope of the ordinary business of the assessee, it is often a difficult question to decide whether or not they are to be treated subject to income-tax. Profits may be made by the realization of security or by the sale of land or moveable property and in the case of one man they may be merely successful realizations of assets or alterations of investment while in the case of another man they may form part of the income of a business. To give a simple illustration a Barrister might buy a picture and at a later date when the works of the particular artist were in demand, sell that picture and realize a profit. No income-tax would be payable on this profit. If a picture dealer bought a picture and on the same events happening sold it at a profit, that profit would be a profit earned in his business and would be liable to income-tax. So, too, profits made on isolated speculations are not liable to income-tax, but those made in speculation of a similar kind as part of a business would be liable. A difficult question may, however, arise as to whether the transactions are of such frequency as to amount to carrying on a business. The distinction is well illustrated by the cases of California Copper Syndicate Coy., Ltd. V/s. Harris (1904) 5 Tax Cases 159 and Hudson Bay Coy. v. Stevens (1909) 5 Tax Cases 424. In the former a company was formed for the purpose of acquiring and reselling mining property and also for working such property. It acquired and worked various properties and then resold the whole at a profit and it was held that such profit was liable to income-tax and Lord Justice Clark Macdonald in the course of his judgment subsequently approved by the Privy Council in. Commissioner of Taxes V/s. Melbourne Trust, Limited [1914] A.C. 1001 said; The question to be determined being, is the sum of gain that has been made a mere enhancement of value by realizing a security or is it a gain made in an operation of business in carrying out a scheme for profit-making.