1969 PLP 704 (PTD)

TAMBE, J.‑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 separa tely‑one for his 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 agri cultural 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 the 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 had not acquired these lands with the intention to sell them, but be 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 profits 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 ?" 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 ((1959) 35 I T R 73) 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 hive 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 received by him in lieu of his debts due from Lala Lachhman Das." Now, it is indeed true that the mere fact that landed property was acquired in the course of money‑lending business is not sufficient to hold that it is the stock‑in‑trade of the money lender. But it is equally true that whether a particular landed property acquired by a money‑lender is his capital asset or a trading asset is always a question of fact to be determined on the facts of each case, depending on the manner in which the money lender deals with the property after acquiring it in course of money‑lending. The passage on which reliance is placed by Mr: Terdalkar is not the conclusion reached by the learned judges deciding the case, but is only the passage from a judgment of Bhargava. J. in Gurucharan Prasad v. Commissioner of Income‑tax ((1951) 19 I T R 42) to which reference has been made. The conclusion to which the learned Judges reached is summed up at page 82 of the report in the following words; "To sum up the general principle is that it is a question of fact: in each case whether a property purchased by 'a money‑lender in discharge of a loan advanced by him hags been made part of the stock‑in‑trade of his business. The burden is upon the department to prove that fact though the onus may shift to the assessee having regard to other circumstances or presumptions. If it is a part of the stock‑in‑trade, the profit made in the purchase and sale of that property becomes taxable income. The incorporation of the pro perty purchased with stock‑in‑trade may be effected by diverse ways. The value of the property may be added in the accounts to that of the assets of the business. The income from it and the expenditure incurred in respect thereof may be brought into the business accounts as cross‑items. It may be mortgaged or otherwise charged to swell the capital of the business. It may be part of an integrated scheme of buying and selling systematically followed depending upon the ebb and flow of the tide of the market not only as a means of realisation of the debts but as a device to earn profits. The said dealings do not exhaust the modes of acquisition of properties by a moneylender. There may be honest cases of purchase of land in discharge of loan for the purpose of investment in immovable property without any intention of making it a part of the assets of the business. 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 v. Commissioner of Income‑tax ((1949) 7I T R 63) 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." Keeping these principles in view and turning to the facts of the case, it has been found that the assessee maintains two accounts‑one of his money‑lending business, and the other of his general business. In the books of account of his general business, there is an account of agricultural property. These two sets of accounts are inter‑connected by a current account. The income‑tax authorities have found that the books, though maintained in two sets, essentially form only one set by reason of the existence of the inter‑branch current account, and the absence of separate capital account for each section. Now, in these books of account, the expenditure incurred for the agricultural property is debited; similarly, the income received from the agricultural property is credited. The balance ascertained at the end of the year then is taken to the capital account of the assessee. But, on the facts found, the capital account of the assessee is not any separate capital account of the assessee as such, but it is capital account of all the business. On these facts, in our opinion, the Income‑tax, authorities and the Tribunal had evidence before them on which they could reasonably reach a conclusion that these properties were the stock‑in‑trade of the assessee. This finding of fact, therefore, is not, in our opinion, open to challenge. The circumstance on which reliance has been placed by Mr. Terdalkar, viz., that the properties were held by the assessee for a number of year, and they were sold on account of tenancy legislation, have not been left out of consideration by the Tribunal, but have been taken into account by it, and after considering these circumstances along with other evidence on record, the Tribunal has reached its conclusion. It, therefore, also cannot be said that the finding of the Tribunal that the lands were the stock‑in‑trade of the assessee is in any manner vitiated. In the result, our answer to the question is in the affirmative. The assessee shall pay the costs of the department. Question answered in the affirmative.