DEKA, C.J. - This is a reference under section 66(1) of the Income-tax Act at the instance of the assessee. The facts stated are that the assessee a joint family concern carried on business in potato, oil cakes etc. and commission agency business. It had borrowed large amounts from the Shillong Banking corporation Ltd., (hereinafter referred to as the bank for the purpose of shortness) on an overdraft account. The amount outstanding and payable on this account in the books maintained by the assessee for the aforesaid activities was Rs. 35,912-11-6 in the Sambat year 2005 Ram Navami when the bank suspended operation in May, 1948, and applied for the scheme.
When the assessee was pressed by the bank for payment of the amount due on the overdraft, in 1950 the assessee approached the board of directors of the aforesaid bank and obtained a concession to adjust such fixed and other deposits of the bank as the assessee could tender in settlement of the aforesaid outstanding at their face value, provided of that arrangement the assessed paid Rs. 5,000 to the bank in three instalments by February 19, 1952. The balance left thereafter in the overdraft account was thus reduced to Rs. 30,912-11-6. Due to some adjustment the debt due from the assessee was shown in the pass book of the bank as Rs. 29,94-8-6. With a view to wipe out the above indebtedness to the bank, the assessee purchased from several persons their fixed and other deposits in the aforesaid bank as also the interest accrued thereon on different dates ranging from January 23, 1952, to March 11, 1952, and tendered the full payment receipts to the bank on two different dates and got an adjustment of payment for a sum of Rs. 23,866-15-6. It is found that the assessee had bought the full payment receipts in regard to the accounts of fixed and other deposits as mentioned above for a sum of Rs. 5,677 and had made in all a clear profit of Rs. 16,995 in the matter of these transactions.
The Income-tax Officer assessed the above profit of Rs. 16,995 as profit from other sources in the aforesaid assessment year of 1952-53. The assessee went up in appeal and the Appellate Assistant Commissioner affirmed the order of the Income-tax Officer, and held that the assessee was liable for tax on the above amount which could be considered as profit in the course of business. The income-tax Tribunal on appeal held that the above mentioned sum of Rs. 16,995 could be considered as income or profit chargeable under section 10 of the Income-tax Act. The contention of the assessee has been that this amount signifying the difference kin the price paid and the consideration received did not amount to profit; nor was it earned in the course of business as is defined by the Income-tax Act itself. The point that was referred to this court by the Income-tax Tribunal runs as follows :
"Whether the transactions entered into the assessee family in discharging its overdraft account could amount to a business so as to make the surplus of Rs. 16,995 arising therefrom income profit and gains assessable under section 10 of the Income-tax Act."
Mr. Sharma, appearing for the assessee, has contended before us that these transactions, by virtue of which the assessee purchased the full payment receipts from, the depositors of the bank, did not amount to business, and, in this connection our attention was drawn to the definition of the word "business" in section 2(4) of the Income-tax Act. The definition, as is clear, is not by itself exhaustive and it runs in the form - "business includes any trade, commerce, or manufacture." Mr. Sharmas contention is that this operation of the transaction, which the assessee carried, did not come within any of the words by which the word "business" is sought to be defined. In our opinion, it is difficult to accept this contention, because there was apparently a purchase of valuable rights and encashment thereof which, in our opinion, could be included in trade. Mere act of purchase itself can be considered to be trade when the intention is that the articles purchased were to be sold at a later time.
In this case, it is clear from the facts as stated that the assessee purchased these full payment receipts from the depositors with a view to derive the full benefits for the sums which the depositors held in the bank and they were actually so derived at a later stage. In our opinion, therefore, the income could be considered to be income from business within the word "profit or gains of business" as contained in section 10 of the Income-tax Act. Mr. Sharmas argument as to exemption of assessment on this amount is based on two grounds : firstly, that it is not an income from business, and secondly, that this income was of a casual and non-recurring nature as described in section 4(3)(vii) of the Act. Clause (vii) itself makes it clear than once it is considered to be a receipt from business, whether it is of a casual nature or not is of no importance. This point also had been dealt with in the judgment of the Income-tax Tribunal.
Mr. Sharma has drawn our attention to some authorities on the point, the first amongst them being the case of Mohsin Rehman Penkar v. Commissioner of Income-tax . In our opinion, the facts there are entirely different from the facts in the present case. What was held in that case and in other two cases of similar nature was that if a debtor is discharged from certain liability by the creditor that by itself does not amount to a profit for the purpose of assessment under the Income-tax Department accepts the mercantile system of accounting and allows an assessee to deduct interest on a mortgage on the basis of what he is liable to pay and not on the basis of what he has actually paid, the Department is not concerned as to how the liability incurred by the assessee is in fact discharged. If the assessee discharges his liability by getting a remission from his creditor that remission cannot be the assessees income for purposes of taxation.
In this case there has been no remission by the bank and the advantage that the assessee derived was in the matter of transaction through these deposits. This case could not be applied even in the case of transaction with the depositors since the assessee owed them nothing; nor was any remission granted by them in the matter of liability. What took place was clear transactions of purchase of the full payment certificates from the depositors with a view to cash them for higher values for satisfying the assessees liability to the bank. These cases, therefore, have no bearing on the point at issue. We accordingly decide the point under reference in favour of the Department and hold that the surplus of Rs. 16,995 received from the transactions amounted to profit under section 10 of the Income-tax Act. The point under reference is answered in the affirmative and the assessee is liable to pay Rs. 200 as costs.
MEHROTRA, J. - I agree.
Questions answered in the affirmative.