NIAMATULLAH, J. - This is a reference by the Commissioner of Income Tax under Section 66 (2). The assessee is a Hindu undivided family, which owns a certain house property which is its principal source of income. In previous years income tax used to be assessed on the income of that property. In the year ending 31st March, 1932 the family was assessed on an income which included a sum of Rs. 15,000 received in a transaction to be presently referred to. The question is arose before the assessing authorities was whether this sum of Rs. 15,000 can be considered to be income, profit, or gain or business within the meaning of the Income Tax Act. The Income Tax Commissioner held that it was income accruing from business and, therefore, taxable. He, however, made a reference under Section 66 (2) on the application of the assessee, and the questions which we are called upon to answer are as follows :-
(1) Did the sum of Rs. 14,560 assessed by the Income Tax Officer represent income, profits or gains ?
(2) If so, did that sum represent a receipt arising from business within the meaning of Clause (vii) of sub-Section (3) of Section 4 of the Indian Income Tax Act, 1922, and consequently excluded from the exemption conferred by that clause ?
It appears that one Kanhaiyalal Jaju was a party to an appeal pending in the High Court. The assessee entered into a agreement with Kanhaiyalal, under which the assessee undertook to supply funds needed for the prosecution of the appeal by the Kanhaiyalal who agreed to repay the sums to advanced to him by the assessee together with an additional sum of Rs. 21,000 in case the appeal was decided in favour of Kanhaiyalal. It seems to be implied that if Kanhaiyalal was unsuccessful, he was not liable to repay any part of the advances made by the assessee, nor would he be liable to pay anything by way of compensation. The agreement was reduced to writing. The assessee, represented by one Chhotelal, executed an instrument stipulating to supply all funds needed by Kanhaiyalal for the prosecution of his appeal and to take formal receipts from the letter. The agreement proceeded to lay down that, in case the appeal was successful, Kanhaiyalal would pay back all the sums advanced by the assessee together with the sum of Rs. 21,000 and that in the case Kanhaiyalal failed to fulfill his undertaking, it would be open to the assessee to institute a suit for recovery of the sums due under the agreement with the interest at the rate of 9 per cent. per annum. The agreement further provided that in case any compromise was arrived at between Kanhaiyalal and his adversary, the assessee would be entitled to repayment of the sums advanced by him and also to the sum of Rs. 21,000 referred to above.
The assessee financed the litigation, and Kanhaiyalal won his appeal. Apparently Kanhaiyalal was not willing to pay the sum of Rs. 21,000 in addition to the sums actually advanced. Eventually a compromise was arrived at between the assessee and Kanhaiyalal, under which the latter paid Rs. 15,000 in full satisfaction of the assessees claim under the agreement referred to above. The Income Tax Department deducted a sum of Rs. 440 on account of interest paid by the assessee, and assessed Rs. 14,560 to income tax. This is the sum which is referred to in question No. 1.
The learned advocate for the assessee has argued that the receipt of Rs. 15,000 by Kanhaiyalal in the circumstances already stated cannot be considered to be income, profit or gain from business within the meaning of Section 4 (3) (vii), Income Tax Act. He also contended that it is income of a casual nature and should be deemed to have been exempted by the aforesaid section. Reliance is placed on Commissioner of Income Tax v. Shaw Wallace & Company, in which their Lordships of the Privy Council made certain observations to the effect that the word 'business' connotes continuity and regularity of transactions. In that case Messrs. Shaw Wallace and Co., agents of a certain petroleum company, were paid a large sum of money as compensation for the termination of their agency. The income tax authority treated it as income, profit or gain, and assessed it to tax. The Calcutta High Court held that it could not be considered to be income, gain or profit so as to attract the application of the Income Tax Act. Their Lordships of the Privy Council took the same view, and observed :
'The object of the Indian Act is to tax 'income' a term which it does not defined. It is expanded, no doubt, into income, profits or gains; but the expansion is more a matter of words than of substance. Income their Lordships think, in this Act, connotes a periodical monetary return coming in with some sort of regularity or expected regularity, from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of definite return excluding anything in the nature of a mere windfall. Thus income has been linked pictorially to the fruit of a tree, or the crop of a field. It is essentially the produce of somethings, which is often loosely spoken of as capital. But capital, though possibly the source in the case of income from securities, is in most cases hardly more than a element to the process of production.
Their Lordships also referred to the phrase 'business carried on by him' in Section 10. In the end they held the payment to Messrs. Shaw Wallace and Company as no more than a solatium. We are clearly of opinion that the observations of their Lordships of the Privy Council quoted above which are strongly relied on by the assessee, should be taken in conjunction with the facts of that cases and we are unable to hold that their Lordships intended to lay down that, unless the source of income is one which yields income periodically and not only once, the income derived from it cannot be assessed to tax. Circumstances are easily conceivable in which there can be no doubt that the receipt of a sum of money is the income, profit or gain from business, and yet it accrued only once. In the case before us there can be little doubt that the assessee embarked upon a transaction of loan in which unusual conditions were stipulated. He agreed to advance such sums as were needed by Kanhaiyalal for the prosecution of his appeal and stipulated for its return together with profits on the sums advanced. The profits were not calculated at a given rate of interest, but in a lump sum. It may be, as the learned advocate for the assessee argues, that there was an element of speculation in the transaction. At the same time, it cannot be gainsaid that the transaction was one of loan from which the lender expected to derive considerable pecuniary profit. The business which yielded profit to the lender commenced from the date of the agreement and continued till the assessee realised the sum of Rs. 15,000 from Kanhaiyalal. There was continuity and regularity in the sense that the advanced sums from time to time, as occasions arose from Kanhaiyalal to borrow, took steps to enforce the agreement against Kanhaiyalal and succeeded so far as to recover Rs. 15,000 out of the Rs. 21,000 agreed to be paid, over and above the sums actually advanced. We are clearly of opinion that the transaction amounted to business within the meaning of the Income Tax Act. We are unable to hold that this income was a purely casual nature. On the contrary, we think that it represents a return on the money invested by the assessee. To hold otherwise would imply that the income, profit or gain, accruing from a single transaction or investment which is not akin to the assessees trade or avocation is not income, gain or profit from business which in our opinion, is contrary to the plain meaning of the words employed in the Act. That a single transaction or investment may be business cannot admit of doubt. Any receipts exceeding the capital must be treated as profit. It is true that, if Kanhaiyalal had lost the case, the assessee would probably have lost all that he had advanced to him. That, however, is besides the point. The fact remains that he received Rs. 15,000 as a return on the sums which Kanhaiyalal had borrowed.
For the reasons given above we answer both the questions in the affirmative. The assessee shall pay the costs of this reference. We assessee the fee of the advocate for the Department at the Rs. 150, for which a certificate shall be filled within the time allowed by the rules.