1. In this case the facts are shortly these: The petitioner carried on business in money-lending in Madras In the course of such business, one P. L. N. K. Subramaniam Chetti owed him about Rs. 50,000. Subramaniam Chetti failed and to discharge his debt he transferred certain properties to the petitioner for 26,000 dollars. The items transferred consisted of monies due on simple money debts, monies due on mortgage, items and also rubber plantations. As regards monies due on simple money debts the petitioner recovered a smaller stum than the amount for which they were transferred and he wrote off, Rs. 5,733 in the accounts and claimed that this was a business loss and got a reduction of income-tax. As regards the mortgage items, while a certain portion of the mortgaged property was recovered, he was not able to recover the amount for which they were assigned and he also claimed it as a business loss and got a deduction. As regards the rubber estate it was sold at a profit and the question is whether that profit is taxable as part: of the profits made by him in the business.
2. The contention of the petitioner is that this was an isolated transaction, that it cannot be said to form part of his business, that any profit on re-sale was not profit made in the course of business and that therefore it is not taxable. The Income-tax Commissioner's view was that, having regard to all the facts of the case, it should be treated as a profit made in the course of business. The questions referred to us are: '(a) Whether the Assistant Commissioner is right in holding that the present case is outside the principle of the decision in Board of Revenue Madras v. Arunachalam Chettiar : (1923)45MLJ707 and (b) whether on the facts of this case the assessment of the sum of Rs. 48,739 is legal.' The decision in Board of Revenue, Madras v. Arunachalam Chettair : (1923)45MLJ707 was that it is a question of fact in each case whether certain stray transactions of a merchant are really part of his business so that the profits arising therefrom can be taxed as profits arising from his business. It was held there on the facts that profits that accrued to a banker and money-lender from certain stray speculative purchases and sales of dollars in the Strait Settlements were taxable as profits arising from his business and were not exempt from taxation as arising from occupation of a casual nature within the meaning of Section 3(2) (viii) of the Income-tax Act of 1918. The facts which we have set out show that these rubber plantations were got by the petitioner in order to liquidate a loan made by him in the course of his money-lending business. So far as the items which went to liquidate this debt are concerned, they consisted, as already stated, of some simple money debts, mortgage items and this item of property and they were all clubbed together in an account called 'Thundu kanakku.' This account was part of the business account and only formed a separate ledger heading there. In dealing with this transaction of the re-sale of the rubber plantations we must take into consideration what he did in respect of all the three items which were taken together to discharge the debt. It does not appear that there was any separate treatment as regards this item. They were all brought into Thundu kanakku; as monies were realised they were credited to the general account as monies realised in the course of the liquidation of the debt; and they were brought in the business account. When there was a loss in two of the transactions the loss was claimed to be a deduction out of the business accounts, so that, as regards the other two items, it is clear that they were treated as loss arising from the business and as a business transaction. There was nothing, so far as we can see, in the accounts which distinguished this item from the other two items which were got by the petitioner. On the contrary we find that the expenses of the rubber estate were debited in the business accounts, the income therefrom was also credited in the business accounts and the profits, the excess of income over the expense was shown as business profit made outside British India in the return. So far as the contention that this was an isolated transaction is concerned, there is nothing in the authorities to show that the profits of such a single transaction cannot be treated as part of the business profits. On the contrary, there are cases where profits of a single transaction have been treated as part of the business profits. We may refer to the case in T. Beynon Co., Ltd. v. Ogg (1918) 7 Tax Cases 125 where the principles governing such cases have been enunciated. In that case, a company which was doing business as selling agents for Colliery Companies and also as commission agents for purchase of trucks, purchased certain trucks for themselves and made a profit out of it. The question arose whether this was a profit made in the course of the business. Sankey, J., deals with the question raised and he puts the matter clearly as follows:
In my view there is no question of law really in issue here. The law seems to me to be perfectly well settled, and the only question one has to determine is which side of the line this transaction falls on. Is it, as Mr. Latter contends, in the nature of capital profit on the sale of an investment? Or is it, as the Attorney-General contends, a profit made in the operation of the appellant company's business? Now, that is very largely, as 1 think, a question of fact again.
3. Then, the learned Judge refers to certain circumstances and gives reasons for holding that it is part of the business. The learned Judge observes:
I do not think it is possible to say that the mere fact that it was an isolated transaction at once takes it out of the category of chargeable property. I think in most cases an isolated transaction does not fall to be chargeable, but I think you have to consider the transaction and you cannot lay it down as a matter of law without regard to the circumstances that in this case the 2,500 is not chargeable.
4. This is also the effect of the decision in Martin v. Lowry (1926) 11 Tax Cases 297 where also it was an isolated transaction, and this is also the principle laid down in Sir Purshothamdass Thakurdass v. Commissioner of Income-tax, Bombay (1927) 2 I.T.C. 8 where a cotton merchant happened to liquidate the affairs of another cotton merchant who failed and made a large profit as commission and it was held that it was profit made in the course of business. The question is not in this case whether the petitioner intended to sell it at a profit but, whether, having regard to all the facts and the way in which he treated this property and the other two items which were got by him in discharge of the debt and having regard to all the attendant facts, it can be said that this was part of the business.
5. We cannot say in this case there was no evidence before the Commissioner of Income-tax, having regard to all the facts set out, for coming to the conclusion that this must be treated as part of the business profits and, as there was evidence to justify his conclusion, it is difficult for us to hold that he was wrong in making the assessment. We therefore answer the reference by stating that the Commissioner was right in assessing the petitioner in the manner he had done. The petitioner will pay Rs. 250 the costs of the Commissioner.