1. This consolidated reference relating to the assessment years 1951-52 and 1952-53 raises the following question :
' Whether, on the facts and in the circumstances of the case, the sums of $1,00,455 and $71,460 were income liable to assessment under the Indian Income-tax Act for the assessment years 1951-52 and 1952-53 ?'
2. A Hindu undivided family comprised of the karta, who was the father, and his sons had acquired certain sites in 1919 and constructed houses thereon in 1928. The purchase of the sites was by payment of cash. The Hindu undivided family was also carrying on a money-lending business. The family owned an estate too. The cost of the house properties and the estate was $1,38,000. On April 13, 1951, the house properties and the estate were sold for $2,38,455.50, thus making a profit of $1,00,455.50. On April 12, 1952, there were sales of other properties, by which a profit of $71,460 was made. The Hindu undivided family remained so until '1940, when it got divided; but the divided members with the shares allotted to them constituted a firm of partnership. It commenced business from that year and did extensive money-lending, making a large income. The profits thus made by the firm out of the sale of the immovable properties were included by the revenue in its total income charged to tax, on the view that the properties constituted the stock-in-trade of the firm. All the authorities below have concurred in that view.
3. The primary facts from which that inference was drawn as to the character of the properties, as emerge from the statement of the case as well as the Tribunal's order, are : (1) the properties in question had been dealt with in the books of the money-lending business of the firm; (2) the income from the properties was also dealt with in the same account and in fact utilised in money-lending business; and (3) no separate books of account had been maintained for each or any of the properties in question, independently of the money-lending business or the books pertaining to it. The Tribunal concluded that the assessee, who was a money-lender, did carry on a business in properties also as an adjunct thereto and the properties in question formed part of the stock-in-trade of such business. Reference was made to the fact that, during the assessment year 1955-56, another property had been treated as stock-in-trade of the money-lending business. We are of the view that this conclusion cannot be supported in law.
4. The question whether a given asset is capital or stock-in-trade is a mixed question of fact and law. This court, in dealing with a reference, would be slow to interfere with the Tribunal's conclusion on such a question,if it reasonably followed the cumulative effect of the facts found. But we think that in the instant case this test is not satisfied.
5. It is well settled, as we have pointed out in prior cases, that what a member of a Hindu undivided family gets as for his share of the joint properties is capital in his hands, notwithstanding its erstwhile character in the hands of the Hindu undivided family. To start with, therefore, the immovable properties that came into the hands of the divided members in 1940 were capital in character. But, all those members joined together in forming a firm of partnership. It does not appear that each of them had a separate business. In such circumstances, the Tribunal should have looked for facts which would show conversion of capital into stock-in-trade. The facts should be such as will impress the capital with the character of stock-in-trade. Such facts may be reflected from the very nature of the properties, as for instance, goods which are usually stock-in-trade. Immovable property is not normally stock-in-trade of a money-lending business, unless the assessee also carried on the business of buying and selling of such property. There is no evidence of such business in this case. The course of dealing with the property, as for instance, using the property for raising money to be utilised in the money-lending business, or the conduct of the party in utilising the sale proceeds of the immovable property in money-lending business, may indicate that the asset is part of the stock-in-trade. That again is not proved. We are of the view that merely because there are no separate accounts for the properties but they have been shown in the accounts of the business, it cannot be concluded that by itself or in combination with the other fact that the income from the immovable properties had been utilised in the money-lending business, it impressed on what is clearly capital to start with, the character of stock-in-trade of the money-lending business. It seems to us that the facts in this case are more or less similar to those in S. T. S. Swaminathan Chettiar v. Commissioner of Income-tax, : 62ITR125(Mad) .
6. Mr, Balasubrahmanyan, for the revenue, invited our attention to M.R.R.M. SP.L. Subramanian Chettiar v. Commissioner of Income-tax, : 70ITR262(Mad) . But, we think, that it has no application to the facts of this case. In that case, there was conduct on the part of the assessee concerned, which clearly showed that the property was treated as part of the stock-in-trade. The conduct consisted in this : the sale proceeds were actually utilised in the money-lending business like the income from the properties before then sale. There was also the further fact that loss resulting from the sale of properties was treated as business loss. That is not the case here. It is also urged for the revenue that on a mixed question of fact and law, this court should not upset the Tribunal's conclusion, unless we consider thatit is unreasonable. But keeping it in full view, we am not satisfied that, on the facts in this case, the Tribunal drew the reasonable inference from the facts all taken together. We think that the evidence on record and the facts emerging therefrom fall short of impressing the immovable properties or their sale proceeds with the character of stock-in-trade of the money-lending business of the assessee.
7. On that view, we answer the reference in favour of the assessee with costs. Counsel's fee Rs. 250.