(Order of the Court was delivered by the Honourable the Chief Justice).
For the purpose of deciding the question referred in this case we think it necessary to know whether the expenses of the rubber plantations were debited to the assessees money-lending business and whether the income from the plantations was brought in as part of the profits of that business. In these circumstances we refer the case back to the Income-tax Appellate Tribunal under the provisions of Section 66(4) for a statements of the facts.
The reference will stand adjourned until this further statement has been received.
In compliance with the above order the Income-tax Appellate Tribunal submitted the following further statement of facts :-
FURTHER STATEMENT OF CASE.
'This reference went up for hearing before the Honourable Judges of the High Court of Judicature at Madras on 2nd March 1945, but the Honourable the High Court has referred this case back to the Tribunal, under the provisions of Section 66(4), for a statement of further facts. The points on which the Honourable High Court requires information are whether the expenses of the rubber plantations were debited to the assessees money-lending business and whether the income from the plantations was brought in as part of the profits of that business.
2. The parties to this application were given a further opportunity of being heard, and in response to the notice served upon them, they were present for hearing before us today.
3. The books of account of the applicant were produced and from this it was found that the income from the rubber gardens (after deducting the expenses thereout) was taken over to the general profit and loss account. The advocate for the applicant contended that the books of account did not relate his money-lending business and that he had no money-lending business until the gardens were sold and the proceeds of the same were made available for the purpose of starting such money-lending business. He further stated that the income arising from interest, etc., which was credited in the profit and loss account appearing in the books produced before us and interest or income arising from the outstandings were gifted to the applicant by his father. The applicant did not consider these to be his money-lending assets. The special counsel for the department has taken objection to the applicants contention and states that the applicant is attempting to raise a new issue by questioning the existence of a money-lending business. According to him, that was never a question raised by the applicant at any earlier stage or even before the Honourable High Court and the applicant was not entitled to raise that the issue at this stage. We also consider that the question raised by the advocate regarding the existence of the money-lending business prior to the sale of the rubber gardens is improper, particularly in view of the use of the words 'money-lending business' by the applicant himself in the question referred to by him in his reference application. We will repeat his question hereunder :-
Whether the conclusion of the Appellate Tribunal that the rubber gardens obtained by way of gift from the assessees father was circulating capital is correct in law and whether profit on sale of such property is income liable to tax; and whether the mere entry in the money-lending business of an item of immovable property got by gift from father was a material on which the conclusion that sale of the property was a revenue sale could be based.
4. Both the parties have come to an agreement with regard to the points raised by the Honourable High Court in their order referring the case back to us and it is admitted that the income as well as the expenditure of the rubber plantations appear in the one set of books of account produced before us which are for both the money-lending as well as the plantation business. The enquiry of the Honourable High Court is, therefore, answered by stating that the expenses of the rubber plantations were debited in the assessees money-lending business and the income from the plantations was brought in as part of the profits of that business.
This case came up for final hearing after the submission of the further statement of facts by the Income-tax Appellate Tribunal and the Court delivered the following judgment.
M. Subbaraya Aiyar, for the assessee.
C.S. Rama Rao Sahib, for the Commissioner.
(Judgment of the Court was delivered by the Honourable the Chief Justice).
The Income-tax Appellate Tribunal has submitted the further statement of facts called for this Court in its order of the 2nd March 1945. The facts are now are clear and they may be stated shortly as follows :-
The assessee, his father and his brother Narayanan Chettiar constituted an undivided Hindu family, but partition was effected in 1925. Before the separation the family had carried on a money-lending business in partnership with another person at Battu Pahat in Malaya. Under the terms of the separation the entire assets of the money-lending business at Battu Pahat fell to the fathers share. The sons then started separate money-lending business of their own in Burma. In 1939 the father decided to retire from business. In addition to the assets of the money-lending business at Battu Pahat, he was possessed of certain rubber and coconut plantations. After reserving for himself sufficient to live upon, he divided rest of his assets between his two sons. Each of them received a rubber plantation and a coconut plantation at Battu Pahat in addition to equal shares in the assets of the money-lending business. Thereupon each of them started a money-lending business at Battu Pahat. The assessee entered in the books of account of his money-lending business the values of the two plantations which had been given to him. They were treated as being part of the capital of the money-lending business. In these accounts the expenses of running the estate were debited and the profits accruing therefrom were entered as profits of the money-lending business. In the year of account the assessee sold a portion of a rubber plantation and entered the sale proceeds in the accounts of his business. The sale showed a profit. The question in this case is weather this profit was liable to income-tax. The Tribunal held that it was, but referred to this Court for decision the following question :-
'Whether in the circumstances of this case, the profit arising on sale of the property was liable to income-tax.'
We consider that the decision of the Tribunal was clearly right. The plantations formed part of the assessees capital of his money-lending business and the profit made on the sale of a part of the rubber plantation was included in the profits of the business. We answer the question referred in the affirmative.
The assessee musts pay the costs of the Commissioner, Rs. 250.
Reference answered in the affirmative.