RAJAGOPALAN, J. - The assessee was a Hindu undivided family of which subramania Chettiar was the Kartha. He carried on the money-lending business of the family in Ceylon. Consistent with the trade practice of the members of his community Nattukottai Chettiars he took over whenever necessity for that arose, immovable properties from his debtors in discharge of their debts and those properties were always treated as part of the stock-in-trade of the money-lending business. Whenever one of these properties was sold and the sale proceeds exceeded the amount of the debt for which that property had been taken that excess was treated as the trading profit of the money-lending business. Independent of such acquisitions of immovable property the assessee purchased in 1941, in partnership with one Subramania Pillai a tea estate known as Cattaratenne estate. The assessee had a two-thirds share, and Subramania Pillai had the remaining one-third. The purchase price was Rs. 2,01,000. Towards his share of that the assessee withdrew Rs. 80,000 from his money-lending business and paid it. Subramania Pillai paid Rs. 40,000, which he had to borrow. For paying the balance of the purchase price both the assessee and Subramania Pillai effected a mortgage of that very estate for Rs. 1,00,000. Within about year of that by about July, 1942, the assessee paid off the mortgage debt from his funds. That the mortgage was discharged was noticed by the Tribunal in its appellate order. Some more amounts were expended as a capital outlay and the assessees two-thirds share of the capital outly amounted to Rs. 1,39,363.25. A separate set of accounts was maintained for the tea estate referred to as the 'estate account'. The assessees share of the income from this estate was assessed to tax as income from business. But then it should be remembered, income from a tea estate abroad was really income from business and not merely agricultural income-see Ponnusami Pillai v. Commissioner of Income-tax Madras. The assessee himself never treated this tea estate as part of the assets of his money-lending business. Nor even was the income from the estate included in the income of his money-lending business. In July, 1944, the assessee sold his two-thirds share in the estate to the co-owner Subramani Pillai for Rs. 2,50,000 thus making a profit of Rs. 1,10,636.75 over and above what the assessee had laid out to acquire his share therein.
In the assessment year 1945-46, the Income-tax Officer included this amount of Rs. 1,10,637 in the assessable income of the assessee negativing his contention that it was an accretion to his capital. The appeals the assessee filed successively to the Assistant Commissioner and the Tribunal failed and the assessment was confirmed.
Under the directions of this court, the Tribunal referred the following question under section 66(2) of the Income-tax Act :
'Whether on the facts and in the circumstances of the case, the sum of Rs. 1,10,637 being the profit realised by the assessee on the sale of his undivided two-thirds share in the Cattaratenne Estate is assessable to income-tax as profit made in an adventure in the nature of a trad ?'
Though the Tribunal agreed with the departmental authorities in sustaining the assessment the grounds on which the Tribunal rested its decision were different from those which the Income-tax Officer and the Assistant Commissioner had adopted.
The Income-tax Officer referred to the fact, that Rs. 80,000 which the assessee paid towards his share of the purchase price came out of his money-lending business and concluded :
'It is thus clear that the estate is an investment of the assessees Colombo sole money-lending business.'
The Assistant Commissioner in his order pointed out :
'One of the grounds relied on by the Income-tax Officer is that the appellants accounts themselves showed that this estate was treated as an asset of the appellants Colombo money-lending business.'
As we understand the order of the Income-tax Officer, that was really the sole ground on which he held that the profit realised by the sale was taxable income. No doubt the Income-tax Officer also stated :
'From the instance quoted above it is abundantly clear and it is an established fact that the assessee has made it a regular business of purchasing and selling properties and estates.'
But then, the transaction which the Income-tax Officer referred to were all with reference to what were admittedly assets of the money-lending business, that is estates taken over by the assessee in discharge of the debts due to him. It should thus be clear that the Income-tax Officer treated the profits realilsed by the sale of the Cattaratenne Estate as profit realised by the assessee in the course of his money-lending business.
The Assistant Commissioner held that there was no material to justify the conclusion that the estate constituted one of the assets of the money-lending business. The Assistant Commissioners specific finding was :
'The profits arose out of a transaction in the nature of a venture of trade and were therefore assessable.'
No doubt what the Assistant Commissioner state was :
'Taking these facts into account I consider the Income-tax Officer was justified in treating that the profits arose out of a transaction in the nature of a venture of trade and were therefore assessable.'
The Assistant Commissioner was not correct when he said that the Income-tax Officer had also treated the transaction as one in the nature of a venture in trade. That was not the view of the Income-tax Officer. He was no doubt of the view was the money-lending business of the assessee. The Assistant Commissioner rightly pointed out that there was no material to support that conclusion of the Income-tax Officer. In its order on appeal the Tribunal recorded :
'We are, therefore, of opinion that the Department was justified in treating the profit as a transaction in the nature of business and including it in the assessees assessment.'
What exactly the Tribunal meant by that finding, it explained in paragraph 6 of the statement of the case it submitted when referring the question for determination of this court under section 66(2) of the Act. The Tribunal stated :
'It [Tribunal] therefore came to the conclusion that the income arose in its business of purchase and sale of estates and was not merely an adventure in the nature of trade.'
Thus while the Income-tax Officer held that it was income of the money-lending business of the assessee, the Assistant Commissioner was of the view, that the transaction of purchase and sale of the tea estate was no part of the money-lending business but that it was an adventure in the nature of trade. The Tribunal took the view, that it was not an adventure in the nature of trade, but that it was part of the business in the purchase and sale of property that the assessee carried on, implying that was a business independent of the money-lending business of the assessee. We are unable to accept the interpretation the learned counsel for the Department endeavored to place on what the Tribunal recorded '....the income arose in its business of purchase and sale of estates and was not merely an adventure in the nature of trade', that the Tribunal rested its decision on alternative grounds, either it was a venture in the nature of trade, or that it was part of a business. The Tribunal categorically stated that it was part of a business in buying and selling estates independent of the money-lending business. The Tribunal categorically stated that it was not a venture in the nature of trade, but that it was a transaction in the course of the business of the assessee in buying and selling property.
In view of what the Tribunal recorded as its finding in paragraph 6 of the statement of the case, the question that was referred under section 66(2) has really to be redrafted :
'Whether on the facts and in the circumstances of the case the sum of Rs. 1,10,637 being the profit realised by the assessee on the sale of his undivided two-thirds share in the Cattaratenne Estate is assessable to income-ta ?'
Strictly speaking our task should end when we point out that there was no material on which the Tribunal could rest its decision that the purchase and sale of Cattaratenne tea estate was in the course of the business the assessee carried on in the purchase and sale of estates or real properties. It was never the case of the Department, that the assessee carried on such a business in real property independent of the acquisition and sale of properties incidental by his money-lending business. Independent of the dealings in properties in the course of the money-lending business of the assessee, this was the first instance of purchase of property. It was true that part of the purchase price came from out of the assessees money-lending business, but Rs. 80,000 so drawn was his money, and that could not and did not make the estate one of the assets of the money-lending business. Nor was the mortgage debt of Rs. 1,00,000 or assessees share therein even treated by him as a liability of the money-lending business. After the sale of that estate the assessee seems to have purchased another estate for about Rs. 3,00,000, which apparently he still holds. Even it that transaction can be taken into account, it cannot possibly establish that the assessee carried on business in the purchase and sale of properties, independent of the transactions affecting real property incidental of his money-lending business. There was no material at all for the finding of the Tribunal, that the assessee had any business in the purchase and sale of estates, that is, a business independent of his money-lending business. Even the Tribunal did not endorse the view of the Income-tax Officer, that the purchase and sale of Cattaratenne Estate was part of the money-lending business of the assessee.
In view of the categorical claim of the Tribunal, that its finding was that the transaction was not one in the nature of an adventure or venture in trade, we need not really consider whether there was material on which such a finding, that it was an adventure in the nature of trade, could have been rested by the Tribunal. The Assistant Commissioner had taken that view, but that did not commend itself to the Tribunal. It is not open to us to support the decision of the Tribunal on a ground specifically rejected by it. We, however, listened to the learned counsel for the Department, who endeavored to convince us that the view taken by the Assistant Commissioner was right. The learned counsel failed in that attempt. While it is true that the acquisition and sale of estates as part of his money-lending business gave the assessee some experience of the tea estates in Ceylon, that is not enough to make a transaction unconnected with the money-lending business an adventure in the nature of trade. There was really no material for holding that when the assessee bought a share in the estate along with subramania Pillai in 1941 he had in intention of selling his share later to subramania Pillai or to anybody else. All the evidence pointed one way, that it was in the nature of an investment. Apart from the fact that there was no material to hold that even at the time of the purchase the assessee had contemplated the sale of his share at a profit, there was material to show that the sale in 1944 was due to reasons that did not exist at the time of the purchase in 1941 and could not have been foreseen them either. The sale was due to the fact, that serious differences had arisen between the assessee and the co-owner Subramania Pillai. That such differences did arise was accepted by the Income-tax Officer as will as by the Tribunal. It should also be remembered that quite a good bit of the purchase money was found by the borrower, and it was only a fractional share that the assessee acquired by that purchase. We are unable to see any of the indicia one normally expects of an transaction of purchase and sale which savors of an adventure in the nature of trade. That the assessee was a member of the Nattukottai Chettiar community is not enough to show that he could never have purchased any property as an investment-see Virappan Chettiar v. Commissioner of Income-tax.
The learned Advocate-General referred to the principle laid down by the Supreme Court in Saroj Kumar Mazumdar v. Commissioner of Income-tax , that where a transaction was not in the line of the business of the assessee but was an isolated or a single instance of transaction, the onus was on the Department of prove that transaction was an adventure in the nature of trade. We have pointed out that, though the assessee acquired and disposed to properties as incidental to his money-lending business the transaction of the purchase and sale of the Catteratenne Estate was not part of that money-lending business.
In our opinion there was no evidence to support the finding of the Assistant Commissioner, that the transaction was an adventure in the nature of trade.
Even the learned counsel for the Department did not attempt to support the indefensible view taken by the Income-tax Officer, that the estate in question was one of the assets of the money-lending business of the assessee. and that the profits realised by the sale of the estate constituted an income from the money-lending business of the assesse.
We answer the question of redrafted by us in the negative and in favour of the assessee. The assessee will be entitled to his costs of this reference. Counsels fee Rs. 250.
T. C. M. P. No. 12 of 1960 : - The assessee filed T. C. M. P. No. 12 of 1960 to offer further evidence, principally to establish that there were serious differences between the assessee and his co-owner Subramania Pillai before the sale in 1944. Even without that additional evidence we could dispose of the reference in favour of the assessee. In form T.C.M.P. No. 12 of 1960 will stand dismissed but without any order as to costs.
Question answered in the negative.