VEERASAMI J. - This cases is very much on the border line, but we have come to the conclusion that the reference should be answered against the assessee. The question turns on the character on the receipt by sale of three items of immovable property during the accounting year ended April 13, 1959. The assessee and his brother constituted a Hindu undivided family, which carried on money-lending business in Rangoon and Colombo. On February 14, 1957, there was a partition at which the assets in respect of Rangoon are headquarters business were divided, and on March 31, 1957, there was a further partition in respect of the Colombo business. The assessees total share at the partition was valued at Rs. 4,60,779 which included advance to individuals amounting to Rs. 1,36,209. Moieties in three immovable properties were among the assets which fell to his share. The first item was sold on August 29, 1958, and the second on January 9, 1959, the third item was a site at Rangoon a part of which was sold. The bulk of the first item was purchased by the joint family in settlement of a book debt in the course of its money-lending business for Rs. 4,000 on November 29, 1934. The other purports were purchased by the joint family, one on October 23, 1937, for Rs. 1,000 and the other on April 5, 1945, for Rs. 3,000. The net profit on the sale of these properties was taxed as revenue. The assessees contention that it was only taxable as capital gain was rejected. His appeals having failed, this reference arises at his instance under section 66(2) of the Indian Income-tax Act, 1922. The following question has been farmed for our consideration :
'Whether, on the facts and in the circumstances of the case, the assets in question constituted the stock-in-trade of the business in money-lending carried on by the assessee and whether the amount of Rs. 26,758 is taxable as income ?'
On a question like that this court has to keep in view its limited jurisdiction, which is not appellant in character, and see whether the Tribunals conclusion is affected by any misdirection in law. The facts on which its conclusion is founded are these. The assessee had a separate money-lending business which he carried on on his own account even before partition. After partition be brought the properties allotted to his share into his business accounts. When the said immovable properties were sold. he credited them in the accounts of the money-lending business. One of the properties was sold at a loss which has been taken brought the accounts although in a memorandum of adjustment, this has been added back by the assessee. The profit received on sale of the properties has gone to reduce the open debit balance in the money-lending account against Kadai. Actually, the income from the properties as well as the sale proceeds have been used in the money-lending business. The Tribunal in appreciating these facts was alive to the position that what the assessee took as this share at the family partition constituted a capital asset. But it said by virtue of the ploughing back 'the income therefore into advances to inams and other money-lending activities, it can be definitely said that the assessee had made these assets as a part of his money lending business'. Though the Tribunal referred only to the ploughing back of the income, in the context, it appears the omission to mention the sale proceeds was a slip. That is apparent if the entire reasoning of the Tribunal is taken into account.
The question whether a given asset is capital in character or a stock-in-trade is a mixed question of law and fact. The law the governs has been summarised thus by KM. PR. KM. Firm v. Commissioner of Income-tax : 'It is well-settled that when a member of a joint Hindu family is allotted a share out of the joint property at a partition, he gets its as capital. It is, of course, open to him to bring it into the stock-in-trade. Whether he does it or not will depend the facts and circumstances in each case, particularly the treatment accorded to such property so as to invest it with the character of stock-in-trade.'
One of us was a party to his judgment and we consider that it is a correct statement of the law. Once an asset is determined to be capital in character, the process of its conversion into a stock-in-trade is bound up with the facts in each case. There is no presumption one way or the other about the character. If the revenue is to treat capital asset as a stock-in-trade, it has to show existence of facts which bear on the treatment to that effect accorded by the holder to the asset.
When the income from the properties as well as the sale proceeds are shown to have been used by the assessee in his money-lending business, the question is whether the Tribunal could not justifiably relate on it as material to support its conclusion that the intention of the assessee since he got the properties at the partition was to trap the same as part of his stock-in-trade in his money-lending business. It may be that if we were to sit in appeal, possibly we might have come to a different conclusion. But we have to see whether the Tribunal could not rely on it as material. We are unable to see why such user cannot be used as a material for inferring an intention on the part of the assessee to treat the properties as part of the stock-in-trade in the past since the partition. This fact based on the user of the profits in money-lending business. It looks as if the assessee woke up to see the consequence of his treatment only later. We observe, therefore, that the Tribunal applied the correct law and it had material before it to justify its conclusion. There is no direction on its part.
On that view, as we said, we answer the question against the assessees, but in the circumstance with no costs.
question answered against the assessees.