K. Sp. Kt. Kalayappa Chettiar vs Commissioner of Income Tax, Madras

Jagadisan, J.—One Kadiresan Chettiar and another Arunachalam Chettiar were partners in a money-lending business which they carried on

at Ceylon. Kadiresan Chettiar died on 29th May, 1935, and the partnership became dissolved. In the course of that money-lending business, an

estate called Girivalai Estate of an extent of about 276 acres was purchased and it is not in dispute that this estate was a stock-in-trade of the

money-lending business at the time of the acquisition. The estate was purchased some time in the year 1931 for a sum of Rs. 1,30,180. At the time

of Kadiresan Chettiars death his only son, the assessee now before us was a minor aged about 9 years. On dissolution of the firm, this estate was

allotted to the share of the assessee. He attained age in March, 1947 and he had been assessed to tax on his income. In the assessment

proceedings it was not disputed that the properties acquired by the partnership represented stock-in-trade of the business. In the accounting year

ended on March 31, 1956, that is, in the assessment year 1956-57, the assessee sold 54 acres out of the total of 276 acres of Girivalai Estate for

Rs. 1,54,750. The Income Tax Officer calculated the cost price of the estate purchased in 1930-31 at Rs. 1,30,180 and took the view that the

excess of Rs. 22,570 was revenue receipt which could be brought to tax. The assessee preferred an appeal to the Appellate Assistant

Commissioner. His contention was that the Income Tax officer went wrong in fixing the cost of the estate at Rs. 1,30,180 and that the actual cost

should be computed as Rs. 1,63,736.30. On this basis he urged that there was a loss of Rs. 8,936. As there were no materials available for the

authority to determine whether the contention raised by the assessee was correct or not, he remanded the matter for fresh consideration by the

Income Tax officer. The Income Tax Officer held after the remand that the assessees contention that the cost should be fixed at Rs. 1,89,292 was

correct. But he was further of the view that as only 54 acres out of the total of 276 acres were sold, if the proportionate cost had been worked

out, the actual profit would come to Rs. 1,32,776. In order to assess the correct profits, the Appellate Assistant Commissioner gave notice of

enhancement to the assessee and heard the appellants representative. At that stage the only objection that was raised by him was that the question

of determination of the profit cannot arise in the year of account, and that it would arise only after the entire estate is sold or disposed of this

contention was, however, negatived by the Appellate Assistant Commissioner, following the decision of this court (not reported) in VR. KR. S.

Firm Kuala Kangsar v. Commissioner of Income Tax (C.M.P. No. 8125 of 1953 [See Appendix infra page 56.]).

The assessee preferred an appeal against this decision to the Tribunal and for the first time raised a contention that the excess realisation was not

a revenue receipt chargeable to tax but was really a capital accretion. This contention was based on the ground that the properties were really in

the nature of capital investment made by the quondam money-lending firm, and that the sale of capital asset realising more income than what was

invested would be a capital accretion and not a revenue receipt. This ground was not taken even in the memorandum of grounds of appeal to the

Tribunal, but, as stated already, it was raised at the time of hearing of the appeal before the Tribunal. The Tribunal held that it was not open to the

assessee to raise the point for the first time, because the ground had not been raised earlier and that the ground, if permitted to be raised, would

not merely require an investigation of further facts but also would amount to permitting the assessee to set up a case in conflict with the stand taken

by him in the course of the assessment proceedings. In this view of the matter, the Tribunal declined permission to the assessee to raise that

ground. The other question raised before the Tribunal, namely, that profits should not be computed till the entire estate is disposed of, was also

negatived by the Tribunal, following the decision of this court already referred to. It is against this order the assessee camp up to this court in

reference u/s 66(2) and this court directed the Tribunal to refer the following question :

Whether on the facts and in the circumstances of the case the Tribunal was justified in refusing to admit the additional grounds of appeal ?

Whether the computation of the profits with reference to the sale of a portion of the properties was justified in law ?

It is quite clear that the assessees contention that the receipt was of a capital nature was raised only for the first time before the Tribunal. It is no

doubt open to the Tribunal to permit the assessee to raise the contention, though it might involve an investigation of fresh facts under rule 12 of the

Income Tax Appellate Tribunal Rules. The question is one of discretion to be exercised by the Tribunal on the facts and circumstances of each

case. We are unable to say that, having regard to the facts and circumstances of this case, the Tribunal in any way exercised its discretion illegally

or improperly in declining permission to the assessee to raise the point. Mr. Ramamani, the learned counsel for the assessee, contends that there

can be no estoppel or any other legal bar to the assessee raising the point, as he must have been under a bona fide misapprehension that what was

originally stock-in-trade during the subsistence of the firm continued that character despite the fact that the money-lending business itself ceased

and despite also the fact what all the assessee did was to realise the assets of the previous firm. But these are questions of fact upon which there

are no materials to enable us to reach any conclusion either way. It might be that the assessees guardian or ""administrator"" carried on money-

lending business during the minority of the assessee and employed the stock-in-trade of the previous business as stock-in-trade of the fresh

business or it might be equally the other way. The only question before us is whether the Tribunal was right in refusing permission to the assessee to

raise the point before it. The matter is purely one of discretion and there are no materials to hold that it was not properly exercised. In this view of

the matter, question No. 1 is answered against the assessee.

It is conceded by the learned counsel for the assessee that in regard to question No. 2, the matter is entirely covered by the decision of this

court in VR. KR. S. Firm Kuala Kangsar v. Commissioner of Income Tax (C.M.P. No. 8125 of 1953 (see Appendix below). This question is

also answered against the assessee. The assessee will pay the costs of the department. Counsels fee Rs. 250.

APPENDIX

C.M.P. No. 8125 of 1953

The immovable properties acquired by the assessee in the course of the money-lending business really constituted his stock-in-trade. The

contention that until all the properties are sold, the profits could not be ascertained and therefore the assessee should not have been assessed to tax

has no substance, as in the case of stock-in-trade as and when each item is sold the profits earned by such sale could easily be ascertained.

The view taken by the Tribunal is correct and no question of law can arise from the Tribunals order. The petition is dismissed with costs, Rs.

150.