Law:

Section:

Section 2(13) of the Income-tax Act, 1961 (Corresponding to section 2(4) of the Indian Income-tax Act, 1922) - Adventure in nature of trade - Assessment year 1959-60 - Assessee and his associate had a large shareholding in a mill which was indebted to several parties - Two of creditors obtained decrees against mill - Assessee purchased those decrees at a discount and received full amount of decrees from mill and obtained surpluses - Whether since possible motive of assessee in making purchases was to ward off coercing process against mill and avert pressure which was exerted by two creditors for realising their decrees, surplus realised was not profit made by assessee arising from an adventure in nature of trade - Held, yes FACTS The assessee was a speculator and a financial adviser. The assessee and his associates had a large shareholding in a textile mill. The said mill was indebted to several parties. Two of the creditors had obtained decrees against the mill. These two -creditors in their turn were indebted to a third party, viz., a firm in which the assessee was a partner. This firm, in its turn, was indebted to a company in which the assessee was a director. The assessee purchased the aforesaid decrees at discount and received the full amount of the decrees from the mills and accordingly obtained the surpluses. For the assessment year 1959-60, the ITO held that the surpluses realised were profits made by the assessee arising from an adventure in the nature of Trade. On appeal, the AAC upheld the order of the ITO. On second appeal, the Tribunal did not upheld the order of the lower authorities. It observed that it was clear from the background transactions that the motive of the assessee was more to save embarrassment to the debtor and to ensure settlement of account for the creditor and there was no indicia of trade. Accordingly, the Tribunal held that the amount of surplus was not chargeable to tax as profits of business. On reference : HELD It was true that in the instant case full material for coming to a clear finding as to the motive of the assessee in making purchases of the decrees was not available on the record. What was available, however, was…

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